Effect of Wages on Informal Care Supply and Labor Supply: Do Long Term Care Policies Matter?

This paper analyzes the two sets of policies aimed at sustaining old-age support systems in

European countries. One set of policies aims at increasing labor supply of individuals around

the retirement age, the other strives at promoting provision of informal care for the elderly

by family members. Accounting for the countries’ policies on long-term care provision, it has

been found that the presence of universal long-term care coverage leads to larger negative

wage e?ect on informal care provision by both males and females. General taxation as a

means of ?nancing formal long-term care system has virtually no e?ect on the wage response

in informal caregiving, but has signi?cant positive e?ect on the wage elasticity of male labor

supply. With respect to policies that target informal long-term care, direct payments for

caregiving have signi?cant positive e?ect on the wage elasticity of both informal care supply

and labor supply of males, while having no e?ect on those of females. Availability of family

paid leaves signi?cantly increases only the wage elasticity of female labor supply.