Effect of Wages on Informal Care 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 effect on informal care provision by both males and females. General taxation as a means of financing formal long-term care system has virtually no effect on the wage response in informal caregiving, but has significant positive effect on the wage elasticity of male labor supply. With respect to policies that target informal long-term care, direct payments for caregiving have significant positive effect on the wage elasticity of both informal care supply and labor supply of males, while having no effect on those of females. Availability of family paid leaves significantly increases only the wage elasticity of female labor supply.