- Introduction
Governments of every developed nation are struggling to find the way of fulfilling their promises of support in old age. Declining birth rates, earlier retirement age and increases in the life expectancy are leaving countries with more pensioners and less workers to support them. The problem seems to be the most severe in Europe and Japan with the median age in Europe jumping from the current 39 to 48 years by the year 2050 compared to the projected median age of 39 for the US (US Census Projections). It is also projected that by the same year Europe will have 75 people of pension age for every 100 workers. Concerns about population aging are not limited to the pension costs. They include a vast array of issues with the long-term care.The dramatic surge in long-term care costs throughout the developed world over the last two decades has made this issue as important as the sustainability of the pension systems. Two solutions have been suggested in the policy debates. One is to increase working population by encouraging more female labor force participation and inducing people to retire later (CBO 2004; U.S. DHHS 1997; Apfel 2004). The second solution refers to the informal care provided by relatives and friends that would permit to “ keep many individuals at home who would otherwise require expensive institutional care” (U.S. DHHS 1997, p.6). Unfortunately, these two suggestions are in conflict with each other. For example, the governments may induce higher labor supply by lowering taxes and thus increasing wages. But this will increase the opportunity costs of informal care and thus reduce the care supply. On the other hand, any policy stimulating informal care may lead to a decreased labor supply.
Related research is quite scarce focusing mostly on the labor supply and claiming behavior of the groups affected by the Social Security reforms in the United States (Haider and Loughran 2005; Baker and Benjamin 1999; Burtless and Moffitt 1984; Friedberg 2000; Gruber and Orszag 1999) with little attention paid to the potential interaction between incentives for paid employment and caregiving choices. This interaction may have adverse implications to the well-being of the oldest old, given that the prevalence of care giving is the highest among individuals in their late mid-life.
Contrary to few earlier studies that focus on the wage effects on informal care (Sloan et al. 2002; Zissimopoulos 2001; Ioannides and Kan 1999; Sloan et al. 1997; Couch et al. 1999), Nizalova (2006) finds that the wage elasticity of the informal care supply is negative and quite large in magnitude. In addition, Nizalova (2006) and Zissimopoulos (2001) show that the wage elasticity of informal care supply depends on the availability of the substitutes. Both studies find more negative estimates of the wage elasticity of informal care supply for the individuals with siblings. Nizalova (2006) also finds that the wage elasticity of help with personal needs is smaller in magnitude than the wage elasticity of time spent helping parents with chores, errands, transportation, etc., reflecting possible difficulty of finding a substitute care provider for the personal care.
Although the mentioned findings are suggestive they miss on one important issue——the effect of institutional setting. All of the studies on the wage elasticity of informal care supply have been limited in scope to the United States. And availability of the publicly provided in-home care services and affordable institutional care may be more important factors in the care supply decisions than the presence of siblings. The goal of this paper is to put together estimates of the wage effects on informal care supply and labor supply for the population of the near elderly in different institutional settings related to the long-term care. For that purpose an advantage is taken of the recent data initiative on the study of health and aging around the world and analyze the data from 12 European countries and Israel (Study of Health, Aging, and Retirement in Europe). These data set is similar in its design to the Health and Retirement Study for the US and provide a wide range of information on individuals older than 50. The choice of the countries is determined partly by the availability of data and partly by the variation in the long-term care policies and family traditions in these countries.
It is expected that in the countries like Germany, Sweden, and France where older individuals are offered a wide range of in-home and institutional services at a modest cost (OECD 2005)the wage effect on informal care supply will be quite large in magnitude. While in countries with policies that encourage informal care giving, the wage effect will be less negative.
The paper proceeds as follows. Section 2 describes policies related to the formal and informal long-term care in Europe. Section three presents the estimation strategy followed by the data and descriptive analysis in Section 4. Empirical results are discussed in Section 5.
- Informal and Formal Long-Term Care Policies in Europe
Long-term care is needed by individuals with lengthy physical or mental conditions that make them dependent on someone's assistance in performing activities of daily living. Most of the long-term care services is demanded by the elderly population. Their financing and provision raises greater concern as the population all over the world, and mostly in Europe, is aging. There is large variation in the public coverage of long-term care costs across the European countries (OECD 2005). This reflects variations in the way that both formal and informal long-term care are financed, provided, and supported. Table 1 summarizes long-term care related policies in both formal and informal domains in years 2003-2004. This table does not cover all of the European Union but only countries that
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