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Labor supply effects of long-term care reform in Germany

Many informal caregivers are of working age, facing the double burden of providing care and working. Negative labor supply effects can severely reduce the comparative cost advantage of informal over formal care arrangements. When designing long-term care (LTC) policies, it is crucial to understand the effects not only on health outcomes but also on labor supply behavior of informal caregivers. We evaluate labor supply reactions to the introduction of the German long-term care insurance in 1995 using a difference-in-differences approach. The long-term care insurance changes the caregivers' trade-off between labor supply and care provision. The aim of the reform was to strengthen informal care arrangements. We find a strong negative labor supply effect for men but not for women. We argue that the LTC benefits increased incentives for older men to leave the labor market. The results reveal a trade-off for policy makers that is important for future reforms-in particular for countries that mainly base their LTC system on informal care.

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Key Information

Type of Reference
Jour
Type of Work
Journal article
Publisher
Wiley
ISBN/ISSN
1099-1050
Publication Year
2018
Issue Number
9
Journal Titles
Health Economics
Volume Number
27
Start Page
1328
End Page
1339