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Labor supply effects of long‐term care reform in Germany

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  • Johannes Geyer
  • Thorben Korfhage

Abstract

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.

Suggested Citation

  • Johannes Geyer & Thorben Korfhage, 2018. "Labor supply effects of long‐term care reform in Germany," Health Economics, John Wiley & Sons, Ltd., vol. 27(9), pages 1328-1339, September.
  • Handle: RePEc:wly:hlthec:v:27:y:2018:i:9:p:1328-1339
    DOI: 10.1002/hec.3663
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    References listed on IDEAS

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    1. Eric Schuss, 2021. "Beyond Windfall Gains: The Redistribution of Apprenticeship Costs and Vocational Education of Care Workers," Economics of Education Working Paper Series 0176, University of Zurich, Department of Business Administration (IBW), revised Sep 2021.
    2. Thomas Rapp & Jérôme Ronchetti & Jonathan Sicsic, 2021. "Are long-term care jobs harmful? Evidence from Germany," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 22(5), pages 749-771, July.

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