Who will care? Employment participation and willingness to supply informal care

Abstract

The impact of informal care responsibilities on the willingness and ability of caregivers to undertake paid employment has been the subject of a number of studies. In contrast, the effect of employment status on willingness to undertake informal care has been less well explored. This paper concentrates on this less-studied direction of causality using the data provided by 15 waves of the British Household Panel Survey. We find that employment participation and earnings both impact negatively on willingness to supply informal care. This evidence has implications for health and social care policy since informal care has been shown to be a significant substitute for formal long-term care.

Introduction

Informal carers are people who look after a relative or friend who needs support because of age, physical or learning disability or illness, including mental illness. They are not paid for their caring responsibilities although they may receive informal payments from the person they care for and in some circumstances, they will qualify for state benefits. In the UK, public policy for those who need support to remain in the community is largely dependent upon informal carers (Nolan, 2001) but, as in other countries, the demand for both informal and formal care is increasing due to demographic changes (Wise, 2005, Hancock et al., 2003, Pickard, 2000). Informal care has also been found to be a significant substitute for formal long-term care, particularly elder care (Van Houtven and Norton, 2004, Viitanen, 2007). Since the latter is likely to be more expensive from the perspective of the health and social care budget, an important policy question is whether the supply of informal care will continue to meet demand. The answer to this question will depend on people's willingness to supply more care and therefore policy makers need a clear understanding of the factors that influence the decision to undertake care.

Early research on the economics of informal care (e.g. Carmichael and Charles, 2003) indicates that informal care responsibilities impact on employment opportunities and earnings. This research assumed that faced with an infirm or otherwise needy close relative or loved one, people feel emotionally or morally compelled to become informal carers regardless of the economic consequences to themselves. This implies that the decision to undertake care is exogenous to the labour supply decision. However, some people might feel that they have at least an element of choice in this regard and in this case, the decisions to provide informal care and to work in the labour force are endogenous (Norton, 2000, p. 974). This makes it difficult to draw causal inferences stating for instance that having informal carer responsibilities makes people more likely to withdraw from the labour force or choose part-time employment. More recent research has tackled this endogeneity problem by using instrumental variables, panel data, first differences and/or a dedicated questionnaire (Bolin et al., 2008, Carmichael et al., 2008, Heitmueller, 2007, Heitmueller and Inglis, 2007, Spiess and Schneider, 2003, Pavalko and Artis, 1997, Ettner, 1996). The results of this research suggest that employment effects of caring are less severe than indicated by the early research but remain important particularly for co-residential carers and those involved in 20 or more hours of caregiving per week (Heitmueller, 2007).

Overall, this evidence appears to confirm that there is two-way causality between caring responsibilities and employment status. Although recent research in this area had tended to focus on the link from the former to the latter, an exception is Stern (1995). This study estimates the probability of an elderly person being cared for by a son or daughter as a function of the employment status of the latter. Stern uses two waves of panel data to control for endogeneity by using lagged indicators of children's employment status. His results suggest that the latter has a statistically insignificant effect on subsequent caregiving. In this paper we explore this relationship further by exploiting fifteen waves of panel data. However, rather than treating sample selection as a problem to be resolved in order to identify residual effects, the possibility that willingness to care is endogenous to labour supply is taken as a starting point for the research.

Sample selection, in the present context, implies that a sufficient number of people perceive themselves to have a choice about whether to undertake informal care. Inasmuch as this is true, people should be less willing to take on caring responsibilities the higher their opportunity costs of caregiving. These costs will be lower for people who are not in paid employment and higher for relatively high earners in full-time employment. However, these predictions appear less clear-cut when it is recognised that freedom of choice in the caregiving decision is determined to some extent by income. For example, members of high-income households can more easily afford to purchase care or take time out of employment.

This issue is explored here using panel data to identify in a given year, people who, while not yet carers, will become so in future years. We assume that employment status prior to caring is exogenous and investigate the relationship between employment status and transitions into caring. Evidence that employment status is negatively related to transitions into informal care is interpreted as being consistent with the hypothesis that there is sample selection into informal care. From a policy perspective, this would imply a trade-off between formal employment and willingness to care. Given that higher female participation rates are a feature of modern labour markets, the existence of such a trade-off would be consistent with a decline in the traditional source of informal care. Furthermore, a trade-off between employment participation and willingness to care also suggests conflict between polices geared towards full-employment and policies relating to the provision of long-term care. Such linkages need to be examined carefully at a time when population ageing is likely to lead to increases in the demand for care (Wise, 2005, Hancock et al., 2003, Pickard, 2000). A decline in the supply of informal care could lead some sick and elderly infirm people to accept institutionalised care instead of being cared for at home (unless they or their relatives can afford to pay for care). As well as impacting on the individuals concerned, this would have implications for health and social policy since it would increase the demand for more expensive alternatives.