The effect of informal care on the labour market participation

Manuel Garcia Goi

(Universidad Complutense de Madrid)
Natalia Jorgensen
(FEDEA)
1. Introduction
It is widely known that longevity together with the evolution of the fertility rate is
having as a consequence the ageing of the world population. Longevity cannot be
considered as problem by itself because it stems from an increase in the life expectance.
However, this process of the ageing of the population supposes different health and social
challenges that policy makers need to bear in the immediate future. One of them is the
increasing need of chronic and long term health care provision with a proportionally
smaller number of working adults. The increasing need of outpatient care will change the
profile of the health provider. Thus, given the increases in the incidence and prevalence of
chronic illnesses, not only providers and patients will need to get involved into the health
care provision, but also family members and informal care givers will become increasingly
important care givers. In fact, the proportion of informal care givers has increased in the
last decade in Europe, although its evolution presents differences across countries. It has
already been mentioned that while the participation of informal care givers has a positive
impact in the provision of health care because it substitutes other forms of formal health
care, usually more expensive; it is supposed to have also a negative impact in the
participation of informal care givers in the labour force. The reason is provided by the
concept of the opportunity cost of time: the time used by individuals in the provision of
informal care to relatives or other patients is not spent participating in the regular labour
market. The negative impact of informal care activities on the labour market has been
granted as an assumption in chapter 4 of this document, in which we presented an
estimation of the economic cost that different chronic and long term illnesses suppose for
the European Union through informal care provision. As a consequence, if this assumption
1
is true, this document presents evidence on the benefits that investments in health would
produce in terms of the wealth of nations, and therefore provides the recommendation for
health policy makers to incentive research and development activities oriented to the
prevention and delay in the incidence of chronic and long term conditions. In line with our
mentioned assumption, recent research has devoted some efforts to the effect of informal
care in the labour market. Thus, Van Houtven (2000) presents an extensive literature
review on the supply of informal care, and states the increasing importance of the informal
care in Western societies. Other studies that are not mentioned in the Van Houtven review
are White-Means and Chang (1991), Carmichael and Charles (1998 and 2003), and
Checkovic and Stern (2002). Even though this question is of relevance in Europe, most of
the studies are referred to US. (Ettner, 1995 and 1998; Jhonson and Lo Sasso, 2000; Lang
and Brody, 1983; Pezzin and Schone, 1999; Stoller, 1983; Wolf and Soldo, 1994). To the
best of our knowledge, Spiess and Schneider (2002) and Crespo (2006) are the only studies
analysing the relationship between informal care-giving and employment for mid-age
women in Europe. Spiess and Schneider (2002) used the ECHP and found a negative and
significant association between informal caregiving activities and weekly working hours.
They also find differences across countries. Crespo (2006) using data from the survey of
health, aging and retirement in Europe -SHARE (2004) also found a negative correlation
between being a caregiver and the labour participation, taking into account the potential
endogeneity of caregiving decisions.
The results obtained by the studies are not conclusive. On the one hand, Lang and
Brody (1983), Ettner (1995 and 1996), or Jhonson and Lo Sasso (2000) obtain a negative
correlation between different measures of caregiving activities and labour supply Ettner
(1995) and Johnson and Lo Sasso (2000) accounting for the potential endogeneity of
informal care. On the other hand, there are studies that do not find statistical significance in
the relationship between different measures of informal care and labour supply (Stoller,
1983; or Wolf and Soldo, 1994).
In this paper we test for the negative effect of the provision of informal care for
patients suffering chronic and long term conditions in the participation in the labour market
from a microeconomic perspective in a set of countries in the European Union. Besides,
we focus our attention to the decision of how sons and daughters allocate their time
2
between the labour market and care giving activities when one or both parents suffer
chronic health problems. Thus, the knowledge of how different determinants affect the
propensity to provide care to parents in need help to understand the effect of health policies
regarding long term conditions.
We develop this analysis in two different estimation methods. First, we seek for
evidence on the negative effect of informal care giving activities in the participation in the
labour market. Second, we estimate the amount of hours of working time in the labour
market affected by an increase in the number of hours providing informal care, that is, we
show how a higher number of hours of informal care provision are consistently associated
to a lower number of working hours in the labour market. We base our analysis in the
study of the potential effect of care-giving activities to elderly dependents parents on the
labour supply of their sons and daughters, as justified in a previous chapter, because within
the European Community Household Panel (ECHP), in this way we can link need of care
through the health status of the elderly with informal care provision at the household.
Additionally, finding the determinants for the supply of informal caregivers is also
interesting from a theoretical point of view. The simultaneity in the decisions about the
provision of informal care and labour market participation may generate an endogeneity
problem which has to be taken into account in the estimation. With the presence of this
problem, conventional econometric techniques such as ordinary least square leads to
inconsistent estimations. We use instrumental variables in a random effect linear
probability model when possible in a Heckman selection model, a switching probit model
and a two step tobit model, solving for the endogeneity problem in the estimation.
It is important to take into account differences across countries when interpreting
the importance of informal care. Those differences stem from different styles or
performance of health systems, and also to the different idiosyncrasy or life styles of the
countries. Informal care is a substitute for formal care. Therefore, countries providing a
higher proportion of outpatient formal care as Northern European countries (Ungerson,
2004) necessarily present a lower demand or informal outpatient care. The contrary
argument also works: countries providing a low amount of formal outpatient care for long
term patients as Southern European countries (Rodrguez Cabrero, 2002) will need to
compensate by providing a higher proportion of informal outpatient care. As a
3
consequence, health policies affecting the provision of formal care have an effect in the
labour market participation, and therefore, in social and labour policies. Thus, it becomes
important to understand and identify the determinants of informal care decisions and its
effects on the labour market.
The substitution between formal and informal care is not perfect. While formal care
is supposed to present a higher quality in the provision by health professionals, it is also
more expensive than informal care, which is provided by non professionals as relatives or
other informal care givers. Therefore, there exist differences in the performance of the
different health systems. From an economic point of view, it results efficient to provide
informal care when the quality of the health services provided is guaranteed no matter who
the provider is. Differently, when the quality of the health service provided becomes
important in terms of the development of the illness, a professional should provide the
service through formal care. Moreover, it is important to take into account that the
provision of informal care by non professionals affects the health status and health
condition of the caregiver, increasing the morbidity and mortality risks (Ory et al., 2000;
Moise et al., 2004) and affecting negatively the labour supply, at least in the long run.
Thus, if we accept the null hypothesis of the negative effect of the provision of
informal care in the labour market participation, the conclusion obtained in previous
chapter will be valid, and the estimation of the cost of informal care provided will be
interpreted as a measure for a proportion of the efficiency loss that is generated by long
term illnesses also with other providers (public or private). The idea behind this conclusion
is that if we were able to cure the illnesses or delay their incidence, we would not need to
spend such an amount of resources in the provision of health care. As a consequence,
investments in health oriented to ameliorate the quality of life for aged patients, or prevent
or delay the incidence and shorten the prevalence of long term or chronic illnesses reduce
also the negative effect of the provision of care, given the opportunity cost, by increasing
the participation in other economic activities and therefore having an effect on the wealth
of nations.
After this introduction, section 2 presents the economic model that we use in order
to test the assumption of the negative impact of informal care in the labour market. Section
3 describes the data used. Section 4 provides the estimation methods for the two problems:
4
the decision of participating in the labour market and providing informal care, and the
quantitative effect in the number or working hours given the provision of informal care.
Section 5 presents the estimation results, and section 6 concludes with what we learn from
this estimation exercise and the significance in terms of policy implications.
2. Theoretical Economic Framework
This section characterises a utility maximization model in which individuals choose
between consumption, paid work time and informal care time. We follow the theoretical
model of informal care-giving provided by Van den Berg et al. (2004). In this model all
the decisions are taken by the social surrounding of the patient, the caregiver. Caregiver
obtains utility from his own consumption (c
ic
), the patients consumption (c
ip
), his own
health (h
ic
) and the patients health (h
p
). The patient receives both formal and informal care.
The caregiver decides the level of formal, private or public, and informal care. The
informal care has at least no effect on the patients health.
The caregiver decision problem is therefore defined by the objective utility function
(equation 1) that is to be maximised, and the budget constraint (equation 2) in which the
informal care giver equals sum of the Wealth (W) and the wage (w) to the amount spent on
own consumption, patient consumption, and formal care given its price.
) } , ( ) , ( , , ( {
, , , ,
F C I C h I C h c c U U M a x
p i c p i c
i c i c
c c F P R C F P U C I C
p i c

(equation 1)
Subject to:
FC p c c IC w W
p ic
+ + + ) 1 (
(equation
2)
We use the usual assumptions on the utility function for the informal caregiver,
which is strictly increasing and concave (U
IC
> 0, U
IC
< 0). Hence, the first order
5
conditions of the problem are provided in equations 3 and 4 by the derivatives of the
Lagrangian function with respect to the two choice variables by the informal caregiver:
consumption (c
ic
) and informal care (IC).
ic
ic
c
U

(equation 3)
w
c
U
IC
h
h
U
IC
h
h
U
ic
ic
c
c
ic
p
p
ic

(equation 4)
Therefore, the optimal level of informal care must satisfy equation (4), under which
the caregiver marginal benefit of an additional unit of informal care (IC) must be equal to
its marginal cost. Since the health of the patient is included in the caregivers utility
function, the marginal benefit is due to the improvement in the patients health when the
caregiver provides IC. By the contrary, the marginal cost of providing informal care is
obtained summing up two effects. The first is a direct effect, through the reduction in own
consumption expenditures due to the lower total wealth (opportunity cost). The second is
an indirect effect through the negative effect of IC on the caregivers own health. In
equilibrium, the greater the opportunity cost of IC care (the greater marginal utility of
consumption or the greater average wage) is, the lower the optimal level of IC hours. Also,
the lower the marginal utility of the patients health status or the effects of IC over the
patients health are, the lower the optimal level of IC hours.
Both, an income effect and a substitution effect operate when someone in the family
needs care with respect to the labour supply. First, an income effect occurs because the
presence of an illness supposes an increase in the expenditures, and therefore, a higher
level of wealth is needed and individuals increase their desired amount of working hours.
Second, a substitution effect occurs in the labour market because with the appearance of
the illness and because of family responsibilities with respect to the patient, family
members increase their reservation wage (the reservation wage is the wage at which the
individual is willing to participate in the labour force) and therefore they might reduce
their labour supply. For instance, let us assume a family composed by at least one aged
person (65 or older) and at least one younger member different that the aged partner.
6
Suppose that the aged member of a family suffers long term illness. Then, a higher
household income (income effect) is needed in order to bear the new health care needs, and
in fact, there is an increase in the number of women stating that they do not participate in
the labour market (substitution effect) because they are involved in caring for family
members (Marenzi and Pagani, 2003). The magnitude of these effects will be different
depending on the age of the person that needs care, the age of the person that provides the
informal care and the characteristics of the family. In general, empirical studies show a
negative correlation between any measure of the labour supply and any measure of the care
giving activities. This may indicate that the substitution effect may overweight the income
effect.
3. The data: Sample Selection
In this estimation analysis we use data from the European Community Household
Panel (ECHP). The population of interest is the group of sons and daughters that may be
potential caregivers of parents with dependency needs. The decision to carry out the study
inside this population stems from the fact that sons and specially daughters are the most
common affected group in the informal care provision, and because using this specific
group of informal caregivers, we find instruments to identify the informal care decision
and solve the endogeneity problem. The mentioned endogeneity problem appears because
there is correlation (different than zero) between the error terms of two equations referring
to two decision processes: the decision of providing informal care, and the decision of
working in the labour market. Therefore, there exist non observable variables that affect
both the decision of being a caregiver and the decision to participate in the labour market.
We use a panel data from 1994 to 2001 for nine European countries: Spain,
Portugal, France, Ireland, Austria, Belgium, Greece, Italy and Finland. The sample consists
of 80,883 sons and daughters aged 21 to 65. We drop from our sample those individuals
whose main activity is studying because they are inactive and providing informal care they
do not suppose a reduction in the labour market participation. Therefore, they are out of
our sample of interest. We use information on the sons and daughters and parents
7
regarding their socioeconomic status (level of wealth, income, or education), demographic
characteristics (age, sex, or marital status) or the relevant information for our analysis on
their labour participation (labour status and number of weekly working hours) and care
giving activities (whether they are care givers and the number of weekly hours), or their
health status. The health status of the parents is linked to the care giving activities by their
descendants so that need of care and provision of informal care are related.
In order to measure the participation decision, we define a binary indicator variable
that takes value one if the individual is working and zero otherwise. With respect to the
number of weekly working hours, we define a variable that takes value zero if the
individual does not work or works less than 15 hours per week and the number of weekly
working hours otherwise. Arellano and Meguir (1992) note that, reported hours are not
necessarily the number of desired working hours. Nevertheless, we use this information
and estimate the effect of an additional hour of informal care on the labour supply.
Regarding care-giving activities, the ECHP provides information on any help given to
persons who need special care. The specific relevant question from the questionnaire we
have used is the following: do your present daily activities include, without pay, looking
after persons who need special help because of old age, illness or disability?.
Furthermore, we are able to use from the questionnaire the number of weekly hours
devoted to informal care. From this information we can identify whether each son or
daughter have provided informal care to their parents during the last year, and if so, the
amount of weekly hours of informal care.
From the whole sample, we have to drop individuals with missing values in one or
more variables. As a consequence, our final estimation sample consists of 77,111
individuals out of the 80,883 respondents that were ultimately included in the analyses. A
summary of the descriptive analysis of our sample with respect to the explanatory variables
is presented in table 5.1a. Including all the years, out of the 77,111 valid respondents,
5,696 (7.39%) provided informal care. Table 5.1b presents a descriptive analysis of only
those individuals who are caregivers. In addition, 65,376 (84.78%) respondents have a paid
job.
As a first analysis, we compare the labour market participation between informal
careers (table 5.2a) and non informal careers (table 5.2b). 57.85% of the respondents that
8
provide informal care participate in the labour market in comparison with 86.93 % of
respondents who do not provide informal health care. This difference is statistically
significant. However, simply with that analysis we do not identify the causality: do they
provide care because they do not participate in the labour market? Or do they reduce their
participation in the labour market because they need to provide informal care?. In order to
provide an answer to the causality direction between the informal care provision and the
labour market participation, we use nonlinear simultaneous econometric models.
4. Estimation Methods and Econometrics
From the theoretical economic model presented in section 2, the decision of
participating in the labour market may be simultaneously taken with the decision of being
a caregiver. As discussed, this situation cannot be estimated by traditional linear models
because the identification is not guaranteed and they lead to inconsistent estimations. In
order to solve for this problem, we use instrumental variables in a random effect linear
probability model when possible (Heckman and MaCurdy, 1985), a switching probit model
(Miranda, 2004; Carrasco, 2001; Terza, 1998) and a two step tobit model.
The simplest way to model the effect of care giving activities in the labour market
participation is to assume that these activities are exogenous and predetermined.
Exogeneity supposes that both decisions are taken one by one and there are no
unobservable variables affecting both of them at the same time. This assumption is very
difficult to maintain and when it does not hold, the estimation results are biased and
inconsistent. As Carrasco (1998) explains, this is to assume that the unobserved
heterogeneity is irrelevant and that the error term is serially uncorrelated. Nevertheless,
there is evidence that fixed effects may be important and that the error term is also likely to
be autocorrelated. This is the case of the decision on providing informal care or
participating in the labour market. It seems more realistic to estimate both decisions
jointly. Therefore, we need a model allowing to identify each equation and to estimate the
parameters consistently. Because the endogenous variable is binary (to provide or not
informal care), its distribution cannot be normal, and as a consequence, two stage or
instrumental variable estimation methods cannot be applied (Carrasco, 2001). A simple
9
way to account for endogeneity in this type of models is to use instrumental variables in a
linear probability model (Heckman and MaCurdy, 1985). The problems within this
estimation model are well-known. First, forecasts are not restricted to the zero-one interval
and secondly, the effect of informal care is assumed to be constant for all individuals.
Nevertheless, this is a first step in order to account for endogeneity. Another way to
account for endogeneity is using a switching probit model. The Switching regresion
estimators (SRE) approach allows the coefficients of all covariates in the labor
participation equation to vary with the informal care decision. This approach seems
appropriate, when there is reason to believe, that the informal care decision affects
individuals with different socio-economic characteristics differently (Schellhorn, 2001).
The difficulty from estimating the causal link between care giving decisions and the labour
market participation is due to the difficulty in finding valid measurement variables to be
used as instruments highly correlated with the decision of being a caregiver, and are not
correlated with the decision of participating in the labour market.
4.1. Labour market participation model
Let WP* be the disutility of the individual from working based on his/her time
perception. This variable is not observed. What we actually observe is a binary indicator
variable (WP) that takes value one if the individual participates in the labour market and
zero otherwise. This model is called dummy variable endogenous model. Here, 1
denotes the indicator function, X is the vector of socio demographic variables and IC is
other indicator variable (IC) that shows whether the son or daughter reports taking care of
one of his/her parents (IC=1 if the individual is a caregiver and zero otherwise). Our
estimation is based on the following switching probit model:
it it it
IC X WP + + ' *
(equation 5a)
( ) { } 0 * 1 >
it it
WP WP (equation 5b)
it it
X Z IC + + ' ' *
(equation 6a)
( ) { } 0 * 1 >
it it
IC IC
(equation 6b)
10
Here, WP* and IC* are both unobservable. Instead, we observe the variable WP
indicating whether a person participates in the labour market or not (zero hours of work)
and, if they participate, how many hours they work; and a variable IC indicating whether a
person provides care or not (zero hours of care) and, if they provide care, for how many
hours. X is the vector of exogenous explanatory variables; (
) ,
it it

is the vector of
unobservable characteristics. The error terms are assumed to be independent and
identically distributed and follow a bivariate distribution with zero mean and covariance
matrix defined by equation 7:

,
_

1
1
1 2
1 2

(equation 7)
The identification of the switching probit model is guaranteed by the non-linearity
and normality assumptions (Manski et al., 1992). However, the presence of other variables
help to identify better the informal care decision and could improve the identification of
the parameters of the model and specially the effect of caregiving on different measures of
labour supply. In this sense Z includes variables that are explanatory in the decision of
providing informal care but not in the decision of participating in the labour market. Thus,
variables contained in Z are not included in X. Example of those Z variables that we use
are referred to parents characteristics: age, the presence of chronic illnesses, or the parent
marital status. In order to be good instruments, they need to be highly correlated with the
decision of becoming a caregiver and not correlated with the labour participation decision.
We use parents characteristics as instruments because (we believe) they condition the
informal care decision (and in fact they link the provision of informal health care with the
need of care) but only affect the labour market participation through the informal care
decision. For example, having parents aged 80 years or more, with chronic illnesses is
highly correlated with being a caregiver. Moreover, if the parents are married or live in
couple the need of informal care is lower. Table 5.3 presents the relationship between the
instrumental variables and the decision of becoming a caregiver and gives and indication
on how well our instruments explain the occurrence of being a caregiver. It is the first step
11
in the estimation presented. The instrument variables used, are therefore, parents
characteristics (age, chronic illness and marital status) which are assumed to exogenously
alter the decision of their sons and daughters of becoming caregivers. As the table 5.3
shows, having a parent aged 80 or more, or with chronic illness has a significant and
positive effect on the probability of becoming a caregiver. Finally, the estimates for the
effect of the informal care provision in the labour market participation are calculated from
probit equations including the instruments (indicators of parents chronic illness, parents
marital status and age), and socioeconomic characteristics of the individuals under
analysis.
As a benchmark we estimate the participation equation under the exogeneity
assumption of care-giving activities. Therefore, we estimate the univariate probit model of
the labour market participation decision and a random effect probit model. The first model
assumes that the unobservable is uncorrelated with the explanatory variables and the error
terms are independent in time.
4.2. Labour supply model
This model examines the labour supply and care supply decisions of informal
caregivers. We estimate the effect of an additional hour of care on weekly hours of paid
work. Linear model and linear model with instrumental variables and a tobit model
estimation methods are used. The model takes into account the simultaneity between hours
of work and hours of care. It is estimated by using a two-step procedure. In the first step
weekly hours of informal care are estimated using tobit estimation. In the second step, these
are used as instruments in the weekly hours of labour supply estimation. The linear model
is specified in equation 8:
it it it
ICH X WH + + '
(equation 8)
In the tobit estimation model, we take into account whether the individual decides to
become a care giver or not. The model is specified in equation 9 as follows:
12
2 1 ; 2 1 , ' * T , . . . , , t , . . . ,N , i u X WH
it it
+
(equation 9a)
: is variable observed the where

'

>

o t h e r w i s e , 0
0 i f , * W H * W H
W H
i t i t
i t
(equation 9b)
Table 5.4 presents the first stage in the estimation, with the relationship between the
instrumental variables and the number of hours of informal care provision. We use the
same instruments than in the estimation of the labour market participation. They are
therefore the age of parents, their health status (presence or not of chronic illnesses) and
marital status.

5. Estimation Results
This section reports the estimates from the different models described above. Our
aim is to estimate the causal effect of being a caregiver on the labour participation decision
and in the number of weekly working hours in the regular labour market. We also analyze
the potential endogeneity of care-giving activities and the impact of controlling for
unobserved heterogeneity.
5.1. The effects of informal care on the probability of participating in the labour
market
The analysis of the effects of informal care on the probability of participating in the
labour market starts by comparing the results from linear and non linear models taking into
account the potential endogeneity of care-giving activities with those that considering the
decision of becoming a caregiver as exogenous. Table 5.5 presents the estimation results:
informal care provision for the elderly decreases the probability of participating in the
labour market. The parameter shown in the table measures the effect of being a caregiver
on the probability of participating in the labour market. It is negative and significant for all
13
the estimated models, from the linear probability (LPM) and the probit (Probit) models,
both when the potential endogeneity of the care-giving activity is taken into account (linear
probability model with Instrumental Variables IVLPM; and the Switching Probit model)
and when it is not. This result is in line with other empirical studies finding a negative
correlation between informal care provision and labour market participation, and may
indicate that the substitution effect is greater than the income effect.
The OLS estimation of the linear probability model (LPM) suggests that being a
caregiver reduces the probability of working in the regular labour market by 12%.
However, as we have mentioned, linear probability models are not appropriate for
estimating the relationship between two endogenous and discrete variables. Therefore, we
estimate a probit specification of our model. Estimation from the probit model suggests
that being a caregiver reduces the probability of work by 10.5%. Those two models do not
take into account the endogeneity of being an informal caregiver in the decision of
participating in the labour market. Including instrumental variables in the linear probability
model (IVLPM) and transforming the probit into a Switching Probit model we solve for
the endogeneity problem. Although the IVLPM shows how the effect is slightly lower
(8.5%), the most reliable estimations taking into account endogeneity show how the
marginal effect in the switching probit model has increased to 10.6%. Therefore, the
negative impact of being a caregiver in the participation in the regular labour market is
higher when the endogeneity in the decision is solved. This downward bias in the
estimated effect may be generated by the exogeneity assumption that introduces a spurious
positive correlation between both decision variables.
The information on sons and daughters and their elderly parents provided by the
ECHP survey makes possible to control for factors that could affect the decisions on
participating in the labour market and providing informal care for sons and daughters.
Other characteristics that we take into account are the level of education, the civil status,
the gender, number of children, or geographic characteristics, and are shown in table 5.3
and 5.5. With respect to education, we show how holding a high degree of education
increases the probability of participating in the labour market. Thus both, individuals with
a secondary or a university degree increase the probability of participating in the labour
market relative to those who do not have education or hold only primary education. Being
14
married, female and have children aged less than 12 reduce the probability of participating
in the labour market. Finally, we also observe how the impact of being a caregiver is
different for the different countries included in the analysis.
From the first stage estimation in the switching probit model, we estimate the
importance of different variables in the decision of becoming an informal care giver. As
mentioned, table 5.3 presents how informal care is more needed when parents suffer
chronic illnesses, are older than 80 and have no couple (widows)
1
and, as a consequence,
the probability of becoming a caregiver increases. Differently, when parents are married or
live with a partner, the probability that a son or a daughter provides informal care
decreases. Being female and married also increase the probability of providing informal
care; while having a high level of education reduces that probability of becoming a
caregiver. The negative relationship between the level of education and the probability of
becoming a caregiver is explained by the higher opportunity cost of time in individuals
with high level of education.
5.2. The effects of informal care hours on working hours
The last estimation models correspond to the analysis of the effect of the number of
weekly hours providing informal care on the number of weekly working hours in the
regular labour market. Our results confirm that providing informal care has a negative
effect on the amount of paid work, or the number of weekly working time and are shown
in table 5.6. There is a statistically significant negative correlation between the hours of
informal care provided and the number of hours of paid work, and thus, the greater is the
time providing informal care, the lower is the amount of time devoted to the labour market
in caregivers.
Following the same procedure than analysing the probability of participating in the
labour market, we first estimate the linear model and the tobit model which do not bear the
endogeneity problem in the decision of working in the labour market and providing
1
We observe information on the parents of the caregivers, as their age, health status, or whether both or the parents are alive. We
measure the age of parents as the age of the oldest (father or mother), and consider the health status of the parents as the health status
exhibited by the worst health status from father or mother.
15
informal care. Therefore, the first two models presented assume that both decisions are
exogenous. The linear model estimates that an additional hour of informal care reduces in
0.23 the number of working hours in the labour market when the informal care is assumed
as exogenous. The tobit estimation model, taking into account the censured characteristic
of the data, estimates that being a caregiver reduces the number of weekly working hours
in 0.22 within those individuals already participating in the labour market. Furthermore,
when we model the endogeneity and use instrumental variables in the linear model, and the
two stages estimation model with the tobit specification, the magnitude of the marginal
effect is even greater in the tobit model: a reduction of 0.5 in the two stage tobit estimation.
Same as in the labour market participation model, the downward bias in the estimated
effect is generated by the exogeneity assumption that introduces a spurious positive
correlation between both decision variables (number of hours of informal care provision,
and number of working hours in the labour market).
We have found significant differences between subgroups in our sample attending
to demographic characteristics. Thus, females and persons without young children not only
have a higher probability of providing informal care than males or persons with young
children, but if they become informal care givers, they provide a greater number of hours
(table 5.4). Furthermore, almost all men work, but slightly more than half of them provide
informal care, while the same statistics for women are of around two-thirds of them
participating in the labour market and providing informal care. Also, having young
children reduces both the probability of providing informal care and the number of hours
devoted to that care, and the higher is the level of education, the lower is the number of
hours of informal care provision.
6. Conclusions
Longevity, being a positive impact of economic and medical development, has as a
consequence the ageing of the world population, and supposes different health and social
challenges that policy makers need to bear in the immediate future. We have seen how one
of them is the increasing need of chronic and long term health care provision, and the
increasing proportion of outpatient health care that is or may be provided by informal care
16
givers. And, even though the participation of informal care givers has a positive impact in
the provision of health care because it substitutes other forms of formal health care, usually
more expensive; it is supposed to have also a negative impact in the participation of
informal care givers in the labour force.
This chapter tests for that assumption. We test for the negative effect of the
provision of informal care for patients suffering chronic and long term conditions in the
participation in the labour market in several countries of the European Union, with data
from the European Community Household Panel (ECHP). The analysis is focused on the
care giving activities of sons and daughters to their elderly parents, and is divided into two
different estimation models. First we test for the effect of being an informal care giver in
the probability of participating in the labour market. Second, we account for the effect of
the number of hours of informal care in the number of working hours.
The simultaneity in the decisions about the provision of informal care and labour
market participation generates an endogeneity in the estimation. Therefore, besides the
basic linear models and a probit estimation, we include in the first part of the analysis
instrumental variables for the linear model and a two stage estimation process in the
switching probit model. We obtain evidence of the negative impact of providing informal
care in the probability of participating in the labour market. In the second part of the
analysis, and because of the endogeneity problem in the estimation, we also complement
the estimations of the basic linear and the tobit model with instrumental variables and a
two stage estimation process for the tobit specification. We obtain the same result:
providing hours of informal care reduces the number of working hours in the regular
labour market. There are, however, differences in the effect of informal care provision in
the labour market for different individuals. Females, married, and in the mid ages are the
most affected group. They are the members in the family who first provide informal care to
parents and many times they need to leave the labour market.
Therefore, by providing evidence of the negative impact of the provision of
informal care on the labour market, this chapter supports the implication of the estimation
provided in chapter 4, in which we calculated the cost of informal care in terms of the GDP
per country. Given the scope of this analysis, which has been restricted to the informal care
provided by sons and daughters to parents with chronic or long term conditions, the
17
conclusions exposed are valid for the countries where their idiosyncrasy makes that most
of the informal care provision is provided by descendants, as is the case of Southern
European countries. The cost of informal care should not be taken as negative by policy
makers. Differently, it has to be considered as the potential benefit to be obtained through
investments in health care (preventing, delaying or curing long term and chronic
conditions) that reduce the need of informal care. As a consequence, investments in health
potentially embrace a reduction of the negative effects of illnesses in the labour market,
and therefore, help to increase the economic growth, and thus, the wealth of developed
nations.
18
Table 5.1a: Descriptive analysis of the sample of sons and daughters. Whole panel.
Variable N mean sd min Max
Working 77111 0.8478168 0.3592007 0 1
Caregiver 77111 0.0738675 0.2615569 0 1
Age 77111 31.17059 9.757503 21 65
Female 77111 0.4060121 0.49109 0 1
Married 77061 0.1524636 0.359472 0 1
Third level education
(ISCDE 5-7)
77111 0.1603144 0.3668997 0 1
Second stage of secondary
level education (ISCDE 3)
77111 0.377404 0.4847404 0 1
Children_less_12 77111 0.4622816 0.4985785 0 1
Children_12_14 77111 0.1556587 0.3625338 0 1
Third level education
(ISCDE 5-7)
77111 0.0709237 0.2566991 0 1
Hincome less 15,000 76861 0.2378189 0.4257504 0 1
Hincome between 15,000
and 30,000
76861 0.416414 0.4929671 0 1
Hincome greater than
30,000
76861 0.345767 0.4756208 0 1
old parent (aged 80 or
more)
77111 0.0742696 0.2622108 0 1
parents_chronic health
problems
58470 0.3946297 0.4887752 0 1
parents_married 58620 0.6676902 0.4710454 0 1
Belgium 77111 0.0206974 0.1423703 0 1
France 77111 0.0498113 0.2175563 0 1
Ireland 77111 0.0793142 0.2702303 0 1
Italy 77111 0.2367885 0.4251142 0 1
Greece 77111 0.1487855 0.3558792 0 1
Spain 77111 0.2103461 0.4075571 0 1
Portugal 77111 0.1618576 0.3683225 0 1
Austria 77111 0.0719612 0.2584253 0 1
Finland 77111 0.0204381 0.1414942 0 1
1995 77111 0.1590305 0.3657069 0 1
1996 77111 0.1576429 0.3644082 0 1
1997 77111 0.1475276 0.3546334 0 1
1998 77111 0.1423143 0.3493745 0 1
1999 77111 0.1382163 0.3451291 0 1
2000 77111 0.1295924 0.3358566 0 1
2001 77111 0.125676 0.331486 0 1
19
Table 5.1b: Caregivers sample characteristics. Whole panel
Variable N Mean SD Min Max
Working 5696 0.5784761 0.4938464 0 1
Caregiver 5696 44.19961 11.93178 21 65
Age 5696 0.708743 0.4543816 0 1
Female 5696 0.4534761 0.4978745 0 1
Married 5696 0.1099017 0.3127946 0 1
Third level education
(ISCDE 5-7)
5696 0.2485955 0.4322367 0 1
Second stage of secondary
level education (ISCDE 3)
5696 0.6415028 0.4796012 0 1
Children_less_12 5696 0.1611657 0.367716 0 1
Children_12_14 5696 0.0716292 0.2578956 0 1
Third level education
(ISCDE 5-7)
5688 0.2679325 0.4429212 0 1
Hincome less 15,000 5688 0.4553446 0.4980457 0 1
Hincome between 15,000
and 30,000
5688 0.2767229 0.4474176 0 1
Hincome greater than
30,000
5696 0.4060744 0.4911419 0 1
old parent (aged 80 or
more)
4868 0.7183648 0.4498426 0 1
parents_chronic health
problems
4896 0.2730801 0.4455871 0 1
parents_married 5696 0.0280899 0.1652442 0 1
Belgium 5696 0.0373947 0.1897436 0 1
France 5696 0.0603933 0.2382349 0 1
Ireland 5696 0.2210323 0.4149786 0 1
Italy 5696 0.1111306 0.3143214 0 1
Greece 5696 0.2926615 0.4550243 0 1
Spain 5696 0.1465941 0.3537319 0 1
Portugal 5696 0.0660112 0.2483235 0 1
Austria 5696 0.0366924 0.188022 0 1
Finland 5696 0.166257 0.3723439 0 1
1995 5696 0.1720506 0.3774575 0 1
1996 5696 0.1601124 0.3667424 0 1
1997 5696 0.1485253 0.3556511 0 1
1998 5696 0.1286868 0.3348824 0 1
1999 5696 0.1120084 0.3154045 0 1
2000 5696 0.1123596 0.315836 0 1
20
Table 5.2a: Labour market participation by informal caregivers. Whole panel
No paid job Paid job
Number 2,401 3,295
Percentage 42.15% 57.85%
Table 5.2b: Labour market participation by non informal caregivers. Whole panel
No paid job Paid job
Number 9,334 62,081
Percentage 13.07% 86.93%
21
Table 5.3 First stage estimation on the probability of becoming a caregiver
Probit estimation on the probability of being
a caregiver
Marginal effect Standard deviation
Parents with Chronic health problems 0.054** (0.002)
Parents aged 80 or more 0.013** (0.002)
Parents married -0.015** (0.002)
Age 0.003** (0.000)
age2 -1.05E-06 (0.000)
Female 0.061** (0.002)
Married 0.013** (0.002)
Third level education (ISCDE 5-7) -0.006** (0.002)
Second stage of secondary level
education (ISCDE 3) -0.003** (0.002)
Children_less_12 0.001 (0.002)
Children_12_14 0.004 (0.003)
1996 0.001 (0.002)
1997 0.001 (0.002)
1998 0.001 (0.002)
1999 -0.004 (0.002)
2000 -0.006** (0.002)
2001 -0.007** (0.002)
Belgium 0.015** (0.006)
France -0.018** (0.002)
Ireland -0.002 (0.003)
Italy 0.005** (0.002)
Greece -0.016** (0.002)
Portugal -0.021** (0.001)
Austria -0.010** (0.002)
Finland 0.019** (0.006)
observations 58470
LogLikelihood -11592

22
Table 5.4 First stage estimation on an additional hour of caregiving
Probit estimation on the probability of
being a caregiver
Marginal effect Standard deviation
Parents with Chronic health problems 4.493** (0.888)
Parents aged 80 or more 1.386** (1.261)
Parents married -0.028** (1.203)
Age 0.381** (0.256)
Age squared -0.001 (0.003)
Female 5.365** (0.897)
Married 0.836** (0.992)
Third level education (ISCDE 5-7) -1.014** (1.263)
Second stage of secondary level education
(ISCDE 3) -0.533** (1.006)
Children_less_12 0.140 (1.132)
Children_12_14 0.458 (1.631)
1996 0.101 (1.395)
1997 0.139 (1.413)
1998 0.113 (1.432)
1999 -0.187 (1.483)
2000 -0.355** (1.526)
2001 -0.388** (1.544)
Belgium 0.178 (2.839)
France -1.835** (2.093)
Ireland -0.286* (1.760)
Italy -0.275** (1.159)
Greece -1.573** (1.384)
Portugal -1.704** (1.312)
Austria -1.094** (1.783)
Finland 0.112 (2.432)
observations 58470
LogLikelihood -32795.246
23
Table 5.5. Estimation on the probability of participating in the labour market
Linear
Probability
Model -LPM
(standard dev.)
Probit model :
marginal effect
(standard dev.)
Instrumental variables
Linear Probability
Model -IVLPM
(standard dev.)
Switching Probit
Model:
marginal effect
(standard dev.)
Caregiver -0.125 **
(0.006)
-0.105**
(0.006)
-0.085**
(0.037)
-0.106**
(0.043)
age 0.017 **
(0.000)
0.011**
(0.001)
0.019**
(0.001)
0.383**
(0.003)
age2 -0.0003 **
(0.000)
-0.0002**
(0.000)
-0.0003**
(0.000)
-0.103**
(0.000)
female -0.077 **
(0.002)
-0.077**
(0.002)
-0.088**
(0.004)
-0.055**
(0.012)
married -0.016 **
(0.004)
-0.037**
(0.004)
-0.015**
(0.005)
-0.006**
(0.017)
Third level education (ISCDE 5-
7)
0.126 **
(0.003)
0.082**
(0.002)
0.135**
(0.003)
0.185**
(0.020)
Second stage of secondary level
education (ISCDE 3)
0.081 **
(0.002)
0.056**
(0.002)
0.088**
(0.003)
0.097**
(0.014)
Children_less_12 -0.013 **
(0.003)
-0.018**
(0.000)
-0.009**
(0.004)
-0.014**
(0.016)
Children_12_14 -0.001
(0.004)
-0.004
(0.004)
0.002
(0.005)
-0.0015
(0.015)
1996 0.003
(0.004)
0.007
(0.004)
0.004
(0.005)
0.115
(0.020)
1997 0.011 **
(0.004)
0.014**
(0.003)
0.011**
(0.005)
-0.001**
(0.020)
1998 0.013 **
(0.004)
0.018**
(0.003)
0.015**
(0.005)
0.010**
(0.021)
1999 0.012 **
(0.004)
0.015**
(0.003)
0.016**
(0.005)
0.014**
(0.021)
2000 0.014 **
(0.004)
0.014**
(0.004)
0.017**
(0.005)
-0.051**
(0.022)
2001 0.014 **
(0.004)
0.016**
(0.004)
0.018**
(0.005)
0.010**
(0.022)
Belgium 0.057 **
(0.006)
0.060**
(0.006)
0.057**
(0.006)
0.086**
(0.051)
France 0.007
(0.005)
0.010**
(0.005)
0.014**
(0.006)
-0.013**
(0.029)
Ireland 0.010 **
(0.004)
0.013**
(0.004)
0.015**
(0.006)
0.004**
(0.029)
Italy 0.019 **
(0.003)
-0.0117**
(0.003)
0.025**
(0.004)
0.013**
(0.024)
Greece -0.049 **
(0.004)
-0.066**
(0.005)
-0.037**
(0.005)
0.017**
(0.017)
Portugal 0.017 **
(0.004)
0.016**
(0.003)
0.024**
(0.005)
0.014**
(0.019)
Austria 0.060 **
(0.004)
0.056**
(0.003)
0.064**
(0.005)
0.016**
(0.019)
Finland -0.010
(0.009)
0.017**
(0.008)
-0.018**
(0.010)
0.016**
(0.018)
Constant 0.621**
(0.016)
0.582**
(0.019)
Observations 77933 77933 58470 58470
F( 23, 77909) 365.65 304.47
Loglikelihood -25895.033 -40297.698
Rho .2951007**
(0.027)
24
Table 5.6. Estimation on the number of working hours in the labour market
Linear
model
(std.dev.)
Tobit Model:
marginal effect
(std.dev.)
Instrumental Variable
Linear model
(std.dev.)
2 Step Tobit
Model: marginal
effect (std.dev.)
Caregiver -0.229** -0.221** -0.090 -0.509**
(0.008) (0.014) (0.235) (0.056)
Age 1.510** 1.1387** 1.677** 0.976**
(0.051) (0.078) (0.145) (0.094)
Age squared -0.020** -0.015** -0.023** -0.012**
(0.001) (0.001) (0.003) (0.001)
Female -8.261** -5.355** -9.227** -4.881**
(0.153) (0.228) (0.820) (0.305)
Married 4.073** 2.493** 4.028** 2.853**
(0.243) (0.363) (0.323) (0.402)
Third level education (ISCDE 5-7) 4.347** 3.514** 4.734** 3.374 **
(0.222) (0.328) (0.427) (0.384)
Second stage of secondary level
education (ISCDE 3)
3.513**
(0.174)
2.682**
(0.259)
3.855**
(0.253)
2.678**
(0.303)
Children younger than 12 years old -0.458* -0.363* -0.232 -0.248
(0.211) (0.313) (0.310) (0.375)
Children with age between 12 and 14 0.418 0.293 0.221 0.369
(0.288) (0.427) (0.319) (0.528)
1996 -0.241 -0.125 0.891** -0.071
(0.259) (0.386) (0.315) (0.451)
1997 0.181 0.2041 1.244** 0.216
(0.263) (0.393) (0.312) (0.457)
1998 0.774** 0.640** 1.770** 0.707**
(0.266) (0.395) (0.322) (0.461)
1999 1.067** 0.875** 1.962** 0.856**
(0.268) (0.398) (0.324) (0.464)
2000 1.609** 1.308** 5.291** 1.173**
(0.273) (0.404) (0.677) (0.469)
2001 1.776** 1.440** -1.121 1.385**
(0.276) (0.408) (0.880) (0.475)
Belgium 5.512** 3.958** 5.799** 3.694**
(0.532) (0.775) (0.513) (0.888)
France -1.689** -0.727** -2.216** -1.017**
(0.364) (0.543) (0.686) (0.622)
Ireland 5.329** 3.822** 0.174 3.673**
(0.306) (0.450) (0.928) (0.553)
Italy -2.812** -1.805** 5.208** -1.786**
(0.224) (0.336) (0.782) (0.399)
Greece -0.594* -0.487** 9.946** -0.719**
(0.251) (0.374) (0.747) (0.448)
Portugal 5.480** 4.070** 0.683 3.087**
(0.246) (0.365) (0.715) (0.444)
Austria 10.029** 6.640** -1.070 5.918**
(0.327) (0.476) (2.237) (0.557)
Finland 0.920 0.4851 -0.090 2.011**
(0.539) (0.800) (0.235) (0.987)
Constant 1.603 1.677**
(0.921) (0.145)
Observations 77933 77933 58470 58470
Test F 426.39 335.82
Loglikelihood -266522.93 -200567.35
Marginal effect conditional on being uncensored.
25