The Wage Elasticity of Informal Care Supply: Evidence from the Health and Retirement Study

Abstract

This article focuses on the wage elasticity of informal care supply to elderly parents employing an instrumental variable approach to account for the fact that the wage rate is likely to be correlated with omitted variables. Using the 1998 wave of the ), the wage elasticity of informal care supply is estimated to be negative and larger in magnitude than found previously. The lower bound of this elasticity is estimated to be −1.8 for males and −3.6 for females. Additional findings suggest that this wage elasticity differs by the type of care provided to elderly parents and that it is larger in magnitude among individuals with siblings and those with independently living parents. Overall the reductions in the informal care constitute about 18% of the labor supply response for men and about 56% of the labor supply response for women, which are not compensated by monetary transfers.