Hire or care: the effects of aging parents on household labor supply

Abstract

This paper analyzes how aging parents’ health conditions affect household labor supply. I propose a time-use model with wage heterogeneity and assume that care responsibilities involve both time and budget constraints. When households can purchase care services, differences in secondary earners’ wages and care requirements lead to heterogeneity in household responses to a parental health shock. Primary earners and high-wage secondary earners work more. I confirm the model’s predictions by using panel data from the Health and Retirement Study to construct an exogenous shock from the change in parents’ health conditions and estimate its impact on labor supply.