Dynamic Wage and Employment Effects of Elder Parent Care

This paper formulates and estimates a dynamic discrete choice model of elder parent care and work to analyze how caregiving affects a woman’s current and future labor force participation and wages. Intertemporal tradeoffs, such as decreased future earning capacity due to a current reduction in labor market work, are central to the decision to provide care. The existing literature, however, overlooks such long-term considerations. I depart from the previous literature by modeling caregiving and work decisions in an explicitly intertemporal framework. The model incorporates dynamic elements such as the health of the elderly parent, human capital accumulation and job offer availability. I estimate the model on a sample of women from the Health and Retirement Study by efficient method of moments. The estimates indicate that intertemporal tradeoffs matter considerably. In particular, women face low probabilities of returning to work or increasing work hours after a caregiving spell. Using the estimates, I simulate several government sponsored elder care policy experiments: a longer unpaid leave than currently available under the Family and Medical Leave Act of 1993; a paid work leave; and a caregiver allowance. The leaves encourage more work among intensive care providers since they guarantee a woman can return to her job, while the caregiver allowance discourages work. A comparison of the welfare gains generated by the policies shows that half the value of the paid leave can be achieved with the unpaid leave, and the caregiver allowance generates gains comparable to the unpaid leave.