Informal Home Care and Labor Force Participation of Household Members

In Germany, informal home care is preferred to professional care services in the public discussion as well as in legal care regulations. However, they ascribe only minor importance to the opportunity costs care givers have to face. Therefore, this paper explores the influence home care has on the labor supply of carers who live together with their care recipient. I am using the German Socio-Economic Panel of the years 2001 to 2007 which allows the characteristics of both groups to be merged. Furthermore, I look at female and male care givers separately. The results show that having an individual in need of care in the household does not decrease labor supply to an economically relevant extent. As caring and the labor supply decision might be endogenous, I test for endogeneity by using characteristics of care recipients as instruments and I look at sample attrition. In addition, the panel structure allows to control for unobserved heterogeneity, which is probably strong for care.