Long-Term Care Coverage and Retirement Behavior : Evidence from China

Many scholars attribute the slowdown of economic growth to population aging and its negative impact on the size of the labor force. Meanwhile, government programs targeting an aging society can generate work disincentives for older workers. This paper is the first to study the unintended retirement-encouraging effects of Long-term Care Insurance (LTCI) by exploiting the launch of the noncontributory LTCI program in China. We find that in the short-term, policy-covered older workers decreased labor market engagement. We also document more substantial effects among low-income workers. The forgone wages of older workers account for 1.9% of GDP. The increased retirement rate of older workers is offset by the growth in employment among the caregivers of the disabled. The net forgone wages amount to 0.67% of GDP. The study adds to the growing literature on the effects of LTCI coverage by providing evidence of its unintended labor market response