Lifting the Burden: State Care of the Elderly and the Labor Supply of Adult Children

Katrine V. Løken, University of Bergen
Shelly J. Lundberg, University of California, Santa Barbara
Julie Riise, University of Bergen

We use a 1998 reform in the federal funding of care for the elderly in Norway to examine the effects of formal care expansion on the labor supply decisions and mobility of middle-aged children. Our main finding is a consistent and signficant negative impact of formal care expansion on work absences for the adult daughters of single elderly parents. This effect is particularly strong for daughters with no siblings, and this group is also more likely to exceed earnings thresholds after the reform. We find no impacts on daughter's mobility or parental health, and no effects on adult sons. Our results provide evidence of substitution between formal home-based care and informal care for the group that is most likely to respond to the parent's need for care. These results also highlight the importance of labor market institutions that provide flexibility in enabling women to balance home and work responsibilities.