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Aging Population and Household Labor Supply

  • Author(s): Wang, Jue
  • Advisor(s): Lagakos, David
  • et al.
Abstract

The aging population is a worldwide phenomenon. Households in these aging societies face many challenges with this demographic change and one of them is the increasing parental care responsibilities. This is one of the channels through which aging population potentially affects households’ decisions and the labor market. I study how the health conditions of aged parents affect the labor supply and general time-use decisions of their adult children. To do this, I first develop a static household model where parental care responsibilities are reflected in both the time and budget constraints. I allow a market from which households can purchase market care that can substitute home care. The implications of the model show that households’ response to a parental health shock is heterogeneous to the wage of the secondary earner. More specifically, high-wage secondary earners increase their labor supply to purchase care, while low-wage secondary earners’ responses depend on which constraint is affected more. If the time constraint is affected more, they work less; if the budget constraint is affected more, they work more. To confirm the predictions of the model, I analyze household-level data from the Health and Retirement Survey (HRS) using a dynamic panel estimation strategy with person-level fixed effects. I derive the impulse responses of female labor force participation status in the data and find that the trend is consistent with the implications of the model. High-wage females are more likely to work after a parental health shock, while the responses of low-wage females are ambiguous. To further explore the effect of parental care responsibilities on female labor supply, the labor market, and the care market, I extend the static household model to discuss what happens in general equilibrium. I propose an overlapping generation model where each household in the young generation has two agents that work and take care of the old generation. Agents supply labor to two sectors that produce care and consumption goods. To calibrate the model, I draw data from the Current Population Survey and the Health and Retirement Survey. I calibrate the model the the 2007 labor market and match the responses identified in the empirical analysis. I also conduct a quantitative experiment to predict how the female labor market changes in an aging population. I find that with the presence of the care market, in the aggregate, female labor supply will increase as parental care responsibilities increase.

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