The Impact of Illness on Family Labor Supply and Earnings
- Presenter:
Chair: Dan Polsky; Discussant: Kosali Simon Tue June 6, 2006 10:45-12:15 Room 226
As the population of the United States ages, Alzheimer’s disease has become, and will continue to be, a major public health concern. Because of the millions of individuals afflicted by AD, there are many more millions of family members indirectly burdened by the disease. The goal of this research is to estimate the indirect effects of illness on the labor market outcomes of family members.
Cost-of-illness studies examining labor market costs have generally focused on the primary caregiver and used small data sets that are not representative of the United States population. In this research, we estimate the labor market effects of illness for all family members using data from the Medical Expenditure Panel Survey (MEPS). MEPS is a large, nationally representative data set that contains information describing labor force outcomes, sociodemographics, and medical diagnoses and measure of severity of illness. By are able to link the records of persons living in the same household, thereby permitting examination of the effects of Alzheimer’s disease on the labor market outcomes of family members.
Our measures of labor market outcomes are labor force participation, employment, hours worked, and earnings. First we estimate a wage equation for all employed family members and predict a market wage for individuals who are not employed. We then estimate the effects of illness on labor force participation, employment, hours of work, and earnings using the predicted wage in a model allowing self-selection out of the labor force. This analytical model controls for the endogeneity between the market wage rate and the decision to be a fulltime caregiver.
Our preliminary findings indicate that the presence of a family member with Alzheimer’s disease increases the probability that a woman will drop out of the labor force. Further, among women who work, the presence of a family member with Alzheimer’s disease has a negative effect on weekly hours of work and annual earnings. In comparison, while men’s labor force participation is unaffected, we find that the average effect for men is to increase hours of work per week and increase annual earnings. This is the first empirical evidence that male family members respond to the family member’s illness by increasing hours of work. Our results indicate that average family earnings fall, reflecting the relatively larger magnitude of the effect on women’s earnings.
By examining the effects of the disease on all members of the family, rather than solely the primary caregiver, we provide a broader and more accurate picture of the family burden of illness. Our estimates demonstrate that there is substitution among family members to compensate for lost market earnings when one member reduces labor supply to provide caregiving. However, this compensation is insufficient to totally offset the loss in family earnings.
