The effect of parental health shocks on living arrangements and employment

This study investigates the impacts of health shocks among older individuals on the dynamics of their living arrangements in Europe and the United States. Exploiting unpredicted health shocks, we use an event-study difference-in-differences approach to demonstrate that health shocks increase difficulties with activities of daily living and instrumental activities of daily living, thereby increasing the need for care. Our findings indicate that health shocks raise the probability of nursing home residency and co-residence with adult children by 0.7 and 1.4 percentage points in Europe, and by 2.1 and 1.8 percentage points in the U.S., respectively. Further analyses reveal that more generous long-term care public policies correlate with a higher probability of nursing home residency and a lower probability of co-residing with adult children, highlighting the significant role of public policies in household responses to health shocks. Additionally, we find that health shocks negatively impact adult children's labor supply, particularly in the U.S.