Elderly care across Europe: The role of formal and informal care in family decision-making

Abstract This paper studies how families make joint decisions about elderly care and labor supply, emphasizing the role of interactions between care recipients and their adult children. I develop a model in which an elderly parent and multiple children make simultaneous decisions about formal care use, informal caregiving, and labor force participation within a static, non-cooperative game of complete information. I estimate the model separately for Northern, Central, and Southern Europe using data from the Survey of Health, Ageing and Retirement in Europe (SHARE) to account for cross-regional differences in institutions, labor markets, and preferences. I use the estimated model to evaluate five policy experiments aimed at expanding care provision and mitigating the labor market consequences of informal caregiving. The results show that subsidies targeted at formal care recipients substantially increase overall care coverage but have limited effects on informal caregivers’ labor supply, particularly in Southern Europe. By contrast, subsidies targeted at informal caregivers generate larger informal-care and labor supply responses and can reduce employment gaps between caregivers and non-caregivers. These effects depend crucially on family structure, with larger families exhibiting stronger caregiving responses.