Long-Term Care Insurance Offsets Labour Market Disadvantages
Research
24.04.2024
ZEW Study on the Effects of Long-Term Care Insurance on Private Care
In the future, more and more people in Germany will require care. In most cases, relatives and friends become the caretakers for these people. This leads to immense costs due to reduced working hours, incomes and pensions. Benefits provided by long-term care insurance, such as care allowances and pension points, help to largely offset these disadvantages. However, they also reduce incentives to work. This is what researchers from ZEW Mannheim and RWI Essen found in an empirical study based on data from the Socio-Economic Panel (SOEP).
“Without the benefits of long-term care insurance, much less care work would be done. In an ageing society with a shortage of skilled workers, it is essential that this care is provided. However, the personal costs of care are immense. That is why it remains important that long-term care insurance largely compensates for the disadvantages in the labour market and pensions. Policymakers should definitely maintain long-term care insurance. After all, it makes sense to support those who already know the care recipients and provide voluntary assistance. Otherwise, there would be a need for many more professionals, who would also require housing, etc. There would be no financial gain. However, the labour market costs of care by relatives must not be overlooked,” explains Dr. Björn Fischer, co-author of the study and Junior Research Associate at ZEW’s “Labour Markets and Social Insurance” Unit.
Personal vs. societal costs
In Germany, 80 per cent of people in need of care are cared for at home. Of these, 80 per cent are primarily cared for by relatives and friends. Around two-thirds of private care is provided by women. Caregiving entails significant personal costs in the labour market, resulting in reduced working hours or even leaving the labour market altogether. This has a negative impact on income and future pensions. The long-term costs of care are 60 per cent higher than the short-term costs. Care allowances and pension points from long-term care insurance mitigate a large part of the short-term and long-term personal labour market costs of care.
There are also costs to society due to private care, as fewer (employed) working hours are provided both in the short and long term. Additionally, the benefits of long-term care insurance also increase overall societal costs, as they also reduce work incentives.
About the study
The study examines the long-term effects of care and how they are influenced by long-term care insurance regulations. This is done using a structured decision-making model that calculates the long-term costs of private care. The data is based on the Socio-Economic Panel for the years 2002 to 2019. The study focused on women aged 55 to 67, as they are generally still able to be active in the labour market and provide two-thirds of private care.
