On December 31, 2029, the last of the Baby Boomers, the largest generation in US history, will turn sixty-five. With an increasing proportion of the country’s population entering old age, elder care is top of mind for many policymakers.

The majority of long-term elder care in the US is informal (unpaid) care. Nearly 20% of adults in the US provide care to a friend or relative over the age of 50. As the demand for elder care increases, how can policymakers ease the burden on informal caregivers?

One potential remedy is paid family leave, which allows for paid leave in the event of a serious illness of a family member. Currently only three states in the US mandate that employers provide paid leave: California, New Jersey, and Rhode Island.

But a major barrier to policies such as paid family leave is the fiscal burden they place on both businesses and the government. Without a clear estimate of the value of informal care, it is difficult to justify such policies from an economic standpoint.

A new study published in Health Services Research does just that: using data from the American Time Use Survey (ATUS), researchers estimate the total value of unpaid care in the US. The researchers discuss the value of unpaid work in terms of opportunity cost—how much could an individual have been earning if he or she had been doing paid work instead of providing care?

Beginning in 2011, the Bureau of Labor Statistics added questions about elder care to the ATUS to the existing questions related to labor market participation, earnings, and time spent on various activities. Randomly selected individuals over the age of 15 were asked if they had helped an elderly relative or friend with daily living activities in the last three months. The 23.29 percent who answered “yes” were then asked how much care they provided in the past 24 hours. Only those individuals who provided care in the past 24 hours—5.38 percent of those surveyed—were used for the study. To estimate the annual value of that unpaid care, the researchers estimate the total time spent providing care by each individual throughout the year and multiply it by his or her hourly wage.

One issue inherent to studies that estimate the cost of unpaid work is how to deal with individuals in the sample who are not working and therefore lack an hourly wage. In this particular study, two out of every five individuals in the sample were not in the labor force. In response, the researchers estimate what their wages would have been using predictive factors such as age, gender, work experience, and education level.

Yet there are likely to be factors about individuals who are not in the workforce that make them systematically different from their peers who are working. To account for this, the researchers employ the Heckman correction, a two-step statistical procedure that mitigates this bias.

The researchers found that informal care adds up to approximately 30 billion hours of work annually with an estimated cost of $522 billion in lost wages. Total spending in the formal long-term care sector in the US is an estimated $211 billion, less than half of what the researchers estimate the value of the unpaid sector to be. Furthermore, the researchers estimate that the cost of replacing informal caregivers with skilled caregivers would be a difference of $120 billion annually.

These new estimates are a valuable contribution to a growing body of research about the cost of the informal elder care sector. As demands on caregivers in both the informal and formal sector grow, many experts predict a severe shortage in the supply of formal-sector long-term caregivers. Consequently, policies supporting informal care by family and friends may prove a compelling option.

Article Source: The Opportunity Costs of Informal Elder-Care in the United States, Chari et al, Health Services Research, 2014.