The Hidden Value of Adult Informal Care in Europe

Abstract

The hidden value of adult informal care (IC) refers to the unaccounted value of informal care in overall costs of long-term care (LTC) estimates. This paper estimates the net value of adult IC in Europe, drawing on a well-being-based methodology. We use an instrumental variable strategy and a longitudinal and cross-country dataset to estimate the causal effect of the extensive and intensive margin of caregiving on subjective well-being. We estimate the so-called compensating surplus (CS), namely the income equivalent transfer, to compensate for the net disutility of caregiving. We show that IC reduces average subjective well-being by about 1% compared to the mean (6% among co-residential caregivers). Relative to a country's Gross Domestic Product (GDP), the value of IC ranges between 4.2% in France and 0.85% in Germany. Such relative value declines as the country's share of formal LTC spending increases. These results call for a reconsideration of the existing classifications of LTC regimes. We estimate that the average CS per hour for IC is 9.55€, with a range from 22€ per hour in Switzerland to 5€ per hour in Spain. Additionally, we estimate that the long-term CS (estimated using an individual’s permanent income) tends to be lower than short-term CS (estimated using an individual’s current income).