Does long-term care insurance affect labor supply? Empirical evidence from China

This paper investigates the effects of exposure to the long-term care insurance (LTCI) on labor supply of the middle-aged and older adult in China, using data from the China Health and Retirement Longitudinal Study from 2011 to 2018. We address the potential endogeneity of LTCI exposure with the difference-in-differences estimator. The results indicate that LTCI exposure has negative impacts on labor supply. Respondents in the pilot cities with LTCI reduce approximately 1.984 working hours per week. They also tend to have a 3.9% lower probability of working. In particular, the proportion of respondents in pilot cities engage in informal work increased by 1.6%. The impacts of LTCI exposure on labor supply are particularly pronounced for caregivers and respondents with functional limitations. The expected income effect seems to be the suggestive mechanism through which LTCI exposure affects labor supply. Our results highlight the spillover effects of LTCI in aging societies.