How do migrants care for their elderly parents? Time, money, and location

1. How do migrants care for their elderly parents?Time, money, and location François-Charles Wolff (University of Nantes, France) Ralitza Dimova (Brunel University, Uxbridge, UK ) European Conference on Long-Term Care, ZEW Mannheim October 21-22 2005

2. Introduction (1) • Low fertility rates, increase in life expectancy => population ageing across the developed (especially Europe and Japan) world • Consequences of the ageing process : • fiscal sustainability of the welfare system. • forecast the impact of ageing on labor supply (McDonald and Kippen, 2001) • resolution of the moral hazard problem of social security, inducing early retirement among the elderly workers despite the fiscal pressure of increased longevity (Börsch-Supan, 2003) • Focus on the fiscal implications of population ageing and the related social security and labor market reforms : => neglected role of the family

3. Introduction (2) • Evidence on the magnitude of upward private transfers of time and mone • US: (HRS) 11% of the adult had made a financial transfer of at least 500$Sloan et alii (2002) 10% provided more than 100 hours of personal care to a parent • France upward monetary transfers occur among 8% of the respondentsWolff (2000) upward service transfers are given by 31% of the respondents • Projected increase in the proportion of elderly citizens in the population, together with phase-out tendency in the administration of social security, is bound to raise the importance of family upward transfers even further • Importance of family transfers from a public policy viewpoint • altruistically linked households will neutralize the impact of government policies • phasing out of social security is likely to induce a suboptimal provision of care and increase in poverty among the elderly (Pezzin and Schone, 1997) • the problem of optimal provision of care is further aggravated if upward transfers are the result of either strategic bequest motive (Bernheim et alii, 1985) or non-cooperative game between siblings (Byrne et alii, 2005, Hiedemann and Stern, 1999, Engers and Stern, 2002).

4. Introduction (3) • empirical problem: study the impact of care on the labor supply of care-giving individuals. • no clear answer • insignificant impact of informal care on the labor supply of care-giving individuals Wolf and Soldo (1994), Stern (1995) and Pavalko and Artis (1997) • the impact is significant and negativeBoaz and Muller (1992), Ettner (1995, 1996)

5. Introduction (4) • significant proportion of immigrants in the labor markets of European economies, and these migrants grow older • analyses of transfers and the impact of transfers on other economic decisions for both the migrants and their families are absent • particularity of the migrant populationsearch for a better future while keeping in mind the well-being of families remaining in the origin country • several important questions: • where do parents of migrants live ? • how do migrants help their elderly parents ? • do the transfer decisions have an impact on the labor participation ?

6. Introduction (5) • Aim of the paper :(1) presentation of an altruistic model of transfers, with endogenous child’s labor : relationship between work hours, time transfers and cash gifts of the child(2) non-structural, econometric analysis based based on the PRI surveyPassage to Retirement of Migrantssurvey conducted in 2003 in France on a sample of more than 6000 migrants, aged above 45 and living in France=> our estimates conform with the predictions of an altruistic model of transfers=> informal care to a parent living in the host country has virtually no impact on the labor supply of the care-giving child=> remittances to elderly parents in the origin country exercise a strong positive impact on the labor force participation of the migrant donor

7. Overview (1) theoretical model of altruistic transfers(2) description of the PRI survey (3) econometric strategy(4) determinants of the transfers and labor decisions (5) conclusion

8. Theory (1) • A simple model of upstream transfers • two actors: one middle-aged individual who has migrated from the origin to the recipient countryone elderly parent • the child is assumed to be altruistic, and hence provide help to the elderly parent • informal care • financial transfers • Assumptions • we neglect the potentially important interactions between siblingsno elaborate data on the characteristics and behavior’s of the siblings • we take the location of the donor and recipient as giventhe parent may resides in the origin or the host country

9. Theory (2) • Parent p • Child k • Child’s utility function U(Ck,lk) caring for parents is costly : it entails a loss in income U1>0, U2>0two type of transfers T money Sk services • The child is altruistic bk • Parent’s utility function V(Cp,Sk) V1>0, V2>0

10. Theory (3) • Resource constraints :(1) Hk + lk + Sk = Lk(2) Ck = w Hk + Yk – Tk(3) Cp = Yp + Tk=> Ck + w lk + w Sk + Cp = w Lk + Yk + Yp Income pooling • Max U(Ck,lk) + bk V(Cp,Sk) s.t. resources constraints • The first-order conditions are :(1) –w U1 + U2 = 0(2) - w U1 + bk v2 = 0(3) – U1 + bk v1 = 0

11. Theory (4) • Predictions(1) the financial transfer is an increasing function of the child’s income(2) intergenerational redistribution of resources within the family(3) neutrality property (Altonji et alii, 1997)(4) the optimal time transfer is not affected by the distribution of revenues between the two generations • joint determination of labor supply and transfers in order to fully understand the donor’s behavior.

12. Data (1) • Survey Passage à la Retraite des Immigrés (PRI) data set • Collected by the Caisse Nationale d’Assurance Vieillesse and Institute National de la Statistique et des Etudes Economiques in Paris between December 2002 and March 2003. • Representative sample of the diverse nationalities of immigrants in France at retirement age and age close to retirement 6211 observations • The PRI sample is restricted between age groups 45 and 70 (for assuring sufficient representativeness of all nationalities in the sample) • Selected sample : Respondents under 60, with at least one parent aliveN = 2487

13. Data (2) • Transfers : (1) for financial transfers, ‘did you give money to your parents during the last five years ?’(2) for time, ‘do you actually spend time helping your parents in old age ?’ • Geography : two location possibilities for the parents of the respondents(1) either in France (2) or in the country of originabout 28% of the migrants’ parents reside in France, while the majority of parents (72%) reside in the country of origin

14. Data (3) • Shortcomings of the data(1) no continuous variable for the income of the parent qualitative variable, reported by the respondent and indicating a different level of lifestyle of the parent(2) lack of information on wages but empirical construction of wage rates for non-workers involves issues of identification(3) focus on discrete decision labor force participation decision to give money decision to give time

16. Figure 1. The provision of upstream transfers, by distance to parents Survey PRI 2003

17. Econometric approach (1) (1) Simultaneous estimation of the decisions related to financial gift, time transfer, and labor participation we assume that the residuals of each equation follow a trivariate normal distributionthe econometric reduced-form specification is a simple trivariate Probit model (ML with GHK) => but it tells us little about the causal effect of transfer on the labor participation of the donor (2) we take into account the endogeneity of transfers Ettner (1995, 1996), Johnson and Lo Sasso (2003), Soldo and Wolf (1994)… a) parents expect children who are more familiar with domestic tasks (most often daughters) to provide a higher amount of informal careb) the existence of formal care substitutes for some time-related services can make it possible for a child whose opportunity time cost is high to pay for formal care provision to parents

18. Econometric approach (2) • we split the sample by parental location • when parents live in the origin country : causal effect of cash gift on the propensity to work • when parents live in France : effect of informal care on the propensity to work • the econometric model that we seek to estimate is : H* = Xh bh + gt T + eh T = Xt bt + et • the endogeneity bias stems from the correlation between the residuals from the two equations : eh and et follow a bivariate normal distribution : simultaneous recursive bivariate Probit model ML estimation • direction of the bias ? No clear a priori

19. Descriptive results • transfers depend crucially on the financial position of the donor • … and also on the financial position of the recipient • respondents providing higher level of informal care (to parents living in France) enjoy higher level of labor force participation than respondents providing monetary transfers (to parents residing outside of France) • upward transfers of both time and money reallocate predominantly towards parents of either poor or fair financial status => more consistent with an altruistic intergenerational redistribution of resources

20. Figure 3A. The provision of financial transfer, by respondent’s income and parental location Survey PRI 2003

21. Figure 3B. The provision of time transfer, by respondent’s income and parental location Survey PRI 2003

23. Econometric results (1) • trivariate Probit model • assumption : parental characteristics have no direct influence on the work decision. • parental characteristics should strongly influence the transfer decision • estimates are consistent with the altruistic hypothesis of transfers • inverted U-shape impact of the donor’s income on the probability of a monetary transfer • richer parents are less likely to receive a financial transfer • no impact of either income or expected wage on the provision of upward time transfers • parents of poorer health are more likely to receive informal care.

27. Econometric results (2) • results from recursive, bivariate Probit modelswe exclude parents’ characteristics, household’s level of income and home ownership from the labor force participation equationwe exclude from the transfer equations both the variable indicating problems in reading or writing French and the local rate of unemployment. • (1) sample of immigrants whose parents live in the origin countryexogenous : significant value of 0.348 for the financial transfer variable in the labor equationendogenous: the transfer coefficient is equal to 1.319(i.e. negative correlation between the error terms from the labor supply and transfer equation) • (2) sample of immigrants whose parents live in the origin countryno significant relationship under the exogeneity assumptuinno causal impact of the time transfer decision after correcting for endogeneity

30. Conclusion • migrants grow older, especially in Europe => caring for parents becomes an important concern • (1) the location of parents is a very significant predictor when parents are living in France, they mainly receive time-related resources when parents live in the origin country, migrants send primarily cash gifts(2) upstream transfers are more likely to be consistent with an altruistic motive poorer parents are more likely to receive cash gifts time transfers mainly benefit to the most needy parents(3) does helping parents influence the labor participation of migrants ? IV approach: causal effect of cash gifts on the donor’s labor supply no incidence for informal care • Results from the causal analysis stand in contrast with studies performed on natives=> do migrants and natives have different strategies to care for their elderly parents?=> need of comparative analyses