Labor Engine or Welfare Trap: New Evidence from the Impact of China's Long-Term Care Insurance Policies on Labor Market Performance

Abstract

The long-term care insurance system is a crucial social service policy for disabled and elderly individuals with dementia in the context of the unfeasible traditional family old-age care model. Through the support of the social insurance model for old-age care security, it effectively addresses and meets the actual needs of long-term care recipients. This has become a significant way to alleviate the burden of disabled and demented elderly individuals, mitigate the impacts of ageing, and create employment opportunities for family caregivers. Using the long-term care insurance pilot policy implemented in Qingdao in 2012 as a quasi-natural experiment, this paper estimates the influence of long-term care insurance on the labor market performance of the pilot city using the synthetic control method of project policy evaluation. Several robustness tests of the labor market effects of long-term care insurance are conducted, utilizing two placebo methods based on time and space, and the ranked test method. The study's findings demonstrate that the implementation of the long-term care insurance policy pilot has a constructive influence on the employment choices of workers in the labor market. Specifically, it encourages participation in the workforce and expands the scale of labor force participation in the pilot cities. Furthermore, the policy's effect strengthens over time and has a marked positive effect on average employee wages, thereby spurring labor supply growth. Through further analysis, it can be determined that the pilot cities have contributed to an average annual growth of around 1 million people in total labor force participation between 2013-2017, surpassing the potential growth rate by approximately 10.5%. Additionally, during this period, the average employee wage displays a linear upward trend with a maximum increase of over 5,000 pounds per capita per year. This suggests a substantial effect on the overall performance of the labor market due to its growth-promoting influence. In addition, the analysis of the heterogeneity of its impact mechanism demonstrates that the long-term care insurance policy aims to enhance the willingness of tertiary industry workers to work and considerably increase the likelihood of their entry into the labor market. It also improves labor income expectations of urban private and self-employed workers, resulting in a virtuous circle of enhanced labor and employment driven by the increased value of labor and the strengthened willingness to participate.