The effect of grandchildren on grandparental labor supply: Evidence from Europe

Abstract

Grandparents at working age frequently take care of their grandchildren. These time transfers may constrain the formal labor supply of grandparents. Using an instrumental variable strategy and multiple waves of the Survey of Health, Ageing and Retirement in Europe (SHARE), we estimate the causal effect of grandparenthood on the labor supply of working-age grandparents in ten European countries. We find a large negative impact of grandparenthood on the employment rate of women aged 55 to 64. The effect is particularly pronounced in countries where the availability of formal childcare is low. A complier characterization reveals that the large LATE applies to a small but not selected group of potential grandmothers and may explain a substantial share of the gender gap in employment at later working age. Male labor supply does not significantly adjust in response to grandparenthood. We further find that grandmothers are more likely to transfer gifts to their children than women who are not grandmothers, whereby grandmothers substitute between time and gift transfers.