revised version published in: Journal of Health Economics, 2007, 26 (3), 536-559
Informal care is a vital pillar of the British welfare state. A well-known fact in the small
economic literature on informal care is the apparent negative relation between care
responsibilities and labour market participation. Yet, caring and labour market participation
may be endogenous. Using an instrumental variable approach and data from the British
Household Panel Study for 2002 this paper shows that not accommodating for endogeneity
in the labour market participation equation may significantly underestimate the impact care
exhibits on the employment decision of informal carers. This is the more the case the smaller
the choice of becoming a carer. Policy implications are derived.
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