Formal and Informal Care: Substitutes or Complements?
January 2025
Can informal caregiving substitute formal care?
How do regional and policy differences shape the relationship between informal and formal care?
Global Aging Trends
Challenge: Growing elderly population strains healthcare, pensions, and long-term care systems. Key Statistics: By 2019, 12.6% of China’s population (176M) was aged 65+. EU healthcare accounted for 7.8% of GDP in 2020.
Care Systems and Demand
Interaction between formal and informal care systems under different policy and cultural settings.
Key Studies:
Bonsang (2009): Europe
Liu (2021): China
Unpaid caregiving by family, friends, or neighbors.
Assistance with daily living activities (e.g., transportation, emotional support).
Key Role: Crucial in low-resource settings or when formal care is inaccessible. Supports individuals with limited mobility or chronic conditions.
Regional Insights:
Europe (Bonsang, 2009): Substitutes low-skill formal care.
China (Liu, 2021): Central in family-based caregiving systems.
Professional, paid caregiving services (e.g., nursing homes, hospital care).
Key Role: Addresses high-dependency needs and provides specialized support.
Regional Insights:
Europe (Bonsang, 2009): Interaction with informal care.
China (Liu, 2021): Complements informal care via LTCI policies.
To meet elderly needs in different contexts.
Substitution vs Complementarity:
Europe: Informal care substitutes formal care (Bonsang, 2009).
China: Formal care complements informal care (Liu, 2021).
Policy Implications :Balancing availability, cost, and societal roles is crucial by optimizing caregiving systems.
Overlap between informal and formal care functions:
For elderly individuals with lower levels of disability, informal care can directly substitute services provided by formal institutions (Bossang, 2009).
However, for those with higher levels of disability, formal care such as caregiving services or community health programs can provide technical or rehabilitative support, alleviating the burden on caregivers and enhancing complementarity.
Elderly Disability Level: Substitution is more likely for elderly individuals with lower levels of disability, whereas complementarity tends to occur for those with higher levels of disability.
Cultural and Policy Contexts:
-Southern Europe (e.g., Italy): Stronger tradition of family caregiving leads to a greater substitution effect of informal care.
-Northern Europe (e.g., Nordic countries): A well-developed welfare system and formal care infrastructure enhance the complementarity between formal and informal care. -China: The LTCI (Long-Term Care Insurance) pilot policy has promoted the interaction between formal and informal care.
the causal effect of informal care on the demand for formal care
two-part model:
First,decision about receiving the treatment.(Yes or no ->binary probit model)
Second,Level of treatment conditional on receiving any (log-linear regression model)
Variable Explaination
Variable
|
Explanation |
|---|---|
| X_i | socio-deomographic characteristcs |
| D_i | disability level |
| h_{ij} | informal care |
| g_{ij} | the parent’s utilisation of formal care |
The probability of elderly individuals to receive formal care is the linear combination of predictors through the standard normal cumulative distribution function (CDF) Φ(⋅).
P(g_{ij} > 0 \mid X_i, h_i, D_i) = \Phi\left(\gamma{1j} + X_i \gamma{Xj} + \gamma{hj} \ln(1 + h_i) + f(D_i, \gamma{Dj})\right)
Example:
socio-demographic Variables X_i:Age : 65 years and Gender:Female(Female=1,Male=0)
Weekly informal care h_i: 20 hours.
Disability score D_i: 3 (on a scale of 1 to 5).
\Phi\left(\gamma_{1j} + \text{Age}_i \cdot 0.02 + \text{Gender}_i \cdot 0.5 + \gamma_{hj} \ln(1 + h_i) + f(D_i, \gamma_{Dj})\right)
=\Phi(2.38)\approx0.991
Thus,the probability of elderly individuals choosing to receive formal care is very high (99.1%), because the high disability score and the moderate contribution of age.
\mathbb{E}[\ln(g_{ij}) \mid g_{ij} > 0, X_i, h_i, D_i] = \beta_{1j} + X_i \beta_{Xj} + \beta_{hj} \ln(1 + h_i) + f(D_i, \beta_{Dj})
Continuing Example：
For a 65-year-old elderly individual, female, receiving 20 hours of informal care per week, and with a disability score of 3, the average intensity of formal care received is approximately 5.2 units (e.g., weekly hours of care or the cost of care services).
Goal:Evaluate the effciency of formal and informal care and assess the impact of policy interventions on caregiving systems.
Two-Tier Stochastic Frontier Analysis
First Tier：Has formal care improved the efficiency of informal care through resource utilization?->efficiency fucntion
Second Tier: The impact of policy interventions on caregiving efficiency.->separate random noise from efficiency factors
Decompose the gap in actual care levels into the explainable part (influenced by family and community characteristics) and the uncontrollable part (random factors）
\text{Informal_care}_{it} = i(x_{it}) + v_{it} - u_{it} + w_{it}
i(x_{it}) is the optimal level of informal level
v_{it} - u_{it} + w_{it} is a random inference item
u_{it} is the complementary effects of formal care on family care
v_{it} is the substitute effect on informal care
| Feature | Bonsang (2009) | Liu (2021) |
|---|---|---|
| Research Region | Europe (11 countries) | China (15 provinces) |
| Research Subjects | Elderly individuals aged 65 and above with 1 to 4 children | Elderly individuals aged 60 and above |
| Sample Size | 7,329 observations | Longitudinal data spanning 1989–2015 across 12 provinces and cities |
| Focus of Effec | Substitution effect | Substitution and complementary effects |
| Unique Focus | Informal care in low-skill tasks | Impact of LTCI pilot program on formal and informal care relationships |
Assumption: A certain region implements LTCI insurance, to reduce the burden of informal caregiving
•Dependent Variable: The frequency of receiving personal care, household assistance, and family-related support for elderly individuals.
•Independent Variable: Participation in the LTCI policy (0 = not participating, 1 = participating).
•Control Variables: Household income of the elderly, health status, and regional development level.
•Results: Elderly individuals participating in LTCI reduce the need for personal care provided by family members but increase informal caregiving support related to household assistance.
Assumption: In Southern Europe, formal caregiving services (e.g., domestic services) replace children’s provision of family caregiving for their parents.
•Dependent Variable: Whether the elderly receive help from their children.
•Independent Variable: Whether formal domestic services are employed.
•Control Variables: Health conditions of the elderly and family structure.
•Results:Elderly individuals using formal domestic services are less dependent on family caregiving provided by their children, demonstrating that formal caregiving has a substitutive effect on informal caregiving.
Substitution or Complementary?
| Substitution | Complementarity |
Instrument Validation
Disability Level Impact
Policy Implications
Questions?