The Chicken or the Egg

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 panel data techniques and employing data from the British Household Panel Study for 1991 to 2002 this paper shows that not accommodating for endogeneity in the labour market participation equation may significantly overestimate the impact care exhibits on the employment decision of informal carers. Moreover, it is shown that a negative impact on employment only applies to some care-types. Policy implications are derived. JEL-Classification: J22, I11, C10