The Unintended Consequences of Informal Childcare Subsidies for Older Women ’ s Retirement Security

Grandmothers provide a significant amount of childcare in the US, but little is known about how this informal, and often uncompensated, time transfer impacts their economic and health outcomes. This project addresses the impact of federally funded, state-level means-tested programs that compensate grandparent-provided childcare on the retirement security of older women, an economically vulnerable group of considerable policy interest. Childcare assistance can be used to compensate grandparent-provided childcare and/or to substitute market care for grandparent care. I use the variation in the availability and generosity of childcare subsidies to model the effect of government payments for grandchild care on grandmothers’ time use, income, earnings, interfamily transfers, and health outcomes. After establishing that more generous government payments induce grandmothers to provide more hours of childcare, I find that grandmothers adjust their behavior by reducing their formal labor supply and earnings. Grandmothers make up for lost earnings by claiming Social Security earlier, increasing their reliance on Supplemental Security Income (SSI) and reducing financial transfers to their children. While the policy does not appear to negatively impact grandmothers’ immediate economic well-being, there are significant costs to the state, in terms of both up-front costs for care payments and long-term costs as a result of grandmothers’ increased reliance on social insurance.