A Subsidy for Dignity

A successful idea from Europe can make eldercare more affordable—and provide well-paying jobs—as the boomers approach retirement.

In the aftermath of the Great Recession, the United States may be afflicted by high levels of unemployment for years to come. Compounding the challenge to public policy is the fact that many jobs in many sectors will never be restored, either because they depended on debt-enabled demand during the bubble economy years, like many jobs in finance, real estate, and construction, or because they are vulnerable in the long term to offshoring or automation.

At the same time, the aging of the American population will create growing demand for personal services, including but not limited to medical care. About a fifth of the U.S. population will be older than 65 by 2050. For this reason, social assistance and health-care services are set to be the fastest-growing sectors of our economy for the next decade.

If labor markets were as frictionless as they are assumed to be in the ideology of free-market fundamentalism, labor would flow easily from labor-shedding sectors like construction to sectors like eldercare, where labor is in growing demand. In the real world, however, this doesn’t really happen organically. It takes intelligent public policy to direct, accelerate, and smooth such historic transitions.

In today’s polarized, unequal America, in which a small minority has enjoyed many of the gains from economic growth in the last generation, a disproportionate share of service-sector job creation may come in the form of luxury services for the rich few. This inflates the number of maids, nannies, pool boys, and other servants in the workforce. At the same time, on the demand side, growing numbers of middle-class and poor Americans might find themselves unable to afford the kind of personal assistance that would enable them to stay in their homes and function normally as long as possible in old age.

Economists have long identified a category of “merit goods”—goods that citizens in any society need in order to live according to widely shared conceptions of dignity but are undersupplied by the free market. While Medicare, Medicaid, and other programs already provide the merit good of affordable health care to the elderly and the poor, a case can be made that non-medical personal assistance for the elderly should be defined as a merit good as well. The elderly need assistance in performing daily, non-medical activities, such as bathing, dressing, eating, getting in and out of chairs, walking, using the toilet, using a telephone, preparing meals, shopping, managing money, and other housework. Currently, an informal care market largely serves their needs: An estimated 43.5 million American adults play the role of unpaid part- or full-time caregiver. This gray sector represents millions of potential jobs, foregone contributions to Social Security and Medicare for individuals, and unknown losses in tax revenues for local and federal governments. Eldercare also contributes an estimated $33.6 billion in costs to businesses per year in lost worker productivity, as middle-aged employees rush off work in emergencies to care for their parents, and an additional $13.4 billion in increased health-care expenses due to increased stress for working caregivers.

Public policy also has a role in correcting another market failure: inadequate compensation. It is seldom pointed out that the creation in recent years of a huge group of the “working poor” in many unskilled or semi-skilled service-sector jobs has been indirectly enabled by programs of the welfare state, like food stamps or wage subsidies in the form of the earned-income tax credit. These programs allow workers to work in jobs that pay wages that are inadequate for minimum subsistence—jobs like store clerk and gardener. In practice, conservatives as well as centrists have long accepted a role for government in “topping up” low market wages with a “social wage” of some kind. Why not address the challenges of unemployment and of aging by subsidizing private-sector jobs with decent wages for workers who specialize in assisting the elderly? It is possible for the government to subsidize private-sector eldercare jobs while boosting the ability of the non-rich elderly to pay for non-medical personal services. We propose here a policy innovation that has worked well in other, similar democracies: service vouchers.

Service Vouchers: A Proven Success

This is how a service voucher works. Individuals who qualify receive vouchers from the government that they can use to employ workers for domestic service tasks such as shopping or housekeeping for nothing or a modest fee. The service workers must be employed by a certified company. The government subsidizes the employer so that the worker receives a decent wage that is the sum of the voucher user’s payment plus the government subsidy.

Service-voucher programs have been successfully implemented on a national scale in a number of European countries, including Belgium, France, and Sweden. These programs were created to stimulate both formal sector employment and “consumer directed” household and personal care for the non-elderly and elderly alike. Family caregivers can choose to work full time or remain as a caregiver, but in the formal sector. Belgium, for example, started a federal program in 2004 that offered subsidized vouchers (titres-services) for domestic services, to be redeemed with government-accredited companies. Individuals living in Belgium can purchase 750 tax-deductible vouchers (each voucher is worth one hour of service) per calendar year, or 2,000 if they are disabled, have a disabled child, are elderly, or are a single parent. The cost of the service is split between the user (who pays about one-third of the cost of the service after taxes by purchasing the voucher) and the government, which pays about two-thirds of the cost of the service through two routes: tax deductions to the user and direct reimbursement of costs to the service provider.

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