In this paper we document how macroeconomic conditions affect the prices, provision, and quality of long-term care in Germany. We use a large administrative data set which contains rich information on all providers and the universe of recipients of long-term care. For the identification we exploit variation in the unemployment rate across regions and over time and use a panel data approach with regional and time fixed effects. The key innovation of our paper is that we can directly estimate price effects and link these to effects on employment and quality of formal care. We show that an economic downturn increases the price for long-term care as well as the price for accommodation and meals in nursing homes. This is in line with our findings that the provision and quality of long-term care vary over the business cycle. The estimated price effects are stronger in larger nursing homes and in regions with higher wages. Overall, our findings highlight the relevance of policies which guarantee that care demands are met over the business cycle.
(joint work with Johannes Geyer and Peter Haan)