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An increase in life expectancy brings about an aging society, necessitating increasing demand for elderly care services. The purpose of this paper is to present an examination of: how an aging society affects the demand for elderly care services and the labor market for elderly care services; how the labor share and wage inequality between the final goods sector and elderly care sector are determined; and whether the subsidy for elderly care service increases demand for elderly care services or not.

This paper sets the dynamics general equilibrium model with two sectors model: one for final goods sector and the other for elderly care services. This paper derives how the labor supply for elderly care services is determined in the theoretical model. In addition to analytical research works, this paper examines how the subsidy for elderly care service affects the labor share allocated for elderly care sector and wage inequality between the final goods sector and the elderly care sector with the numerical examples.

Related reports of the literature describe that an aging society raises the share of labor dedicated to elderly care services. However, considering a closed economy in which saving affects the capital stock, an aging society does not always raise the share of labor used for elderly care services because the wage rate of the final goods sector increases with an aging society. This effect prevents the increase of the labor supplied to elderly care services. On the other hand, the subsidy for the elderly care service raises the labor share of elderly care sector.

The related literatures derive that an aging society raises the labor share allocated for elderly care sector. However, the paper shows that the subsidy for elderly care plays an important role in the increase in the labor share of elderly care sector.

This paper examines how the aging society affects the labor share of elderly care sector, wage inequality between final goods sector and elderly care sector and others with numerical examples. Thanks to the numerical examples, this paper derives the quantitative result and shows how the subsidy for elderly care service should be provided.

The author thinks that this paper has rich implications and originality. There exists no literature that examines how the labor share of elderly care sector and the relative wage rate of elderly care sector are determined by the aging and the subsidy for elderly care service. The author thinks that it is a very important analysis because many economically developed countries face the aging society problem.