Essays on illness and labor market outcomes in Kenya

Abstract

Kenya faces a high and rising burden of disease with chronic illness becoming an important contributor to the disease burden. Health as a capital stock can be expected to affect positively individual ’ s labo r sup ply and labor productivity , thereby generating economic benefits. High disease burden would erode such benefits yet like many SSA countries, Kenya is relying on its labor force to achieve the projected economic growth . Despite the potential negative labor market effect of illness and the rising disease burden in Kenya , there is limited empirical evidence on the relationship between self reported illness, labor supply and earnings . The purpose of this thesis was to investigate the relationship between illnes s and three labor market outcomes: labor force participation, employment status and earnings. The data are drawn from a nationally representative household survey conducted by the Government of Kenya. In chapter one, the objective was to examine the e ffect of illness on individual labor force participation by gender. A standard probit model was estimated. T o control for potential endogeneity of the health variable and unobserved individu al heterogeneity , control function approach was employed. The resu lts do not reveal evidence on endogeneity and unobserved heterogeneity bias. Standard probit estimates indicate that acute and chronic illnesses reduce the likelihood of labor force participation . The negative effect of chronic illness is larger than that of acute illness. Bo th illnesses reduce the likelihood of labor force participation among women by a larger magnitude than among men. The findings imply that illness is a major constraint to la bor force participation in Kenya . Effective policies and interv entions to reduce prevalence of chronic and acute illness would bring more Kenyans into the labor force. Moreover such policies and interventions sho uld be targeted to women. Chapter two examined the effect of chronic and acute illness on individual ’ s em ployment status . M ultinomial probit model was estimated because the IIA assumption underlying the multinomial logit model did not hold in the data used in this thesis . The employment states considered were : wag e employment, agricultural self - employment, no n - agricultural self - employment and not working. The results indicate d that c hronically ill women we re less likely than non ill women to be in wage employment and in agricultural self - employment . For men, having chronic illness did not significantly influen ce employment status. The results also indicate d t hat having an acute illness did not significantly influence employment status of either men or women . By affecting individual ’ s choice of type of employment, illness affects labor allocation and reallocati on with implications for economic transformation and growth. The results imply that policies and interventions to reduce incidence of chronic illness would increase wage employment among women. This is important since relative to other forms of employment, wage employment is associated with higher earnings and benefits ( such as job security and health insurance ) . Such policies and interventions would also increase participation in agricultural employment. The objective in chapter three was to investigate the relationship between illness and earnings in wage employment , agricultural self - employment and non - agricultural s elf - employment . A control function approach was used to ac count for potential endogeneity and unobserved individual heterogeneity . S ample selection bias was controlled for using a two step approach suggested by Bourguignon, Fournier and Gurgand (here after BFG) . The results reveal evidence of the three econometric problems, justifying use of control function approach and controlling for samp le selection bias . Full sample results indicate d that both acu te and chronic illnesses have negative and significant effect on wage employment earnings . In contrast, both illnesses do not significantly affect earnings in self employment. When the analysi s wa s done by gender, only chronic illness significantly affects wage empl oyment earnings and the effect wa s larger for men than for women. Public policies and interventions that effectively reduce the incidence of chronic and acute illness would increase wage incomes and help in poverty reduction