Authors: Abhishek Dureja, Digvijay S. Neg

SERI Working Paper No. 3

Abstract: In developing countries where medical infrastructure and service delivery system, and the market for health insurance are underdeveloped, one important mechanism to cope with the consequences of health shocks is the intra household substitution of labour. Most of the available studies have evaluated intra-household labour substitution in response to a health shock using low frequency data. This paper, using a panel of high frequency monthly data from the rural households in the semi-arid tropics of India, investigates the impacts of short-term illness shocks on individual’s labour supply and wage earnings. It also evaluates compensating intra-household labour supply responses to short-term illness shocks of other non-ill members of the household. We find that an illness shock reduces an individual’s monthly wage earnings by 4.3% via the decline in the individual’s days of employment in the labour market. Further, an illness shock to the household-head causes a compensating increase in the spouse’s labour supply in wage labour market and livestock activities. Similarly, an illness shock to the spouse induces the household-head to devote more time to domestic and livestock activities.