The impacts of health shocks on child labor evidence in vietnam

This study also considers whether the buffering effect of asset holdings and access to credit are existence to cushion the impact of health shocks on child labor.. The main findings indi

UNIVERSITY OF ECONOMICS ERASMUS UNVERSITY ROTTERDAM

HO CHI MINH CITY INSTITUTE OF SOCIAL STUDIES

VIETNAM – THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE IMPACTS OF HEALTH SHOCKS ON

CHILD LABOR: EVIDENCE IN VIETNAM

BY

NGUYEN THI HA GIANG

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, December 2017

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE IMPACTS OF HEALTH SHOCKS ON

CHILD LABOR: EVIDENCE IN VIETNAM

A thesis submitted in partial fulfilment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

DECLARATION

I hereby declare that my thesis entitled “Impacts of health shocks on child labor: An

evidence from Vietnam” is the result of my own work and includes nothing which is the

outcome of work done in collaboration except as declared in the Preface and specified in

the text

My dissertation is not substantially the same as any that I have submitted, or, is being

concurrently submitted for a degree or diploma or other qualification any other University

or similar institution except as declared in the Preface and specified in the text

I further state that no substantial part of my dissertation has already been submitted, or, is

being concurrently submitted for any such degree, diploma or other qualification at any

other University or similar institution except as declared in the Preface and specified in the

ABSTRACT Base on household decisions relating to child labor, this paper employs the

Young Lives Dataset and Heckman’s selection model to explore the impacts of health shocks on child labor in Vietnam during the period of 2006-2009 This study also considers whether the buffering effect of asset holdings and access to credit are existence

to cushion the impact of health shocks on child labor The main findings indicate health shocks only impact on the decision send the child to work, meaning increase the probability of the child labor participation Asset holdings is the significant mechanism

to households coping with health shocks Also, the buffering effect of assets on the child labor participation is found However, the access to credit is not significant in both functions Additionally, poverty still remains as the crucial factor to determine child labor

JEL Classification: D13, J13, J22, O12

Keywords: child labor, health shocks, buffering effect, heckman’s selection model

Abbreviations:

December 2017

Table of Contents

ABSTRACT iii

CHAPTER I: INTRODUCTION 1

1.1 Problem Statement and Significance of Research 1

1.2 Research Objectives and Research Questions 4

1.3 Scope of the study 4

1.4 Structure of Thesis Design 4

CHAPTER II: LITERATURE REVIEW 5

2.1 Economic Child Labor 5

2.2 Impacts of Health Shocks on Household Outcome 10

2.3 Response of Household with Health Shocks 12

2.4 Health Shocks and Child Labor 15

CHAPTER III: RESEARCH METHODOLOGY 19

3.1 Research Methodology 19

3.1.1 Analytical Framework 19

3.1.2 Econometric Model 22

3.2 Vietnam Young Live dataset Overview 28

CHAPTER IV: RESULTS AND DISCUSSION 29

4.1 Descriptive statistics 29

4.2 Regression results 32

CHAPTER V: CONCLUSION AND POLICY IMPLICATIONS 40

REFERENCES 42

APPENDIX 46

The list of Table and Figure

Table 1: Variable Definition 27

Table 2: The child’s work hour following gender and the type of site 29

Figure 1: The graphical relation between the child work hour and the child age 29

Table 3: Distribution of child labor following the child age 30

Table 4: Description of health shocks 30

Table 5: The statistical description health shocks and child labor 31

Table 6: Description of using variables 32

Table 7: Results of Heckman’s selection model 33

Table 8: Marginal effect on the child labor participation function 34

CHAPTER I: INTRODUCTION1.1 Problem Statement and Significance of Research

Child labor and health shocks are interesting topics in both pieces of research as well as policy aspects, especially in developing countries Most of all governments admit the important role of children protection and of constructing a good environment for the child development (UNESCO, 2008) Therein, child labor reduction is one of the main goals that numerous international organizations and governments are trying to achieve the improvement Regarding health shocks, many studies indicate its wide range of negative impacts on household outcome including children’s life (Beegle et al, 2004; Dilion, 2012; Alam & Mahal, 2014) Understanding deeply both research areas and linking them together create a valuable research direction and still useful to contribute to the child development Related to this connection, this paper puts health shock’s consequence and child labor work together in order to explore, interpret and build an improvement for the child development in Vietnam and developing countries as well The below presentation will bring a whole picture to access this issue as well as provide grounds that this research

is to deserve your attention

Regarding health shocks, these are the important sources of household risks in developing countries, which are able to raise negative potential impacts on household outcome such as income reduction, out of expenditure and unbalancing labor supply In addition, psychological problem and the persistence of serious disease may be the long-term effects on the life of families (Alam & Mahal, 2014) Health shocks are considered

as idiosyncratic risks that are difficult to predict as well as being costly household budget (Wagstaff, 2007; Bandara et al, 2015; Mitra et al, 2016) Following World Bank (2017), the crude death rate (per 1000 people) in Vietnam increases significantly during the period

of 2002-2014, from 5.521% to 5.815% The one main cause of death comes from the cardiovascular diseases and diabetes (WHO, 2015) According to the report of Hanoi School Public Health (2016), the total health expenditure in Vietnam increases from 5.2%

of GDP to 6.9% of GDP, at nearly 191,000 billion VND in 2014, where the private healthcare spending constitutes more than 52% of the total healthcare expenses In particular, the healthcare expenditure of each household experiences a rise of $11.4 in 2002-2014 per month, reaching about 116 USD each year It is noticed that the health care cost still remains as the catastrophic expenditure which the rate of out of pocket expenditure and the private expenditure on health accounts for more than 80% (2014),

compared with 45.5% of that of the world (World Bank, 2017) In other words, the high healthcare spending can lead a burden that can push households to impoverishment Besides, results from other studies in Vietnam provide various empirical evidences about negative impacts of health risks such as earned income reduction, out of pocket expenditure, reducing labor productivity and falling the individual's BMI (Wagstaff, 2006; Van Minh et al, 2012, Bales, 2013) Therefore, it is not difficult to admit that health shocks create disturbances in the household life and should be noticed in a developing country like Vietnam

Under pressure of health shocks, households will apply different strategies in order

to protect their life become more stable There is a wide range of different coping strategies that families can consider to respond the health shock’s consequence such as using savings, trading livestock, selling assets, accessing the credit, changing household labor supply, especially including the using of child labor (Bandara et al, 2015; Bonfer & Wright, 2016) Under the shortage of budget and labor force, parents may decide to send their children to enter into the labor market without other mechanisms (Basu &Van, 1998) Children may spend more time to work to find income for solving the smooth consumption problem or substituting employment for people occurring the health risks and caring patients as well Besides, when household members occur the death or illness, children are also aware of their hard circumstances and desire for helping their families In another aspect, the demand for unskilled labor as child labor might remain in a high level of low-income and middle-income countries, where the agricultural sector plays an important role Furthermore, if households occur health shocks, using child labor in these areas is expected to increase more than others (Brown et al, 2002)

The involvement of children in the workforce can have the negative impacts on childhood as well as children’s future life (ILO, 2013) In other words, when children spend more time for work activities than study or leisure, their human capital are difficult

to remain in the good status Besides, child labor can relate to the poor nutrition and survival of children as well In several cases, children even have to work the much hours and overtake their ability, and this can generate the huge vulnerable sequels on children Some children even cannot attend school, others seem to lose the life as normal children

A research of Beegle et al (2004) find the significant negative effect of child labor on school attainment in the Vietnam As the results, child labor also can reduce the human

capital of the child while the child’s contribution plays a vital role in raising economic development in the future

Indeed, child labor still exists although it is prevented by many international conventions as well as domestic laws For the legislation of child labor, Vietnam government gives some decisions related to lessening the employment of children In distance, Vietnam sanctioned the international conventions for children rights such as the Worst Forms of Child Labor Convention (Ratifications of C182) in 2000 and Convention Concerning Minimum Age for Admission to Employment of ILO (C138) in 2000 In the internal nation, the Vietnamese government passed the amended Labor Code in 2012 prohibits the child labor under the age of 15, excluding some exceptions; Circular No.10/2013/TT/LDTBXH (2013) listed occupations and locations where adolescent labor

is prohibited Besides, it takes into account for Decision No 1023/QD-TT issued by Vietnam's Prime Minister in June 2016 about the national project of preventing and minimizing child labor This program will take place over the period 2016-2020, with main targets are to attack illegal child labor, lessen child labor as well as protect the childhood before the sequel of child labor by providing various opportunities development

to children However, the number of children attending economic activities in Vietnam still remains at around 2.83 million individuals, responding nearly 86% in rural area, and 1.315 million children belonged to hazardous labor (Viet Nam National Child Labor Survey, 2012) Also, the survey indicates that children aged from 5-17 those who do not attend school result in doing the salaried work and chores as well as incapable of education investment, around 21% and 9.2% respectively Therefore, it cannot be denied that although there are various efforts of the government to protect children rights, child labor

is still persisted

Above overview poses interesting stories to study in both topics of child labor and health shocks in Vietnam Many specific studies also focus on the consequences of risk events on the household outcome, especially impacts of health shocks and coping strategies (Wagstaff, 2007; Mitra et al, 2015) Besides, many researches relate to children and child labor (Rosati & Tzannatos, 2000; Edmonds & Pavcnik, 2002; Beegle at al, 2004) However, the relationship between health shocks and child labor seems to be a gap This paper will connect both child labor and health shocks work together Besides, this study also considers whether other mechanisms such as household own asset and access the credit can help households coping with these risks to instead of using the child

employment In other words, whether the existence of the buffering effect of asset holdings and access to credit on child labor when households experience health shocks From there, the paper can give some recommendations to assist families in protecting childhood through mitigating child labor in Vietnam

1.2 Research Objectives and Research Questions

The study focuses on the main objective is to consider the impacts of health shocks

on child labor in developing countries, using Vietnam's Dataset as an example Particularly, the paper will explore the change of children's working time when households experience one or several shocks related to health such as the death or illness of the family member Besides, the paper considers some other mechanisms that households can use to reduce the impacts of health shocks on child labor (if it exists) In order to achieve objectives, the study will find the answer to two research questions

(i) The first question: if a family experienced health risk events such as death, illness of household members, the child labor will increase or not?

(ii) The second question: whether other mechanisms such as accessing the credit, asset holdings can reduce the negative effects of health shock on child labor?

1.3 Scope of the study

The study focuses on the relationship between child labor and health shocks, both subjects are interesting stories to explore as well as improve for developing countries Using a longitudinal dataset for Vietnam from Young Live project of UK, the paper employs data from 2006 and 2009 responding with child labor ranking from 4 to 16 years old

1.4 Structure of Thesis Design

This study is organized as following manners Chapter 2 presents some related theories and empirical studies about economics child labor, the consequence of health shocks on the household outcome, household responses with health shocks and the relationship of health shock and child labor Chapter 3 shows the research methodology including the theoretical model and estimate model as well as an introduction to Vietnam Young Live dataset The data statistical description, estimation results, and discussions will be illustrated in Chapter 4 The final Chapter will give some remarkable conclusions

CHAPTER II: LITERATURE REVIEW 2.1 Determinants of Child Labor

Child labor is the familiar term in the economic development and is defined with widen extents In common definition, child labor includes the employment of children that work in some areas that is able to have the harmful ability to the child welfare such as business, agricultural or industrial activities In some cases, it also contains domestic activities if these activities account for the large time of the child The age of child labor puts below a standard level depend on the views of organizations as well Following the definition of International Labor Organization (ILO) where is known as a background organization related to labor in the world, "Child labor is often defined as work that deprives children of their childhood, their potential, and their dignity, and that is harmful

to physical and mental development" Children aged 5 to 17 years old can be classified as child labor However, the interpretation of "harmful" to the child's development is not consistent among organizations as well as empirical studies Edmond (2008) argues that the harmful activities are activities creating the negative effect on children's welfare and the harmful degree of activities is depended on the age and the characteristic of each child

In fact, various papers consider child labor with the widen scope containing both economic and domestic activities It is not denied that even the time allocation for work activities which is not followed by definition of ILO, it also can drop the time spending for study and leisure as well, meaning potential reduction on the child development Hence, various previous papers employ the extent term of child labor (Bazen & Salmon, 2008; Dillon, 2012; Bandara et al, 2015; Alam, 2015) This paper integrates the wider definition of child labor as well In particular, this study focuses on children belonging the age interval between 4 and 16, and engaging to activities including the outside work (unpaid and paid wage) and the domestic work (caring other members and do chores)

Regarding the fundamental theory of child labor, Becker (1965) presents the standard work – leisure model about the allocation of the child's time based on the household decision-making In particular, parents would make decisions with the assumption of maximizing their household utility, based on the perfect market, initially at least Backer's function includes the quantities of the child, the child education, the leisure

of the child and parents, and household expenditure This model argues that if non-labor income increases, the leisure time is expected to increase as well Developing another basis child labor model, Basu and Van (1998) approach in both labor demand and labor supply

side with the assumption that parents push their children to labor market since they have

to face the concern about their family's survival Besides, the study argues that parents will make the decision to substitute between adult labor and child labor through comparing the market wage with the adult wage and children wage In other words, parents will make decisions to maximizing utility between consumption and child labor under constraint of household budget

In the whole picture about child labor determination, child labor can be affected

by the crucial factors such as poverty, the imperfect market, and household characteristics (Basu & Van, 1998; Baland and Robinson, 2000; Bandara et al, 2015)

Numerous studies suggest that the main source of child labor might be from poverty Basu and Van (1998) argue that altruistic parents willing to send their children to work only if households have to face the shortage of income In other words, poverty is the main cause in order to parents make the decision use child labor In a basic model of child labor, Basu and Van (1998) use two assumptions and named as the term of "Luxury Axiom" and "Substitution Axiom" In particular, "Luxury Axiom" is stated that children will be sent to the labor market only if the household income not coming from child labor stands in the very low level While the "Substitution Axiom" means that child labor and adult labor can substitute each other under the market view In short, under the financial pressure, families can use child labor as a substitution for adult labor, and child labor can contribute income to remain the survival of households as well This is similar to the results of Edmonds and Pavcnik (2005), showing that when households are wealthier, child labor also performs a decrease Similarly, Ray (2000) finds the positive relation between poverty and child labor both in Peru and Pakistan The richer household is expected to invest more than in the child's human capital, then use less more the child work (Dumas, 2013) In addition, several risks such as crop shocks and health shocks, also are the potential sources of poverty for households, can affect dramatically to the declining household income From that, households may reallocate the time to work, leisure and education of children unless other coping strategies are available at the required scale In other words, households which occur shocks are able to use more child labor than others Some empirical papers have presented the evidence that child labor is considered as the response of households to cope with shocks with the lack of other coping mechanisms (Cain, 1982; Murduch, 1999; Gertler & Gruber, 2000; Dillon, 2012) Jacoby & Skoufias

(1997) find there is different between male and female child work under the pressure of credit constraints

Dumas (2013) considers land as an important wealth resource of households, not only creating the household income but also used as a collateral item to access to credit, especially in the rural area However, the effect of landholding is dynamic depending on the degree of the interaction between the wealth effect and the substitute effect Studying

in India, Basu et al (2010) illustrate the relationship of child labor and land size as an invert U-curve, meaning that the higher degree of own land will raise the time children spend to work until the maximum point, and then child work time will reduce gradually

Using the VHLSS 2008 in Vietnam, Hien (2012) studies the impacts of land size

to child labor, focusing on the child from 10-14 years old In conclusion, the main finding

is found that farm land plays an important role that causes child labor under the failure of labor market Besides, the result also indicates the significant non-linear relationship between land size and child labor in participation decision It is should be noted that this analysis considers child labor as a two-stage of decision-making Thus, Heckman selection model and double-hurdle model present the better than tobit model

The other crucial factor which also interprets child labor is the imperfection of the market The existence of the imperfect market departs primarily from the problem of information asymmetry Dumas’s study (2013) finds that the imperfection of the labor market makes an increase of child labor For examples, if households face agriculture shocks where make change their output of production, they are difficult to find the additional tenants This makes an increase of the transaction cost, following that hiring employers is not preferred Therefore, the internal labor might be used more, of course including child labor Besides, the seasonal effect can create the temporary shortage in the labor market where people seem to work at the similar time, and this prevents families from exchanging their employment, and then using child labor is prior Bar and Basu (2009) find that in the imperfect labor market, even the household’s land ownership leads

to an small increase of child labor in the short run, child labor still remains in the long term

Similar studies for the credit imperfect market, the child work increases if the credit market is the less competitive (Baland and Robinson, 2000; Ranjan, 2001) Using Tanzania data, Beegle et al (2003) indicate that child labor experiences a decrease if households can access the credit market However, in the reality, lenders are defined in

the limited range including people who can have ability to pay debt The bank commonly bases on the collateral asset to give loans and then, it seems to limit loans for poor households especially in the rural area Poor households have still stood far way with access credit with the existing of the credit supply shortage In some specific cases, when households experience some risk events and without credit accessing, child labor can be used as a coping mechanism as well From this point of view, financial support packages such as the microcredit program can be provided to households without the collateral asset

to help them coping with risks This is really the positive method to the development organizations and governments bolster poor households (Beegle et al, 2006; Dumas, 2013)

Basu and Tzannatos (2003) study about the linkage of child labor, schooling cost and the quality of education Following the result, the support of the public education system can encourage the schooling attendance of children Besides, a good education system can take more beliefs from parents about benefits that education can bring for their children such as better skills and knowledge, and might ensure the better life in the child future Therefore, the degree of child labor is expected to reduce in the high quality of education system Besides, in the modern life, there are extra schooling expenditures such

as school fees, school uniform, book, extra tutor and transportation cost to the school This

is really a significant problem for low-income families where they are difficult enough to the financial source to invest for children's schooling Noted that children who are less schooling's attendance might work more others Moreover, children can still remain their participation in the school, but in turn, they may have to spend more time to work, even hard working to cover the education cost

Cigno and Rosati (2000) indicate that when households meet budget constraints and cannot enter the labor market, they do not spend their income for the education expenditure of children If the older children work, this can mitigate the financial constraint and force for investing in the education of younger siblings In addition, poverty and shocks are potential causes which households might forego the education investment for children Baland and Robinson (2000) indicate that although parents can perceive the higher earned income from education’s children in the future, low-income households still employ the child labor and deplete encourage children to school when they meet resource constraints A similar research of Ranjan (2001) also finds that poor households with credit constraints may not borrow from other sources, using the child labor become an optimal

decision without no bans, and when they can access to credit, they are willing to support for children's schooling This result also is similar to the other papers which also show that accessing on credit can help to decrease child labor and increase the child schooling as well (Beegle et al, 2006; Islam & Maitra, 2012; Badara et al, 2015)

Parental characteristics also attribute to the determinants of child labor, because parents make the direct decision relate to the child living in usual aspects Basu and Van (1998) show that parents are altruism and they send their children to work if only the household meet the very basic need Additionally, parents are more altruistic might understand the important vital of education on the children's future This means that more altruistic parents prefer to invest in the development of human capital than find income from child employment In the case of selfish parents, the decision sending their children

to work based on comparing the gained return between child labor and the expected income from education in the future Benefits of education in the future may be difficult

to control than that of child work in the present Besides, it is clear that the expense of education is only recovered in the future and if households are facing with the budget shortage, parents may have to deliberate about education investment for their children Additionally, Basu (2006) argues that there are differences between the decision-making

of the mother and father about children's education Another common factor also contained

in the child labor‘s model is parental education The higher education of parents has tendency increase in education of children, meaning they may prefer to send their children

to school than to work (Ray, 2000; Strauss & Thomas, 1995; Gebru & Bezu, 2014)

The household size can impact on the child work (Edmonds, 2007) Particularly,

if a family include some dependent members, it can create the requirement of caring as well as make the high expenditure In Vietnam, it is common that older children have to care their siblings or grandparents and take more time to do housework, even work outside together adult labor

Ahmed (1999) finds that child labor in the rural area is more common than in urban due to the large proportion of agricultural sector where low-skill labor demand stands at the high level From the demand side, child labor is preferred by cheaper employment, even with no payment Besides, because children are considered as the unskilled labor, they often do not require other non-benefits such as health and social assurance Furthermore, in developing countries where may have the large population living in the rural area as well as have the lower technology, this presents the higher demand for child

labor (Bachman, 2000; Brown, 2002) Additionally, the higher time of the child work in the rural area is explained by the lower income and lower education of parents in this area (Edmonds & Pavcnik, 2002) In some cases, children also show greater performance than adults, for example, the carpet job (Levison et al, 1998) The social norm of household and community also affect the child labor function (Emerson & Knabb, 2007)

In sum up, budget constraints (e.g poverty) and the imperfect market (labor, credit) are prone to force the child to the labor market Relating to shocks inside and outside of families, they might generate negative effects on the household income as well as household labor supply, and then, can raise the attendance of the child to work directly or indirectly Also, the household characteristics and the region factor also attribute to the determinants of child work

2.2 Impacts of Health Shocks on Household Economics

In terms of impacts of health shocks on household outcomes, it is clear that the poor health is associated with various negative effects on the economic and non-economic side (O'Donnell et al, 2005; Wagstaff, 2007; Alam & Mahal, 2014) Above section presents that the negative effects of shocks such as the lower income and unbalance labor supply, can be more likely to increase child labor Therefore, this section will highlight a deeper insight on the impacts of health shocks on households in whole, with aiming to understand fulfill aspects in the health shock’s consequence and coping mechanisms to move forward the linkage of the child labor and health shocks in the next section

Health shocks defined as negative events which relate to the health problem of family members including the death of family members and the illness or injury of those (Alam & Mahal, 2014) Some researchers indicate that a health event which categories

"shock" has to create strong negative impacts For examples, "shock" has to include the death of adults or catastrophic treatment illness such as terminally ill, fatal diseases and incidents (Bandara et al, 2015) However, it is not denied that when any family member gets sick, even just the mild illness, this also forces people to spend more time for looking after each other or work more to substitute for illness individuals Therefore, children will probably be assigned one or several jobs and the fact, they might spend more time to work

Actually, it is not surprising that there are a lot of previous papers studying the impacts of health shock on household outcomes with large combinatorial aspects Alam

and Mahal (2014) show a study for reviewing the empirical literature about economic impacts of health shocks in low - and middle-income countries (LMICs) with the household level Following this paper, health shocks can impact on household through (1) out-of-pocket (OOP) health payments, measures of catastrophic spending and impoverishment; (2) household labor supply and household income; (3) non-medical expenditure Heath shocks are measured by several indicators, for example, parental death, adults death, illness or death of member family, the measure of disability, change in self-reported health, the specific illness (e.g, cancer, HIV)

The main results of empirical studies show that health shocks in LMICs can are likely to higher OOP health payments which against the smoothing consumption of households, and this leads families to impoverishments, especially for poor families For distance, with poor families, the share of OOP health payment in the total income is larger than richer families, and therefore, poor families occur more serious effects The more public services provided to patients or the health insurance program can support for poor households covering some expenses when they have to go the hospital, and this may tend

to lower OOP health expenditure For Vietnam data, Van Minh et al (2012) find an increase of 2.5% in poverty if households meet health risks Also, the result of Wagstaff (2007) argues that the death of adults makes a rise of the medical expenditure in the last month in Vietnam at around 27%

Health risks can be the cause of the time-work loss of family members as well as employment income reduction When households face a death or illness of any family member, this can make their labor supply unbalanced, especially for adult mortality The decreasing labor force results in losing people, the low productivity of illness individuals and other members sent to caregivers, and then, drop the wage, farming returns or business earnings In most case studies, the death of adults leads to a lower labor supply in the family Beegle (2005) studies for Tanzania finding that there are 66 – 75% of men's wage within 6 months are decreased when families experience the death of an adult at age of 15 – 50 due to AIDS Additionally, the death of a household member pushes a decrease of hour worked by over 8.63% in the past week in Bangladesh Using data in Vietnam, Bales (2013) measure the health shock as the variable of adult member bedridden due to illness for 14 days or more in 12 months, and find that health risks lead a lower annual workday

by 7.7% Results from a study of Wagstaff (2007) show that if Vietnamese households experience the death of working age member in urban areas in two years, lead to drop by

26% of the total income and 36.5% of earned income Bales (2013) uses the VHLSS data

to research impacts of severe illness, adult death and the onset of disability on household welfare in Vietnam Results indicate reduce in labor supply as well as non-farm employment income Although some papers argue the effects of health risks on household income are negative, while others do not find the connection between them Results are able to depend on the measures of health shocks as well as kinds of the labor force employed For examples, Yomano & Yayne (2014) indicate an insignificant relation between any adults death and off-farm income in all, while the result shows a significant decrease in the death of the male household head The ambiguous effect also presents in results of Khan (2010)

Other health shock effects are on non-medical consumption Using data from Vietnam, Wagstaff (2007) finds the negative effect on food expenditure However, Bales (2013) employs the VHLSS data and find a reduction in labor supply as well as non-farm employment income while the non-medical payment is not impacted by health risks Another conclusion, households do not use all of the consumption insurance to cope with health shocks when they can access the credit market Household characteristics also main factors affecting consumption smoothing

In sum up, health shocks can make negative effects on the household’s consequence such as income reduction, out of pocket health expenditure, unbalanced labor supply It takes into account that child labor also is existence as the result of health shocks The next section will present the household behavior to coping with health shocks From that, it can help to understand more detail about the decision-making process for child labor latterly

2.3 Response of Household with Health Shocks

Several main mechanisms to cope with health shocks include the reduction of expenditure (food, non-food), selling assets or livestock, using savings, borrowing from formal or informal sources, intra-household labor substitution (Yilma et al, 2014; Alam & Mahal, 2014; Mitra et al, 2014; Bonfrer & Wright, 2016) It takes into account that under pressure of health shocks, child labor is also a coping strategy without other mechanisms (Basu & Van, 1998)

Beegle et al (2006) argue that using assets is an important way to cope with negative impacts of transitory income shocks Besides, using data in Vietnam, Wainwright

and Newman (2011) find that households employ the liquid asset holding to reduce impacts of economic shocks, while the negative impact is depleted the household savings, livestock holdings, and insurances if households experience idiosyncratic shocks like health shocks

Baland and Robinson (2000) indicate that with the perfect financial market assumption, households can access to credit, which have the competitive interest rate, can smooth their consumption Using data from Indonesia, Gertler et al (2009) find that households can access the formal capital market to coping with illness In particular, households which have the close distance with commercial banks or microfinance institutions can cope with illness better others Another research for Bangladesh of Islam

& Maitra (2012) indicate that microcredit packages mitigate the effects of income fluctuations on household consumption The financial support from the government or credit organizations may be helpful to the household in need, and they are necessary to support to households approaching these credit packages In India, Mohanan (2013) indicates that there are more than 70% of families which troubled with illness prefer to borrow money for the medical payment In addition, household's wealth plays a significant role in ensuring household against health shocks Families are more likely to pay the medical cost or smoothing consumption through selling assets (or livestock) as well as using assets as collateral for formal or even informal credit The higher income households who have the strong financial background have more ability to adapt with the negative effects of health risks, while the lower income counterparts are difficult to enough wealth for paying the medical expense or hiring added employees Following Bandara et al (2015), assets play a vital role in mitigating the impacts of death in households on total work hour of children when households occur both income and non-income shocks

Households also employ some informal coping mechanisms to adapt to health risks without sending their children to work such as receiving support of extended families, friends and neighbors both financial and work aspects For examples, households can receive the loans with low-interest rate, even no-interest rate from nearly relatives or neighbors, transfers, or through in-kind support such as food, seeds and introducing employment (Yilma et al, 2004) This is especially popular in rural where is less likely to access to the other types of formal strategies and having the strong social network Families which are not affected by health shocks can help others troubled by health

fluctuation In countries like Vietnam, where the tight community seems common, especially in the rural area, it is difficult to deny supports from the community

In Vietnam, Mitra et al (2015) found that to cope with health shocks, Vietnamese households tend to the enhancing strategies containing making loans, selling assets and reducing education spending Following Wagstaff (2007), the labor supply adjustment plays an important role in coping with health shocks In the rural, trading in livestock is

an important coping mechanism for smoothing household consumption Besides, if families can access the microcredit, they do not sell their livestock It helps them remain the tools for production (e.g remain the livestock farming to create the future income) (Islam & Maitra, 2012)

However, some coping strategies might be difficult to apply in reality, poor households are less likely to against health shocks with based on savings or assets (ILO, 2013) In developing countries, providing the formal credit are not sufficient and slightly inaccessible, especially in rural areas and for poor families Besides, some poor households even are not enough to means to apply the coping mechanisms when they face with health shocks, for examples, selling land and assets, or using land and assets to mortgage in the bank In addition, because households experiencing health shocks may show the hard status to pay debt, can be more difficult to achieve the requirement to make loans from financial institutions (Wagstaff, 2007) Similar results, Gertler et al (2009) also indicate that the adult death or illness may reduce the ability to make loans due to diminishing the belief that lenders can pay these loans on time Besides, health shocks may drop assets holding through selling them to pay the medical cost or maintain the consumption smoothing, and this makes the lack of collaterals in the future (Beegle et al, 2006) Therefore, households may access to informal credit with the higher interest rate than the formal credit because this can provide for them the immediate income as well as

be easier to approach The cost of the informal borrowing is high interests, even become

a debt accumulation in the long-term which households have to bear, even some poor families have to forgo treatment for their illness The pressure of the medical payment is large, and the ability to access credit is uncertain, households may reduce their expenditure, or diversity their income from farm or business, push children to work, even cut down the investment in the education of children

Another alternative strategy which households apply to deal with health shocks is adjustment their labor supply Bazen and Salmon (2008) use the “added worker effect

hypothesis” to explain the effects of health shocks on the labor supply of children and spouse in the household level The result shows that father’s illness in the short-lived time

or required treatment lead to higher child work Meanwhile, only if the father experiences

a chronic illness, it is observed an increase of the mother work There is the similar result

of a rise in labor supply when other family members face the health shocks In Indonesia, Gertler & Gruber (2002) indicate the change of the household labor supply when the head person meets a health risk, this is higher work hour of other household members Using the data from Ethiopia, Kadiyala et al (2009) show that Prime Age Adult Mortality (PAM) can make negative impacts on welfare’s children relied on the unbalance labor supply and out of expenditure Besides, PAM leads to lose the working time of people that become caregivers, and can reduce the performances of childcare as well as is more likely to push children to attend the inside and outside activities

In sum up, health shocks have widen impacts on households, not only create the negative problem to the household standard living but also generate the unbalanced labor supply Application some mechanisms such as asset holdings or access to credit can help households responding with negative effects of health shocks In a less narrow aspect, child labor can contribute as a source of coping with health shocks without other mechanisms both finding income and substitute adult labor The following section will mention more detail about this relationship

2.4 Health Shocks and Child Labor

Health shocks are considered as idiosyncratic shocks, they depart from internal households and have to impact on the income and labor force of households at the same time This sections will discuss the impacts of health shocks based on the indirect and direct effects on child labor The relationship between health shocks and child labor is illustrated through four main channels (Dinku, 2017) Firstly, health shocks can rise directly the number of child labor Children have to spend their time to take care of diseased members Secondly, another households can experience the unbalance of the family labor supply when they meet health shocks, through (1) Loss of individuals (labor), especially adults (main labor); (2) A drop in productivity due to the less healthy of labor; (3) Other member may leave her/his job to care for the diseased person Children might have to engage to some work activities such as farming work, chores and collecting wood

to substitute for their parents or other members (when they spend time with illness people) Substitution effects lead children transfer from study or leisure to work Thirdly, health

shocks can generate a decrease of the household smoothing consumption because of an increase of the medical spending, especially costly treatments This can raise the financial pressure on households, and parents may have to send their children to work more frequently Fourthly, health risks can make a loss household income through reducing wage's employment and farming profit Moreover, the trading assets (even land) or making loans can create the loss of the future earning such as benefits obtained from assets or gained interest as well as future payables As the result, the children may face a rise of work time when their family experiences health risks In the other words, to adopt income loss, parents may send their children to work to find supplement income Additionally, lower-income leads families to reduce investment in education's children, and therefore, the future human capital is expected a lower level as well as attendance of children to the labor market increase

Under health risks, child labor can be employed as a coping strategy to substitute the adult labor in labor market, however, it is not necessary to understand this is a perfect substitution (Basu &Van, 1998; Raijan, 1999) The feature of works, as well as applied technologies, would cover the ability of substitution In particular, the participation of children in the types of tasks on the labor market also is relied on their skills and health status Child work may consistent with domestic household activities such as house chores, collecting the firewood, water and caring younger siblings Although child labor

is banned in some fields, especially works in the formal labor market, farming and business activities are still the potential sources of the child work Additionally, children can support for adult works together in some part of the work process Therefore, children can spend more time for studying in school or enjoying the leisure, while they can help their adults in the family some works as well For examples, study's Ray (2000) presents results related to the complement between mother and daughters in household tasks in Pakistan Additionally, Peru's data give another interesting result, the higher wage of male leads a lower work hour of girls Diamond and Fayed (1998) also argues a similar result for female adults and children in the household level

In the types and the degree of health shocks also indicate the various effects on child labor (Alam and Mahal (2014) If family members occur the mild illness, they may still remain to work some activities Naturally, the labor productivities might reduce Meanwhile, members which have the illness in bed may be difficult to attend any activities

in households, even need caregivers to caring This is more likely to increase participation's children in the labor market rather than the mild illness case (Bazen and

Salmon, 2008) However, when families experience the death of members following time treatment, especially the main labor, the effect of health shocks on families may exponential increase (Dillion, 2012) Dependent people as children may have to take part into the labor market, even out of school due to the shortage budget which comes from the loss huge income from wage's labor as well as the medical payment

long-As the review in section 2.2, although many empirical studies focus on the impacts

of health shocks on household labor supply, not seem to be much focus on child labor In Bangladesh, Bazen and Salmon (2008) study the impacts of parental health shocks on child work in the short term and in the long term Using the bivariate probit model, results show that father experiences illness leading an increase of child work in overall Meanwhile, the proportion of children works increase with the illness of the mother during the last month Similarly, Dillon (2012) also finds the significant impacts of health shocks

on child work In particular, if the illness occurs in the other children of the family, in overall, the child time allocation of agricultural work will increase around 4 hours each week Adult female’s illness leads an increase of 1.6 hours per week which children spend for caring of younger siblings, while adult male counterpart is associated with 2.6 hours per week for the child work on the business Using Tanzania’s data, Bandara et al (2014) consider health shocks include not only death parents but also other members and find that the impact of a death in the family on the total work hours is positive significantly both the male and female children samples This paper also studies the different types of work which children enter into As the results, health shocks generate an increase of the agriculture work hour, whereas there is a decrease of the inside work Additionally, the results also indicate that assets create the buffering effect on health shocks

In the basic assumption, if households face with the income or non-income shocks, child labor is employed without other coping mechanisms (Basu & Van, 1998; Gertler & Gruber, 2000; Dillon, 2012) However, in the wider approach, even when households have the ability to access to the credit or retain the asset, child labor is still used as the useful mechanism to households coping with shocks In other words, the impact of health shocks

on child labor might depend on the degree of asset holding and access to credit as well Beegle et al (2003) find that access credit might mitigate the negative effects of income shocks on child labor using an interaction variable of collateral asset and the crop loss event to measure the buffering effect of credit on child labor The similar result is also found in the research of Bandara et al (2015) where the significant result is found in the mitigating impact of asset holding on child labor in both income shocks and health shocks

Furthermore, as the results of health shocks, child labor makes the negative impacts on childhood as well as the child human capital Another aspect, in terms of child background, when households occur the health risks, families may reduce their abilities to provide necessary conditions for children For examples, mother's death may the lack of caregiver for children, may lead the less fulfill growth for them Besides, the exhaustion

of household budget can lead to the less investment in the education and the nutrition as well The psychological impacts also important for the child development Using data in Vietnam, O'Donnell et al (2005) indicate the evidence of the long-term effects of child work on children's health

Omitted variables bias can appear by the simultaneity relation between child labor and health shocks due to similar negative events such as disease, drought, and flood For examples, when families experience drought event, they may not enough fresh water to use This may affect negatively to the health of member households due to lack of water

or even excessive anxiety, and also increase time children spend to collect water or material for livestock Therefore, it is necessary to use the additional variable related to other shocks to capture this problem (Bandara et al, 2015) Additionally, mortality of member in households also considers as a permanent shock, some effects are unobserved Furthermore, some unobserved household characteristics can be influent simultaneously

on the health of numbers in families and child labor In distances, Farrell and Fuchs (1982) show that parents who are less expectation of return in future from investment on the education of children (e.g shift child time to work) may also not invest their health (e.g lead health risks) In this case, using variables of parental characteristics can help control the bias problem of omitted variables (Bazen & Salmon, 2008; Bandara el al, 2015; Dinku, 2017)

CHAPTER III: RESEARCH METHODOLOGY 3.1 Research Methodology

3.1.1 Analytical Framework

In terms of household decisions for child labor, the paper employs a basic model

of Basu and Van (1998) and is developed by Kruger et al (2007) and Bandara et al (2015) Accordingly, parents would make household decisions in all, also including the child work

as well as the child schooling, and decisions based on the maximizing utility of the household The aim of the paper is to consider whether households give the decision send their children to work with the shortage of budget which comes from the health shocks This study will begin with the utility function of consumption and human capital development of children in households with assuming families of 1 parent and 1 the child

𝑈(𝑐𝑖𝑡, ℎ𝑖𝑡)𝑖,𝑡 = 𝑐𝑖𝑡𝜎

𝜎 + 𝛼ℎ𝑖𝑡 (1) Where 𝑐𝑖𝑡 is denoted as consumption of household i in period t; ℎ𝑖𝑡 is the human capital of children; σ is the elasticity of substitution and constant with 0 < σ < 1; α is constant parameter, α > 0

The paper assumes that consumption of households comes from income which was earned from adult and child labor, and parents will attend fully the labor force For the given the utility function, consumption c will be positive if family income is positive

𝑐𝑖𝑡 ≤ 𝑤𝑐𝑖𝑡𝑙𝑐𝑖𝑡 + 𝑤𝑝𝑖𝑡𝑙𝑝𝑖𝑡Where 𝑙𝑐𝑖𝑡, 𝑙𝑝𝑖𝑡 are the time which the child and parent spend to work respectively;

𝑤𝑐𝑖𝑡, 𝑤𝑝𝑖𝑡 are wages of the child and parents respectively

The paper will start with the initial simple function with the assumption that households have neither asset holdings nor access to credit In the next steps, the study will add asset holdings and access to credit in turn to find their influence in the relationship

of child labor and health shocks

(1) Assume that households have neither asset holdings nor access to credit

The paper begins with households with the assumption the absence of asset holdings as well as access to credit Parental income is measured as function of three main

factors, including parental wage 𝑤𝑝𝑖𝑡𝑙𝑝𝑖𝑡, household characteristics 𝑋𝑖𝑡, and is influenced

by health shocks HS𝑖𝑡

𝑓(𝑙𝑝𝑖𝑡, 𝐻𝑆𝑖𝑡) = 𝑤𝑝𝑖𝑡𝑙𝑝𝑖𝑡+ φHS𝑖𝑡+ 𝜏𝑋𝑖𝑡 (2) The child’s allocation time is between work and schooling (e.g investments in human capital) as the function (3), 𝑒𝑐𝑖𝑡 is identified as the child’s time spend on schooling, and 𝑡𝑐𝑖𝑡 is denoted as the total amount of children time available

𝑙𝑐𝑖𝑡+ 𝑒𝑐𝑖𝑡 = 𝑡𝑐𝑖𝑡 (3) The human capital of the child also is identified from a function of technological component β and the child's time allocated for schooling: ℎ𝑖𝑡 = 𝛽𝑒𝑐𝑖𝑡𝜎 1 In other words, child’s human capital is generated only from the time of study of the child with a technology Besides, child labor contributes to the household income with wage 𝑤𝑐𝑖𝑡 Households will make their decisions based on the utility maximization with a consumption constraint condition Accordingly, the utility function is written as below:

𝑚𝑎𝑥 { 𝑐𝑖𝑡𝜎

𝜎 + 𝛼𝛽𝑒𝑐𝑖𝑡𝜎 } (4) Subject to the budget constraint:

𝑐𝑖𝑡 = 𝑤𝑐𝑖𝑡(1 − 𝑒𝑐𝑖𝑡)+ 𝑤𝑝𝑖𝑡𝑙𝑝𝑖𝑡+ φHS𝑖𝑡+ 𝜏𝑋𝑖𝑡 (5) Defining λ as the multiplier on the full-income constraint, first-order conditions for 𝑐𝑖𝑡 and 𝑒𝑖𝑡 are presented respectively as follows:

𝑐𝑖𝑡𝜎−1= λ 𝛼𝛽𝜎𝑒𝑐𝑖𝑡𝜎−1= λ 𝑤𝑐𝑖𝑡Moving on the second first-order condition characteristic, households stand to make decision sending children to work or investing in the child’s education In particular,

if 𝛼𝛽𝜎𝑒𝑐𝑖𝑡𝜎−1 < 𝑐𝑖𝑡𝜎−1𝑤𝑐, meaning the marginal value of returns from human capital is lower than the that of child work, parents will decide to send the child to work, without school

attendance By contrast, if 𝛼𝛽𝜎𝑒𝑐𝑖𝑡𝜎−1 > 𝑐𝑖𝑡𝜎−1𝑤𝑐, the marginal value of investment in human capital is higher than the child labor counterpart, it argues that the child will spend

1 The more common function of human capital is present: ℎ𝑖𝑡 = 𝛽𝑒𝑐𝑖𝑡𝜈 , where ν should be different with σ in above function This paper assumes ν=σ for easily to calculate in the formulation