Health Expenditure, Labour Supply and Productivity of Workers: A Simultaneous Equation Approach

Abstract

ABSTRACT This study uses a simultaneous equation structure to examine the effect of health expenditure on labour supply and productivity of unskilled and semi-skilled workers. Health is measured by inputs such as nutrition, medical care and basic needs policies. Labour productivity is measured by market earnings. The first equation in each model has health expenditure as the dependent variable. The second equation has, alternatively, productivity and labour supply-related variables, namely average weekly earnings, wage rate, average weekly days worked, time devoted to other jobs, and number of slack days. Data came from a sample of 425 workers in Amritsar (Punjab) surveyed in 1976. The most important result is that health expenditure has a significant effect on productivity. Formal education, however, has no significant direct effect on earnings, wage rate or days worked.