Effects of Catastrophic Healthcare Expenditure on Household Labor Supply in Malawi

Background The dynamics of labor supply and demand are examined via microeconomic theory at the individual firm and worker levels. A number of factors influence the amount and quality of the labor supply; one such determinant is health status. Research has viewed the connection between household labor supply and health as a two-way causal relationship, with health serving as the deciding factor that influences decisions made in the labor market. The labor supply of a particular household or individual is seen to be affected by a number of factors, with the health status of an individual or a family member being one of them. Households or individuals are forced to either increase or reduce the number of hours they offer to work with respect to the amount of income they spend in trying to cover health care expenses. A household is seen to fall into a health care spending catastrophe if its aggregate health expenditure exceedsa given threshold; thus, in this case, the study uses the 10% and 40% thresholds. Objective This study analyzed the effect of catastrophic health care expenditures on the household labor supply. Methods This study used the Fifth Integrated Household Survey, which consists of 11,434 respondents. An instrumental variable approach with a binary outcome variable was employed to estimate the causal effect of catastrophic health expenditures on the household labor supply in hours. Results The results from instrumental variable regression indicate that the probability of households supplying labor tends to decrease once they are subjected to catastrophic health care expenses at both thresholds. Recommendation The study recommends the implementation of policies that enhance financial protection for vulnerable groups. One such measure is the introduction of progressive taxation, which ensures that those with higher incomes contribute more to national revenue that can be in turn used to subsidize user fees.