School of Oriental & African Studies

1. School of Oriental & African Studies LABOUR MARKET AND WAGE IMPACTS OF HIV/AIDS IN RURAL MALAWIAndrew Dorward, Idrissa Mwale & Rosalba Tuseo May 20, 2008, LIDC

2. Summary & outline Preliminary study of HIV/AIDS morbidity & mortality impacts on rural economies in Malawi, direct & indirect effects (through labour & non-tradable markets) • Core questions: impact of HIV/AIDS epidemic on wages? • if it depresses labour demands more than it contracts labour supply • lower wage rates damage livelihoods of all poor households. • labour saving enterprises & technologies could be disastrous for the healthy poor. • Household livelihood models investigate direct impacts of HIV/AIDS morbidity and mortality. • Aggregate partial equilibrium informal rural economy model investigates direct & indirect impacts of HIV/AIDS morbidity & mortality • Conclusions

3. RURAL ECONOMY Different responses by different households? HIV/AIDS Systemic local market & environment impacts etc? EXTERNAL ENVIRONMENT Different impacts on different households? Disaggregated analysis of impacts of HIV/AIDS • Systemic impacts of HIV/AIDS not easy to study • Wages & food prices particularly important, affect • households directly affected by HIV/AIDS • the poor, even without any sick or deceased members.

4. Wage impacts: alternative hypotheses • Contractions in labour force raise wages? • Market labour demand falls, supply increases: wages fall? • poor affected households hire out more labour to meet urgent cash needs • reduced demand for unskilled on-farm labour among less poor affected households • unable to finance labour hire from savings, semi-skilled or skilled employment, remittances • reductions in family labour & capital shortages cause shift out of labour demanding cash crops • non farm labour demand falls as local demand for goods & services is reduced by depressed incomes • increases in poverty incidence & severity increase unskilled labour supply into the market

5. Methodology: Investigate direct and indirect impacts • Household typology • Household livelihood models • Aggregation of household models to partial equilibrium ‘informal rural economy model’ • HIV/AIDS morbidity & mortality scenarios • Impacts • household welfare & activities • wages

6. Non-Linear Programming Livelihood model • 7 household types in major zone, standard model structure, varying resource endowments • Seasonality: in prices, labour, capital (cash, maize), activity demands for labour/ inputs, (4 periods) • Resources: initial cash and maize, land, seasonal labour (skill classes) • Activities: various crops & technologies (subsistence, cash), unskilled & semi-skilled non-farm activities • Imperfect input & output markets/ transaction costs: price wedges • Risks: consumer & producer price risk • LES calorie, cash & leisure consumption by period

7. Maize price change impacts: production

8. Maize price change impacts: income

9. Maize price change impacts: calorific consumption

10. Morbidity/ mortality scenarios Household impacts • Morbidity: varying % loss of 1 unskilled adult female or 1 skilled adult male labour & increase of 1600MK expenditure • Mortality: Loss of unskilled female or skilled male labour & consumption, MK800 pre-season cash reduction IRE ‘Sick’ households: 40% labour loss & expenditure increase

11. Net income per capita

12. Cultivated area

13. ‘Local’ maize area

14. Hybrid maize area

15. Farm labour, Nov-Jan

16. Unskilled labour hire out, Nov-Jan

17. Unskilled labour hire, Nov-Jan

18. Unskilled farm labour surplus, Nov-Jan

19. Wage impacts: alternative hypotheses Market labour demand falls, supply increases: wages fall? • poor affected households hire out more labour to meet urgent cash needs NO • reduced demand for unskilled on farm labour among less poor affected households YES • unable to finance labour hire from savings, semi-skilled or skilled employment, remittances YES • reductions in family labour & capital shortages cause shift out of labour demanding cash crops YES Overall farm labour surplus falls slightly • non farm labour demand falls as local demand for goods & services is reduced by depressed incomes ??? • increases in poverty incidence & severity increase unskilled labour supply into the market ???

20. IRE results: only unskilled labour affected

21. IRE : skilled & unskilled labour affected

22. IRE : skilled & unskilled labour affected, 95% wage

23. Discussion • Hypotheses 2 & 3 supported: HIV/AIDS can lead to • reduced demand for unskilled on farm labour among less poor affected households as • unable to finance labour hire • shifting out of labour demanding cash crops • non farm labour demand falls as local demand for goods & services is reduced by depressed incomes • Overall loosening of labour market can cause wage falls • healthy poor suffer • increased inequity • labour saving technology impacts? • Food price impacts - & knock on effects ? • Validity of the model & scenarios? • Further research? • Immediate policy? • High risk factors & areas? Diversity? • Policy responses?

24. Further information • Contact Andrew.Dorward@soas.ac.uk • See: • Dorward, A., I. Mwale, R.Tuseo. (2006 ) Labour market and wage impacts of HIV/AIDS in rural Malawi. Review of Agricultural Economics 28:429-439 • Dorward AR and Mwale IM (2006) Labor Market and Wage Impacts of HIV/AIDS in Rural Malawi pp 75-96 in Gillespie, S. (ed.) 2006. AIDS, poverty, and hunger: Challenges and responses. Highlights of the International Conference on HIV/AIDS and Food and Nutrition Security, Durban, South Africa, April 14–16, 2005. Washington, D.C.: International Food Policy Research Institute (http://www.ifpri.org/pubs/books/oc50/oc50.pdf)

25. School of Oriental & African Studies LABOUR MARKET AND WAGE IMPACTS OF HIV/AIDS IN RURAL MALAWIAndrew Dorward, Idrissa Mwale & Rosalba Tuseo May 20, 2008, LIDC