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,
1 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
1 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
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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.