Question 2

.

Discuss the basic nutrition based model in detail taking into consideration the impact of asset

inequality and non-labour income on this model. Consider the impact of a worker’s investment

in nutrient consumption over time on nutrition based models.Use references to the empirical

literature where appropriate.

Word Count: 2360

Nutrition is the fundamental prerequisite for human welfare and contributes to human and social

capital. According to (Debraj, 1998), nutrition is only a parable for all sorts of long-run

investments that a firm could make in a worker, thus investments in nutrients such as on-the-job

training, firm provided health Insurance, financing for technical training and higher education all

have beneficial impact on a worker’s productivity in the long run. Health is central to the well-

being of an individual and education is essential for a satisfying and rewarding life, thus, “both

are fundamental to the broader notion of expanded human capabilities” (Landiyanto, 2010).

Employers that provide on-the-job training, health insurance, higher education, do not only

contribute to their own profit, but rather provide a positive external effect throughout the

economy. Thus knowledge acquired by the individual who had the chance to be provided with

the capacity or development training may in the long run benefits not only himself, but the

employer and the whole economy as well.

Due to the fact that investment in nutrients takes different forms, this paper seeks to engage

critically one aspect; the relationship between the nutritional history of a labourer and its impact

on labour productivity. The paper is organized in two parts; the first part explains the nutrition

model taking into account the impact of asset inequality and non-labour income while the second

part considers the impact of a worker’s investment in nutrient consumption over time on

nutrition based models. The paper does not seek to suggest how effective or weak the nutrition

model is but rather seeks to engage critically the model with emphasis on empirical literature

focusing on the efficiency wage hypothesis (nutrition-productivity hypothesis).

The basic nutrition model establishes a relationship between work capacity and energy intake.

Energy intake is determined by food which is in turn determined by labour supply and non-

labour income (e.g. land). Thus all the income of an individual is assumed to be spent on food,

even though in reality, all income might not be spent on food, part might be saved in order to

smooth out consumption in the future or may be used for other investment purposes. The energy

intake is divided between maintenance of the body and physical activity. At low income, an

individual can consume less amount of food leading to a low energy intake and low nutrition.

Thus at low incomes most nutrition is used in maintaining resting metabolism or sleeping and

little extra energy is left over for work. Once the critical nutrition level is achieved, work

capacity increases rapidly but eventually diminishing returns to nutrition sets in due to natural

limits. The diagram below shows the relationship between income (nutrition) and the capacity

curve.

The Capacity Curve 1

The vertical axis shows the capacity to execute physical or mental correlated activities despite

certain functional limitations and restrictions resulting from a medical condition. The horizontal

axis shows the income of an individual which is assumed all to be spent on food (nutrition).

(Debraj, 1998) assumes that the nutritional status of an individual varies from date to date

depending on the stresses he is subjected to as well as his access to nutritional inputs. Thus the

nutritional status of an individual relates to the body mass. So the more you borrow from the

body, the less the body mass and vice versa. Thus a lowering of body mass brings down the

resting metabolism and tends to create an extra energy for work which (Debraj 1998) termed as

the “resting metabolism effect”. The outcome of the resting metabolism effect is that, there will

be an undersupply in energy and a continuous and sustained energy deficiency will lead to illness

and under nutrition. Once a person is undernourished and does not have the strength to carry out

physical activity, he may be unemployed since from the employer’s point of view, it will be

unattractive to employ such labour. Thus “better nutritional status may increase work capacity”

as stated by (Debraj 1998) and this he termed as the “capacity effect”.

So when one borrows from the body, the capacity curve of an undernourished individual shifts

upward, which is because of the resting metabolism effect. Thus more energy can be expended

on physical activity. At the same time, the increased energy available for work can be used better

by a person who is not undernourished, this shows the capacity effect. If the resting metabolism

dominates, then the employer benefits by cutting down costs and employing undernourished

people to do the work, but the effect is that, if the work requires a lot of energy such as the sugar

cutters in Guatemala, then such labour will not be efficient as such the capacity effect dominates.

The problem that generally arises is that if employment is casual, the employee may not be

present for the next period. He will be working for a different employer or he might migrate to a

different location to find job. In circumstances like this, the employer will not be willing to

invest in nutrient consumption (job training) of the employee. The employer will only do so if he

can retain most of the investments he has made. In a real world scenario, employees are made to

sign an undertaken to be in the company for a certain number of years before departure. The

employer assumes that within the bond serving years, he might reap back his investments.

Thus because casual markets do not look ahead, they tend to “create nutritional externalities that

everybody ends up paying for; employees through their bad nutritional status and employers

through their hiring of inefficient labor” (Debraj 1998:503).

Individuals do not only rely on the going wage rate but have other source of income, it therefore

becomes impractical to equate wages paid to total income earned by the individual. For instance

in the job market, individuals may have other sources of income such as ownership of a small

business which earns him/her additional income aside the going wage rate. In an agrarian

economy, the labourer may have small land which may be leased out to earn additional income.

The figure below shows how individual’s non-labour income (Rent) influence his decision to

work or not. The figure shows that people with greater amount of non-labour income are able to

supply their labour at a lower piece rate, because their proceeds from rent takes care of some of

their nutritional needs. This is because a person with non-labour income values leisure more

highly and in order to attract him to the labour market, it requires high compensation. So the

minimum wage at which a person is willing to work rises with the amount of non-labour income.

In the diagram, V1, and V2 are the different piece rates that are paid to labour and V2 is assumed

to be greater than V1. Worker 2 has non-labour income (rent) and also works at the going wage

rate but worker 1 has only the wage. This makes worker 2 better off than worker 1.

What can be deduce from this diagram is that, individuals with non-labour income are much

willing to work. Thus, in the case of applying this to the real world, where unemployment

benefits acts as non-labour income, such individuals who receive these benefits will be willing to

work depending on the amount of the benefits they receive. If the amount is too huge, then the

individual’s non-labour income will not act as an incentive for willingness to work and vice

versa.

The nutrition model relates to the efficiency wage hypothesis which has been discussed by

Leibenstein (1957), Stiglitz (1976), and Bliss and Stern (1978) among others. The Efficiency

wage hypothesis assumes that productivity has a nonlinear relation with nutrition. According to

(Stiglitz, 1976), the efficiency wage hypothesis assumes that the service a worker offers is a

function of the wage he receives. This is because all wages is assumed that to be spent on food

(nutrition). A person who has high nutrition is assumed to be one well-paid and that such a

worker may do what two poorly paid workers can do. According to (Strauss, 1985) efficiency

wage hypothesis has been used extensively in explaining food distribution within a given

household, why there exist shadow wage rates and why constant real wages in an agrarian sector

are part of an equilibrium with involuntary unemployment in a developing economy. Despite

how this theory has been used extensively, and how the hypothesis has important implications

for labor markets, according to (Deolalikar, 1988), it has been subjected to little empirical

testing. He therefore noted that few empirical tests have been based largely on simple

correlations not controlling for the effect of other important economic variables that might affect

productivity such as the morale effect. This tend to create a source of bias as researchers tend to

sample on the independent variable. (Deolalikar, 1988) also noted that empirical test have used

notions of average rather than marginal productivity, have failed to treat nutrition as an

individual choice variable, and have also not controlled for unobserved individual-specific

effects, like the individual’s ability or the nature or quality of the land.

Not much of empirical literature could be found on the efficiency wage hypothesis, but the

available one shows different conclusions on how nutrient intake over time could impact on

workers’ productivity, unemployment, Gross Domestic Product and economic growth.

(Immink and Viteri, 1981) studied two groups of Guatemalan agricultural workers, one of which

had received nutritional supplementation for the previous three years. The group receiving no

supplements was largely inactive after working hours, while the supplemented group actively

pursued household activities. Thus poorly nourished Guatemalan sugar cane cutters had a lower

working capacity and work output because of a reduced lean body mass. (Immink and Viteri,

1981) also established that increased protein-energy intake over a long time period in frequently

average nourished men produces a valuable effect on body composition and physical work

capacity. This means that if there were increases in productivity, as a result of the increased

nutrient intake, then the benefits from higher intakes would be understated by measuring only the

effects on worker productivity and earnings. But the general findings from the study showed no

positive effects of current energy (nutrition) intake on productivity.

Other research conducted by (Wolgemuth et al., 1982) also showed a weak correlation between

worker productivity and the nutritional status of Kenyan road construction laborers.

Aside the above studies that have showed no correlation between energy intake (nutrition) and

worker productivity, there are other research that showed a positive effect of energy intake and

productivity. (Martorell et al., 1988) conducted a research on malnutrition, energy output and

energy needs. The study showed that improved nutrition in a worker leads to greater productivity

and earnings in a worker. Thus malnutrition is a deterrent to economic development and

interventions to improve the nutritional status is justifiable on economic grounds.

(Strauss, 1985), also noted that current nutrient intake, stature, and health may affect a workers

productivity. If the market recognizes a nutrition productivity effect, then better nutrition may

also result in higher market earnings, by being paid more for a given time unit of work.

Accordingly, higher caloric intake may raise non-marketed household production in addition to

farm or market activities. Thus current energy intake, proxied by calories raises current farm

productivity in rural Sierra Leone.

A more recent study by (Roy, 2002), on factors affecting the work productivity of Oraon

agricultural laborers of Jalpaiguri district, West Bengal showed that food intake (nutrition), the

age and chest girth are the main determinants of worker productivity.

Other studies have shown that the relationship between productivity and nutrition tend to create a

level of unemployment because those who do not get sufficient food to eat have a tendency not

to be productive to make it profitable for employers to hire them. As (Cole, 1971) noted, low-

wage individuals are less efficient than the high-wage individuals. And that employers would

only employ high wage individuals since they are assumed to be more efficient. By so doing

those with low-wage and assumed to be less efficient are left unemployed. But the problem

arises when it becomes difficult for the employer to detect which of the labourers is lacking in

nutrient.

(Cole, 1971) also note that, investment in improved diets can lead to long-run increases in the

rate of economic growth. This means that there is a causal relationship between investment in

nutrient and economic growth. But (Neeliah and Shankar, 2008) in a different type of analysis

the used cointegration and Granger causality tests and found the absence of both short- and

long-run causality between daily per capita calorie intake and GDP. The neutrality hypothesis

used for the estimation in Mauritius showed that past values of calorie intake have no

explanatory power for the current value of economic growth and vice versa.

It can be concluded from the above premises that different studies have been carried out by

different categories of people, most relating individual’s nutrition consumption over time on a

workers productivity, GDP and Economic growth. Studies carried out by (Immink and Viteri,

1981), (Wolgemuth et al., 1982) among others showed no positive correlation between

investment in nutrients and productivity. But on the other hand, studies by (Strauss, 1985) and

(Roy, 2002) showed a positive impact of nutrient consumption on productivity.

In order to see the effects of nutrient investment on economic growth, (Cole, 1971) showed that,

there is a causal relationship between investment in nutrient and economic growth by

emphasizing on the long run effect of nutrient consumption. Contrary to that, (Neeliah and

Shankar, 2008) also showed that there is no causal relationship between per capita calorie intake

and Gross Domestic Product.

All the above may have been achieved using different research questions and strategies, but

whether a particular measure is appropriate or not will depend heavily on the specific objective

or research question of the scholar (Collier and Adcock, 1999). There is therefore no concluding

evidence as to whether investment in nutrient of a worker increases productivity as the argument

still lingers on but the theoretical literature predicts a positive relation between the said variables.

References

Cole, W. E. (1971). Investment in nutrition as a factor in the economic growth of developing countries. Land Economics, 47, 139-149.

Collier, D. & Adcock, R. (1999). Democracy and dichotomies: A pragmatic approach to choices about concepts. Annual Review of Political Science, 2, 537-565.

Deolalikar, A. B. (1988). Nutrition and Labor Producvivity in Agriculture: Estimates for Rural South India. The Review of Economics and Statistics, 406-413.

Immink, M. D. & Viteri, F. E. (1981). Energy intake and productivity of Guatemalan sugarcane cutters: An empirical test of the efficiency wage hypothesis part I. Journal of Development Economics, 9, 251-271.

Landiyanto, E. A. (2010). Wealth and happiness: Empirical evidence from Indonesia.Martorell, R., Arroyave, G., Collins, K. & Roberts, F. (Year). Malnutrition, work output, and

energy needs. In: Capacity for Work in the Tropics, Society for the Study of Human Biology Symposium, 1988. 57-76.

Neeliah, H. & Shankar, B. (2008). Is nutritional improvement a cause or a consequence of economic growth? Evidence from Mauritius. Economics Bulletin, 17, 1-11.

Roy, S. K. (2002). Factors affecting the work productivity of Oraon agricultural laborers of Jalpaiguri district, West Bengal. American journal of physical anthropology, 117, 228-235.

Stiglitz, J. E. (1976). The efficiency wage hypothesis, surplus labour, and the distribution of income in LDCs. Oxford Economic Papers, 28, 185-207.

Strauss, J. (1985). 10 The Impact of Improved Nutrition on Labor Productivity and Human-Resource Development: An Economic Perspective.

Wolgemuth, J. C., Latham, M. C., Hall, A., Chesher, A. & Crompton, D. (1982). Worker productivity and the nutritional status of Kenyan road construction laborers. The American journal of clinical nutrition, 36, 68-78.