Nutrition-Based Poverty Trap

Question 1

Nutritional based poverty trap

Answer 1

Body needs a min amount of energy to function (1700 min), so need extra energy for work!

Question 2

What does this mean for wages

Answer 2

Need to be high enough to cover work effort too. (enough income to go above 1700)

Therefore, health/work capacity is a function of income. (since income effectively determines how much you can work; more income; consume more; work more)

Question 3

How to express health a function of income

Answer 3

h t+₁ = g (yt+₁)

Question 4

For firms with a piece rate pay, what does this mean their income is a function of

Answer 4

Their income is a function of health/work capacity (healthier workers produce more)

so reverse causality!

Question 5

Pg 28 - Poverty trap diagram.

Answer 5

(Right hand side of V, wage is high enough to survive, if V steeper=no work capacity since income isn’t high enough to survive and work)

Question 6

Individual labour supply as V increases

Answer 6

As V increases, supply of labour increases.

Question 7

Individual labour supply diagram pg 30

Answer 7

Cannot work below V* , so upward sloping from there (higher wage more supply labour)

Question 8

Add labour demand to diagram (high and low, explain differences)

Answer 8

D1 - low demand (supply does not equal demand, not everyone willing to work at V* can find a job so unemployment
)
D2 - high demand (normal equilibrium)

Question 9

First key result from this

Answer 9

Nutrition income link can create involuntary unemployment. Since piece rate V* cannot go down further since noone can credibly supply their labour (not enough income to meet subsistence calories and also work capacity)

Question 10

Suppose heterogeneity in non-labour income now exists e.g inheritance means person A has more non-labour income than B.

How does this affect work capacity of A and B - who will work more? Consider a low wage and higher wage pg 34

Answer 10

A has a higher work capacity curve since higher income.
At V* for A (a lower wage) , A can work (since already higher income) but B cannot.

At V* for B, both can work. A will work more, B works but less

Question 11

2nd key result

Answer 11

Asset inequality creates labour market inequalities

A is richer so more likely to be employed
When both work, A works more, thus earning more (since under piece rate pay)

Question 12

Necessary condition for a poverty trap to exist

Answer 12

Capacity curve needs to interesect the 45 degree line from below

Question 13

Expression for nutrition

Answer 13

ln (calories) = a + βln (income) + ε

Nutrition (calories) is a function of income.

Question 14

3 Identification issues with this expression

Answer 14

Measurement - may have consumed more of food they havent purchased e.g from friends, this would underestimate nutrition

Data availability - how to actually measure calories consumed

Income is endogenous (expenditure≠calories)

Question 15

Now consider empirical evidence for nutritional poverty traps

Reasons for no (2)

Answer 15

Elasticity 0.35 - pos rel between income and nutrition and Pos relationship between nutrition and labour productivity E=0.33, but not enough to generate a poverty trap.

No - More so a lack of micro-nutrients opposed to calories (nutritional poverty) the issue

Question 16

For what elasticity does a poverty trap exist

Answer 16

If nutrition and income elasticity (Egy) x nutrition and labour productivity (Efg) >1

So if Egy x Efg >1

Question 17

Evidence for yes (2) - a poverty trap does exist

Answer 17

Yes - When the poor do get more income Poor tend to spend more on better-tasting calories opposed to more calories following the increase

Yes - D-R model may hold for children