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Discussion Paper No. 19
ContentsI. The HIV/AIDS epidemic in Côte d’Ivoire and its impact on Abidjan’s industrial sector
1.2 Impact of HIV/AIDS on sectors of the economy
1.3 Presentation of the findings of the study carried out in Abidjan
2.2 Disorganization of work and invisible costs
3.2 The importance of medical aid schemes in firms
3.3 How a socio-medical policy could help mitigate the organizational dysfunctions caused by HIV/AIDS
3.4 Discussion of the economic profitability of such a policy
AbstractUsing the findings of research carried out in 1995-1996 on the economic impact of HIV/AIDS on three firms in Abidjan, we look into companies’ reactions to the dysfunctions caused by the epidemic. The dysfunctions result in two main categories of costs: the observable and quantifiable costs, for the most part absenteeism on health grounds, the cost of medical care and falling productivity; and the less easily perceptible effects of the gradual disorganization of work. The complexity and diversity of the effects of HIV/AIDS on businesses raises the question of devising an appropriate strategic response. In this context, it would appear that the key variable is the turnover level, and that this, therefore, is where action should be taken. Such action may, for instance, be in the form of improved medical monitoring of employees in the workplace or participation by employers in employees’ health insurance. In our analysis such measures are not just socially sound, but make economic sense in that they would help check the deterioration in socialization and learning capacities and in working relations, skills and routines, i.e. the main conditions for productive work.
(1) whose findings, presented below, formed the basis for a study of the dysfunctions caused by HIV/AIDS and possible responses by businesses to them.
The research period varied from one firm to another because of the nature
and quality of the information needed for a retrospective study (table
1). The research involved repeated interviews with company doctors (2)
and with chief executives, personnel managers, chief accountants, other
managerial and supervisory staff and workers. Other information from outside
the three firms was obtained from members of associations for HIV-infected
persons, trade unions and insurance companies. The findings of partial
investigations into other industrial and agro-industrial enterprises bear
out the arguments set out below.
Source: Aventin, Huard 1997. (3)
Table 3 presents an evaluation of the direct and indirect costs of HIV/AIDS
to the three firms, taking into account only reported cases, as exhaustive
data is unavailable. These costs, which are observable and quantifiable
in monetary terms, are distinct from the organizational costs which are
‘difficult to quantify’ (Aventin and Huard, 1997) or the ‘invisible costs’,
so named because they are difficult to observe and evaluate. The latter
effects of the epidemic on businesses will be analysed in part 2.2.
Having calculated the highest cost percentages for each firm, we found that the impact of HIV varied from firm to firm, in particular according to such social policies as a firm’s contribution to employees’ health insurance or payment of an invalidity pension as in the case of firm 1. Absenteeism on health grounds represented 31 per cent of the overall cost for firm three. Was that due to the fact that almost none of the employees had health insurance, and consequently did not have access to medical care as easily as in firm 1? Moreover, we noted that for all three firms, the highest costs were incurred during to the employees’ morbidity phase. The table reveals that, even including its indirect consequences such as recruiting and training new employees, death does not appear to be what is most costly. This observation will be discussed in the second part.
Since, then, the economic cost of HIV/AIDS varies according to policy and organizational factors, it is only to be expected that managers’ reactions will vary according to the extent of the impact identified, and also according to their strategies and investment capacity. Diagram 1 presents all the compensatory measures observed during this study.
Diagram 1 does not only concern the three firms under consideration, but aims to give a broader picture of the situation, particularly as regards discriminatory practices. (5) Analysis of the measures taken by firms to offset the consequences of HIV/AIDS shows that they can be divided into two tendencies. One has to do with a process we call a ‘dynamic of rejection’ since the thrust of the measures involved is one of exclusion - primarily unlawful screening, discrimination in recruitment and unfair dismissal (Aventin, 1996). The immediate effectiveness of such measures conceals serious dysfunctions which we shall address below. The other tendency, which remains hypothetical, would imply a ‘dynamic of consolidation’ and would consist of combating absenteeism by introducing improved medical monitoring of employees or enabling them to have access to medical care through the employers’ contribution to health insurance. Training employees with all-round skills, capable of changing post according to need, is another way of coping with the problems caused by absenteeism. More flexible shift work when work is required around the clock allows for a better distribution of staff according to skills and work requirements. However, even though these measures offset the difficulties and help consolidate productive work, they are of limited effectiveness because they have no incidence on turnover, a major factor in the disorganization of work.
This evolutionary approach to a firm’s activity (diagram 2) stresses the mechanisms through which skills are built up and passed on, and so makes for a clearer understanding of the nature of the impact of HIV/AIDS. The fact is that changes in the proportion of new to old employees caused by faster turnover raise two key problems: first, the loss of consistency in the firm’s activity because of the inexperience of new employees, particularly when it comes to tacit knowledge that is not easily transferred; and second, the decline in capacity for transmitting knowledge as skilled employees die or can no longer work because of AIDS. This shows the cumulative effects of what was initially a change in the turnover rate. Replacing absent employees per se does not worry the employer particularly (unless they are the most highly qualified workers), but it does have effects which are not immediately apparent, especially as the consequences of staff rotation only emerge over time, leading to the gradual disruption of the routines that are specific to a particular firm. Since the routines have a strong tacit dimension, they cannot be easily imitated (Dosi et al., 1990). Earlier, we mentioned the concept of a ‘dynamic of rejection’ in the context of some firms’ reactions to HIV/AIDS-related problems. Thus, although the ‘rejecting’ measures might have the immediate effect of reducing costs, they ultimately lead to the disorganization of work by speeding up staff turnover. The long-term effect might be the opposite of the one desired, since the disruption of routines and capacities for learning can be expected to affect performance and competitiveness. It is nevertheless difficult to identify and gauge these consequences in terms of costs, which is why the term ‘invisible costs’ has been used.
The different impact of HIV/AIDS on the various firms makes it difficult to devise an overall solution to what is, moreover, an evolving problem. We also question the effectiveness of the various measures observed today, both because they are incomplete or deal only with the ‘symptoms’, and because, like discriminatory practices, they speed up the processes of the disorganization of work which, over and above the visible costs, are clearly the most serious consequences. What is now needed is to seek a transitional solution to these problems that will be applicable to most industries and at the same time tackle the root cause of the problem, i.e. staff turnover.
In the absence of any public social provision for individual medical aid in Côte d’Ivoire, with the exception of just a few medical centres which offer services funded in part by the Caisse Nationale de Prévoyance Sociale (National Social Welfare Fund) (CNPS, 1994), some public and private sector enterprises contribute in varying proportions to the payment of employees’ health insurance (Aventin and Gnabéli, 1996). One might wonder why firm 1, whose highest cost is for medical care, continues to be willing to allocate large amounts to medical aid. We would like to suggest three possible, and complementary, replies to this question:
It recognizes the relationship between the physical health and morale of the staff on the one hand, and work productivity on the other.
The quality of social benefits, especially the offer of medical cover, in a country where health care is expensive (World Bank, 1993), is highly appreciated by employees. This policy, which is of benefit to the staff as a whole, narrows hierarchical gaps and strengthens social ties and work cohesion among employees.
The employer’s contribution to employees’ medical cover facilitates access to health care and prevents the partial purchase of drugs or the interruption of a course of treatment which the worker considers too expensive.
With no data available on the cost of medical absenteeism - whatever the pathological cause - before and after the introduction of a medical aid scheme, we have been unable to carry out a comparative study. Nevertheless, it is possible to present and state the case for the various parameters that enter into such a comparison. The question of cost or profitability remains the core issue for managers. We will base our demonstration, on the one hand, on the potential gains to be derived from opting for a well developed medical policy and, on the other, on the possibility of cutting the cost of such a policy.
By a developed health policy, for enterprises with over 50 employees, we mean: regular checks on employees by a doctor employed by the company and working on the premises, the employment of nursing staff, the provision of premises to be used as a dispensary equipped with essential drugs and first aid material, (9) and a contribution by the employer to employees’ medical insurance so that they can afford pharmaceutical products. (10) In addition to cutting the cost of medical absenteeism, these arrangements should be conducive to a reduction in the loss of productivity of employees who, even when in poor health, continue to work for fear that, without a medical certificate - which means paying for an appointment with a doctor and the travel costs incurred - they will have their daily wages docked. At the same time the presence of a company doctor regulates the behaviour of employees who take unwarranted sick leave. Lowering the morbidity rate through improved access to care and pharmaceutical products also reduces staff movements. A lower incidence of staff mortality and an increase in the average duration of attendance at work encourage the transmission of skills and acquisition of the tacit knowledge specific to the group. There is indeed a price to pay for the absence of all these compensations. Is that price higher overall than the cost of health insurance? To judge that, we need to establish a cost/effectiveness curve. If, as we suggest, the costs of the disorganization of work are cumulative and progressive, we would obtain a curve of the following type:
of work caused by HIV
We are not in a position to determine the relative time- and cost-scales, which vary according to many parameters relating to the fragility and vulnerability of each business. However, if we take the hypothesis illustrated by diagram 3, we can see that the cost of the disorganization of work can rise exponentially until the business collapses; alternatively it may take the shape of a logistic-type curve, levelling out at a high cost level which eats into profitability and, even though it may be stabilized temporarily, leaves the business far more vulnerable than it would be without HIV/AIDS. Setting up a health system is a costly investment in the early years; thereafter, rigorous management is needed to limit fluctuations in the cost of the system borne by the beneficiaries, i.e. the employees (and their families). It may be assumed that the disorganization of work will eventually cost more than a medical aid system and the sooner medical monitoring and care are made available, the sooner the dysfunctions caused by the HIV epidemic will be brought under control. The different firms’ responses will ultimately depend on how the typical cases suggested by this diagram evolve, and the cost of a workplace health system will be seen, not as an additional burden, but as an investment which will become profitable after so many years, depending on the firm.
In order to speed up or increase the return on this investment, it is important to be aware of ways of minimizing the cost of a medical aid scheme for employees while providing the same levels of service and efficiency. Several measures are worth considering and indeed necessary:
We note that there are three main limitations to the establishment of workplace health-care schemes. Firstly, even the progressive establishment of a medical aid scheme involves disbursement and therefore implies that funds are available for what is in many cases an unforeseen investment. Secondly, public and private sector employees and their families are only a minority of the working population; workers in the informal sector are not accounted for. Thirdly, such a policy accentuates the sometimes paternalistic role of employers in Africa (Henry, 1993) - when employees lose their jobs they also lose the social benefits that go with them, in particular access to health insurance. That being said, the employer should consider these health-related issues not as a favour granted to employees or a secondary aspect in relation to work, but as an economic tool for staff management.
Notwithstanding the above-mentioned limitations, the application of a health policy by firms might lead to interesting trends at the macro-economic level:
Source: Aventin, Huard 1997. (11)
of work caused by HIV
2. The medical information provided by the doctors was anonymous for reasons of confidentiality in the study. The doctors took a very active part in the research, particularly when certain cost assessments required them to identify cases.
3. For further information on the costs presented in table 3, refer to the article by Aventin L., and Huard, P.: ‘Reactions of African firms to the impact of HIV/AIDS on their operations: Some thoughts based on observations made in Abidjan, Côte d'Ivoire’. Submitted to both the Revue d'Economie du Développement and the Journal of African Economies at the time of writing this paper.
5. It should be noted that because of the sensitive nature of the topic, research into discriminatory practices in business, in particular with the assistance of associations of seropositive persons or legal experts, cannot be conducted in conjunction with research on economic costs in the same firms. The two studies were therefore carried out simultaneously in different firms.
6. Initially, decree No. 65-210 of 17 June 1965 stated that ‘the company doctor shall be responsible for dispensing first-aid to workers who are victims of accidents or taken ill where such need arises in the workplace and with the means available to the establishment …’. In practice all manifestations of sickness of employees are treated in the workplace, including those not related to work.
7. According to Weiss, the organization of work affects absenteeism and can become a management tool to regulate the structural dysfunctions of the enterprise, in particular those caused by absenteeism (Weiss, 1979).
8. Research carried out in Abidjan in 1995 and 1996 on 30 companies from all sectors provides insights into the different health schemes and coverage of these companies. The findings of these studies are partially presented in a paper (cf. bibliography: Aventin and Gnabéli, 1996).
9. List of first aid products laid down in labour law: Decree No. 67-321 of 21 July 1967, which codifies the statutory provision pursuant to Part VI ‘Health and Safety - Medical Service’ of Law No. 64-290 of 1 August 1964, establishing the Labour Code. Official gazette of Côte d’Ivoire, 9 July 1968. Terms retained in the amendment to the Labour Code of February 1995.
10. Although labour law regulates the presence of a doctor and medical staff in the workplace according to the number of employees, and the provision of premises, equipment and first aid material, these conditions are not always respected by the employer. Furthermore, the employer’s contribution to the payment of employees’ medical insurance is not compulsory or even recommended.
11. For further information on the costs presented in table 3, refer to the article by Aventin L., and Huard, P.: ‘Reactions of African firms to the impact of HIV/AIDS on their operations: Some thoughts based on observations made in Abidjan, Côte d’Ivoire’. Submitted to both the Revue d'Economie du Développement and the Journal of African Economies at the time of writing this paper.
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About the authorsLaurent Aventin: Studying for a doctorate in public health, research funded by the Agence Nationale de Recherche sur le SIDA (National AIDS Research Agency). Works with the Grand Programme SIDA, ORSTOM, 911 Av. Agropolis, BP 5045, 34032 Montpellier Cedex 1 - France. E-mail: email@example.com
Pierre Huard: Professor at the University of Aix-Marseille II, Laboratoire d’Economie et de Sociologie du Travail (CNRS) (CNRS Laboratory of Economics and Sociology of Labour), 35 Av. Jules Ferry, 13626 Aix-en-Provence - France. E-mail: firstname.lastname@example.org
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