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The Sick Pay Trap

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Author Info

  • Fevang, Elisabeth

    ()
    (Ragnar Frisch Centre for Economic Research)

  • Markussen, Simen

    ()
    (Ragnar Frisch Centre for Economic Research)

  • Røed, Knut

    ()
    (Ragnar Frisch Centre for Economic Research)

Abstract

In most countries, employers are financially responsible for sick pay during an initial period of a worker's absence spell, after which the public insurance system covers the bill. Based on a quasi-natural experiment in Norway, where pay liability was removed for pregnancy-related absences, we show that firms' absence costs significantly affect employees' absence behavior. However, by restricting pay liability to the initial period of the absence spell, firms are discouraged from letting long-term sick workers back into work, since they then face the financial risk associated with subsequent relapses. We show that this disincentive effect is statistically and economically significant.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5655.

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Length: 22 pages
Date of creation: Apr 2011
Date of revision:
Publication status: published in: Journal of Labor Economics, 2014, 32 (2), 305-336
Handle: RePEc:iza:izadps:dp5655

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Related research

Keywords: multivariate hazard rate models; experience rating; social insurance; absenteeism;

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References

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  1. Markussen, Simen & Røed, Knut & Røgeberg, Ole J. & Gaure, Simen, 2009. "The Anatomy of Absenteeism," IZA Discussion Papers 4240, Institute for the Study of Labor (IZA).
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Citations

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Cited by:
  1. René Böheim & Thomas Leoni, 2011. "Firms’ moral hazard in sickness absences," Economics working papers 2011-13, Department of Economics, Johannes Kepler University Linz, Austria.
  2. Ziebarth, Nicolas R. & Karlsson, Martin, 2013. "The Effects of Expanding the Generosity of the Statutory Sickness Insurance System," IZA Discussion Papers 7250, Institute for the Study of Labor (IZA).
  3. Rieck, Karsten Marshall E. & Telle, Kjetil, 2012. "Sick Leave Before, During and After Pregnancy," Working Papers in Economics 06/12, University of Bergen, Department of Economics.
  4. Markussen, Simen & Mykletun, Arnstein & Røed, Knut, 2012. "The case for presenteeism — Evidence from Norway's sickness insurance program," Journal of Public Economics, Elsevier, vol. 96(11), pages 959-972.
  5. Karsten Marshall Elseth Rieck & Kjetil Telle, 2012. "Sick leave before, during and after pregnancy," Discussion Papers 690, Research Department of Statistics Norway.

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