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Mandatory Sick Pay Provision: A Labor Market Experiment

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  • Stefan Bauernschuster

    (University of Jena)

  • Jörg Oechssler

    ()
    (Department of Economics, University of Heidelberg, Germany)

  • Peter Duersch

    (University of Heidelberg)

  • Radovan Vadovic

    (ITAM, Mexico City)

Abstract

The question whether a minimum rate of sick pay should be mandated is much debated. We study the effects of this kind of intervention in an experimental labor market that is rich enough to allow for moral hazard, adverse selection, and crowding out of good intentions to occur. We find that higher sick pay is reciprocated by workers through higher effort but only if sick pay is not mandated. We also study adverse selection effects when workers have different probabilities of getting sick and can reject the hypothesis that this leads to market breakdown. Overall, we find that mandating sick pay actually leads to a higher voluntary provision of sick pay by ?rms.

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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2009-076.

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Date of creation: 25 Sep 2009
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Handle: RePEc:jrp:jrpwrp:2009-076

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Keywords: sick pay; sick leave; experiment; gift exchange;

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References

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  1. Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 1997. "Reciprocity as a Contract Enforcement Device: Experimental Evidence," Econometrica, Econometric Society, Econometric Society, vol. 65(4), pages 833-860, July.
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  3. Charness, Gary & Frechette, Guillaume R & Kagel, John H, 2002. "How Robust is Laboratory Gift Exchange?," University of California at Santa Barbara, Economics Working Paper Series qt8qq4k3ph, Department of Economics, UC Santa Barbara.
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  6. Dufwenberg, Martin & Kirchsteiger, Georg, 2004. "A theory of sequential reciprocity," Games and Economic Behavior, Elsevier, Elsevier, vol. 47(2), pages 268-298, May.
  7. McCabe, Kevin A. & Rigdon, Mary L. & Smith, Vernon L., 2003. "Positive reciprocity and intentions in trust games," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 52(2), pages 267-275, October.
  8. Fehr, Ernst, et al, 1998. "When Social Norms Overpower Competition: Gift Exchange in Experimental Labor Markets," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 16(2), pages 324-51, April.
  9. R. Lynn Hannan & John H. Kagel & Donald V. Moser, 2002. "Partial Gift Exchange in an Experimental Labor Market: Impact of Subject Population Differences, Productivity Differences, and Effort Requests on Behavior," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 20(4), pages 923-951, October.
  10. Duersch, Peter & Oechssler, Jörg & Vadovic, Radovan, 2012. "Sick pay provision in experimental labor markets," European Economic Review, Elsevier, Elsevier, vol. 56(1), pages 1-19.
  11. Sandra Maximiano & Randolph Sloof & Joep Sonnemans, 2004. "Gift Exchange in a Multi-worker Firm," Tinbergen Institute Discussion Papers 04-100/1, Tinbergen Institute.
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  13. Magnus Henrekson & Mats Persson, 2004. "The Effects on Sick Leave of Changes in the Sickness Insurance System," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 22(1), pages 87-114, January.
  14. Jordi Brandts & Gary Charness, 2004. "Do Labour Market Conditions Affect Gift Exchange? Some Experimental Evidence," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 114(497), pages 684-708, 07.
  15. Owens, Mark F. & Kagel, John H., 2010. "Minimum wage restrictions and employee effort in incomplete labor markets: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 73(3), pages 317-326, March.
  16. Jody Heymann & Hye Jin Rho & John Schmitt & Alison Earle, 2009. "Contagion Nation: A Comparison of Paid Sick Day Policies in 22 Countries," CEPR Reports and Issue Briefs, Center for Economic and Policy Research (CEPR) 2009-19, Center for Economic and Policy Research (CEPR).
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Cited by:
  1. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, Elsevier, Elsevier.
  2. Nicolas R. Ziebarth, 2009. "Long-Term Absenteeism and Moral Hazard: Evidence from a Natural Experiment," Discussion Papers of DIW Berlin 888, DIW Berlin, German Institute for Economic Research.
  3. Peter Dürsch & Jörg Oechssler & Radovan Vadovic, 2008. "Sick Pay Provision in Experimental Labor Markets," Working Papers 0476, University of Heidelberg, Department of Economics, revised Oct 2008.
  4. Antonio FILIPPIN & Paolo CROSETTO, 2014. "A Reconsideration of Gender Differences in Risk Attitudes," Departmental Working Papers, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano 2014-01, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  5. Charness, Gary & Du, Ninghua & Yang, Chun-Lei & Yao, Lan, 2013. "Promises in contract design," European Economic Review, Elsevier, Elsevier, vol. 64(C), pages 194-208.

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