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Mandatory sick pay provision: A labor market experiment

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  • Bauernschuster, Stefan
  • Duersch, Peter
  • Oechssler, Jörg
  • Vadovic, Radovan

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 with student subjects in an experimental laboratory setting rich enough to allow for moral hazard, adverse selection, and crowding out of good intentions. Both wages and replacement rates offered by competing employers are reciprocated by workers. However, replacement rates are only reciprocated as long as no minimum level is mandated. Although we observe adverse selection when workers have different exogenous probabilities for being absent from work, this does not lead to a market breakdown. In our experiment, mandating replacement rates actually leads to a higher voluntary provision of replacement rates by employers.

Suggested Citation

  • Bauernschuster, Stefan & Duersch, Peter & Oechssler, Jörg & Vadovic, Radovan, 2010. "Mandatory sick pay provision: A labor market experiment," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 870-877, December.
  • Handle: RePEc:eee:pubeco:v:94:y:2010:i:11-12:p:870-877
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    References listed on IDEAS

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    Cited by:

    1. Antonio Filippin & Paolo Crosetto, 2016. "A Reconsideration of Gender Differences in Risk Attitudes," Management Science, INFORMS, vol. 62(11), pages 3138-3160, November.
    2. Charness, Gary & Du, Ninghua & Yang, Chun-Lei & Yao, Lan, 2013. "Promises in contract design," European Economic Review, Elsevier, vol. 64(C), pages 194-208.
    3. Duersch, Peter & Oechssler, Jörg & Vadovic, Radovan, 2012. "Sick pay provision in experimental labor markets," European Economic Review, Elsevier, vol. 56(1), pages 1-19.
    4. Ziebarth, Nicolas R., 2013. "Long-term absenteeism and moral hazard—Evidence from a natural experiment," Labour Economics, Elsevier, vol. 24(C), pages 277-292.
    5. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, Elsevier.
    6. Burfurd, Ingrid & Gangadharan, Lata & Nemes, Veronika, 2012. "Stars and standards: Energy efficiency in rental markets," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 153-168.

    More about this item

    Keywords

    Sick pay Sick leave Experiment Gift exchange;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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