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Sick Pay Provision in Experimental Labor Markets

Author

Listed:
  • Peter Dürsch

    () (University of Heidelberg, Department of Economics)

  • Jörg Oechssler

    () (University of Heidelberg, Department of Economics)

  • Radovan Vadovic

    () (ITAM, Department of Economics)

Abstract

Sick pay is a common provision in most labor contracts. This paper employs an experimental gift-exchange environment to explore two related questions using both managers and undergraduates as subjects. First, do workers reciprocate sick pay in the same way as they reciprocate wage payments? Second, do firms benefit from offering sick pay? Firms may benefit in two different ways: directly, from workers reciprocating higher sick pay with higher efforts; and indirectly, from self-selection of reciprocal workers into contracts with higher sick pay. Our main finding is that the direct effect is rather weak in terms of effort and negative in terms of profits. However, when there is competition among firms for workers, sick pay can become an important advantage. Consequently, competition leads to a higher provision of sick pay relative to a monopsonistic labor market.

Suggested Citation

  • 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.
  • Handle: RePEc:awi:wpaper:0476
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    File URL: http://www.uni-heidelberg.de/md/awi/forschung/dp476.pdf
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Eichberger, Jürgen & Grant, Simon & Lefort, Jean-Philippe, 2008. "Neo-additive capacities and updating," Papers 08-31, Sonderforschungsbreich 504.
    2. Eichberger, Jürgen & Guerdjikova, Ani, 2008. "Case-based expected utility : preferences over actions and data," Papers 08-32, Sonderforschungsbreich 504.
    3. Antonio Filippin & Paolo Crosetto, 2016. "A Reconsideration of Gender Differences in Risk Attitudes," Management Science, INFORMS, pages 3138-3160.
    4. Stefan Bauernschuster & Jörg Oechssler & Peter Duersch & Radovan Vadovic, 2009. "Mandatory Sick Pay Provision: A Labor Market Experiment," Jena Economic Research Papers 2009-076, Friedrich-Schiller-University Jena.
    5. Charness, Gary & Du, Ninghua & Yang, Chun-Lei & Yao, Lan, 2013. "Promises in contract design," European Economic Review, Elsevier, vol. 64(C), pages 194-208.
    6. Schnedler, Wendelin & Dominiak, Adam, 2008. "Uncertainty aversion and preference for randomization," Papers 08-39, Sonderforschungsbreich 504.
    7. Ziebarth, Nicolas R., 2013. "Long-term absenteeism and moral hazard—Evidence from a natural experiment," Labour Economics, Elsevier, vol. 24(C), pages 277-292.
    8. Fortuna Casoria & Arno Riedl, 2013. "Experimental Labor Markets And Policy Considerations: Incomplete Contracts And Macroeconomic Aspects," Journal of Economic Surveys, Wiley Blackwell, pages 398-420.
    9. Danilov, Vladimir I. & Koshevoy, Gleb A. & Lang, Christine, 2008. "Equilibria with indivisible goods and package-utilities," Papers 08-30, Sonderforschungsbreich 504.
    10. Bauernschuster, Stefan & Duersch, Peter & Oechssler, Jörg & Vadovic, Radovan, 2010. "Mandatory sick pay provision: A labor market experiment," Journal of Public Economics, Elsevier, pages 870-877.
    11. René Böheim & Thomas Leoni, 2014. "Firms' Sickness Costs and Workers' Sickness Absences," NBER Working Papers 20305, National Bureau of Economic Research, Inc.
    12. Paul Söderlind, 2010. "Reaction of Swiss Term Premia to Monetary Policy Surprises," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), pages 385-404.
    13. Puhani, Patrick A. & Sonderhof, Katja, 2010. "The effects of a sick pay reform on absence and on health-related outcomes," Journal of Health Economics, Elsevier, vol. 29(2), pages 285-302, March.
    14. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, Elsevier.

    More about this item

    Keywords

    sick pay; sick leave; experiment; gift exchange;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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