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Sick Pay Provision in Experimental Labor Markets

  • Peter Dürsch

    ()

    (University of Heidelberg, Department of Economics)

  • Jörg Oechssler

    ()

    (University of Heidelberg, Department of Economics)

  • Radovan Vadovic

    ()

    (ITAM, Department of Economics)

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.

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File URL: http://www.uni-heidelberg.de/md/awi/forschung/dp476.pdf
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Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0476.

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Length: 34 pages
Date of creation: Oct 2008
Date of revision: Oct 2008
Handle: RePEc:awi:wpaper:0476
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