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Sick Pay, Health and Work

  • Granberg, Malin


    (Department of Economics, Umeå University)

  • Löfgren, Karl-Gustaf


    (Department of Economics, Umeå University)

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    The purpose of this paper is to analyze the effects of different sickness insurance regimes on the employee decision reporting sick or not. We can think of the design problem as a representative employer’s decision to determine the optimal relationship between the wage and the sickness pay. The employee bases her decision to work or not on this relative price and her exogenously given health status that varies between individuals. We believe that the incentives present in the model are able to tell as about relevant aspects of the incentives involved in a state managed sickness insurance system. We calculate how the control variables depend on parameters such as the average productivity of the worker, the average productivity of the substitute, the wage of the substitute, and the search cost to find a substitute. Since we assume that the health status of the work force is heterogeneous and represented by a distribution function, we are also able to calculate the change in the work participation rate, as a function of the parameters.

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    Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 695.

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    Length: 25 pages
    Date of creation: 28 Aug 2006
    Date of revision:
    Handle: RePEc:hhs:umnees:0695
    Contact details of provider: Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
    Phone: 090 - 786 61 42
    Fax: 090 - 77 23 02
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    1. Coles, Melvyn G. & Treble, John G., 1993. "The price of worker reliability," Economics Letters, Elsevier, vol. 41(2), pages 149-155.
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