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Absenteeism, Unemployment and Employment Protection Legislation: Evidence from Italy

Efficiency wages theories argue that the threat of firing, coupled with a high unemployment rate, is a mechanism that discourages employee shirking in asymmetric information contexts. Our empirical analysis aims to verify the role of unemployment as a worker discipline device, considering the different degree of job security offered by the Italian Employment Protection Legislation to workers employed in small and large firms. We use a panel of administrative data (WHIP) and consider sickness absences as an empirical proxy for employee shirking. Controlling for a number of individual and firm characteristics, we investigate the relationship between worker's absences and local unemployment rate (at the provincial level). We find a strong negative impact of unemployment on absenteeism rate, which is considerable larger in small firms due to a significantly lower protection from dismissals in these firms. We also find that workers who are absent more frequently face higher risks of dismissal. As an indirect test of the role of unemployment as worker's discipline device we show that public sector employees, almost impossible to fire, do not react to the local unemployment.

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Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 257.

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Length: 38 pages
Date of creation: 07 Jan 2013
Date of revision: 07 Jan 2013
Handle: RePEc:rtv:ceisrp:257
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  1. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  2. Arai, Mahmood & Thoursie, Peter Skogman, 2005. "Incentives and selection in cyclical absenteeism," Labour Economics, Elsevier, vol. 12(2), pages 269-280, April.
  3. Faini, Riccardo & Galli, Giampaolo & Gennari, Pietro & Rossi, Fulvio, 1997. "An empirical puzzle: Falling migration and growing unemployment differentials among Italian regions," European Economic Review, Elsevier, vol. 41(3-5), pages 571-579, April.
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  7. Tito Boeri, 2004. "The Effects of Employment Protection: Learning from Variable Enforcement," 2004 Meeting Papers 445a, Society for Economic Dynamics.
  8. Lindbeck, Assar & Palme, Mårten & Persson, Mats, 2006. "Job Security and Work Absence: Evidence from a Natural Experiment," Research Papers in Economics 2006:3, Stockholm University, Department of Economics.
  9. Garibaldi, Pietro & Pacelli, Lia & Borgarello, Andrea, 2003. "Employment Protection Legislation and the Size of Firms," IZA Discussion Papers 787, Institute for the Study of Labor (IZA).
  10. Barmby, Tim & Stephan, Gesine, 2000. "Worker Absenteeism: Why Firm Size May Matter," Manchester School, University of Manchester, vol. 68(5), pages 568-77, September.
  11. Scoppa, Vincenzo, 2008. "Worker Absenteeism and Incentives: Evidence from Italy," MPRA Paper 16858, University Library of Munich, Germany.
  12. Scoppa, Vincenzo, 2008. "Shirking and Employment Protection Legislation: Evidence from a Natural Experiment," MPRA Paper 16694, University Library of Munich, Germany.
  13. Hesselius, Patrik, 2007. "Does sickness absence increase the risk of unemployment?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 36(2), pages 288-310, April.
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  16. Olsson, Martin, 2007. "Employment Protection and Sickness Absence," Working Paper Series 717, Research Institute of Industrial Economics.
  17. Riphahn, Regina T. & Thalmaier, Anja, 1999. "Behavioral Effects of Probation Periods: An Analysis of Worker Absenteeism," IZA Discussion Papers 67, Institute for the Study of Labor (IZA).
  18. Andrea Ichino & Regina T. Riphahn, 2005. "The Effect of Employment Protection on Worker Effort: Absenteeism During and After Probation," Journal of the European Economic Association, MIT Press, vol. 3(1), pages 120-143, 03.
  19. Cappelli, Peter & Chauvin, Keith, 1991. "An Interplant Test of the Efficiency Wage Hypothesis," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 769-87, August.
  20. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  21. Zvi Griliches & Jerry A. Hausman, 1984. "Errors in Variables in Panel Data," NBER Technical Working Papers 0037, National Bureau of Economic Research, Inc.
  22. Cristini, Annalisa & Origo, Federica & Pinoli, Sara, 2012. "The Healthy Fright of Losing a Good One for a Bad One," IZA Discussion Papers 6348, Institute for the Study of Labor (IZA).
  23. Riphahn, Regina T., 2004. "Employment protection and effort among German employees," Economics Letters, Elsevier, vol. 85(3), pages 353-357, December.
  24. Campbell, Carl III, 1994. "The determinants of dismissals tests of the shirking model with individual data," Economics Letters, Elsevier, vol. 46(1), pages 89-95, September.
  25. Simen Markussen, 2012. "The individual cost of sick leave," Journal of Population Economics, Springer, vol. 25(4), pages 1287-1306, October.
  26. Tim A. Barmby & Marco G. Ercolani & John G. Treble, 2002. "Sickness Absence: An International Comparison," Economic Journal, Royal Economic Society, vol. 112(480), pages F315-F331, June.
  27. Johansson, Per & Palme, Marten, 1996. "Do economic incentives affect work absence? Empirical evidence using Swedish micro data," Journal of Public Economics, Elsevier, vol. 59(2), pages 195-218, February.
  28. Fahr, René & Frick, Bernd, 2007. "On the Inverse Relationship between Unemployment and Absenteeism: Evidence from Natural Experiments and Worker Heterogeneity," IZA Discussion Papers 3171, Institute for the Study of Labor (IZA).
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