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Sick Pay, Health and Work

Malin Granberg () and Karl-Gustaf Löfgren ()
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Malin Granberg: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Karl-Gustaf Löfgren: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

No 695, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: 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.

Keywords: Sickness insurance design; wage setting; and labour force participation (search for similar items in EconPapers)
JEL-codes: I18 J20 J28 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2006-08-28
New Economics Papers: this item is included in nep-hea, nep-ias and nep-lab
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