The Sick Pay Trap

Elisabeth Fevang (), Simen Markussen and Knut Røed ()

No 5655, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In most countries, employers are financially responsible for sick pay during an initial period of a worker's absence spell, after which the public insurance system covers the bill. Based on a quasi-natural experiment in Norway, where pay liability was removed for pregnancy-related absences, we show that firms' absence costs significantly affect employees' absence behavior. However, by restricting pay liability to the initial period of the absence spell, firms are discouraged from letting long-term sick workers back into work, since they then face the financial risk associated with subsequent relapses. We show that this disincentive effect is statistically and economically significant.

Keywords: social insurance; experience rating; multivariate hazard rate models; absenteeism (search for similar items in EconPapers)
JEL-codes: C14 C41 H55 I18 J23 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2011-04
New Economics Papers: this item is included in nep-hea, nep-hrm, nep-ias and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Published - published in: Journal of Labor Economics, 2014, 32 (2), 305-336

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Journal Article: The Sick Pay Trap (2014)
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