The Sick Pay Trap

22 Pages Posted: 25 Apr 2011

See all articles by Elisabeth Fevang

Elisabeth Fevang

University of Oslo - Ragnar Frisch Centre for Economic Research

Simen Markussen

University of Oslo - Ragnar Frisch Centre for Economic Research

Knut Roed

Ragnar Frisch Centre for Economic Research; IZA Institute of Labor Economics

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: absenteeism, social insurance, experience rating, multivariate hazard rate models

JEL Classification: C14, C41, H55, I18, J23

Suggested Citation

Fevang, Elisabeth and Markussen, Simen and Røed, Knut, The Sick Pay Trap. IZA Discussion Paper No. 5655. Available at SSRN: https://ssrn.com/abstract=1820946

Elisabeth Fevang (Contact Author)

University of Oslo - Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0317 Oslo
Norway

Simen Markussen

University of Oslo - Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0317 Oslo
Norway

Knut Røed

Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0349 Oslo
Norway

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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