Dismissal Protection and Long-term Sickness Absence – First Evidence from Germany
55 Pages Posted: 17 Sep 2020
Date Written: 2020
This paper analyses the causal effects of weaker dismissal protection on the incidence of long-term sickness (> six weeks). We exploit a German policy change, which shifted the threshold exempting small establishments from dismissal protection from five to ten workers. Using administrative data, we find a significantly negative reform effect on transitions into long-term sickness in the second year after a worker has entered an establishment. This response is due to a behavioural, rather than a compositional effect and is particularly pronounced among medium-skilled males. Our results further indicate that the reform did not alter the probability of involuntary unemployment after sickness.
Keywords: dismissal protection, long-term sickness, involuntary unemployment, difference-in-differences, administrative data, small establishments
JEL Classification: D02, I12, J28, J38, J88, J63, K31
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