Do Employees’ Sickness Absences React to a Change in Costs for Firms? Evidence from a Natural Experiment*

Abstract

We analyse the impact of a social security reform that changed the costs incurred by firms due to sickness absences. The reform abolished a compulsory insurance for firms, which insured them against the wages paid to sick blue‐collar workers. During the first year after its introduction, we estimate that the reform resulted in about 6.3 percent fewer sickness absences, and in about 8.6 percent fewer absence days. We do not find evidence for changes in hiring or firing, and we find only limited workforce composition changes. We do not find spillover effects on the absences of white‐collar workers. Robustness checks confirm these results.

Firm Responses to a More Generous Insurance Against High Sick Pay Costs 1

“…The few previous empirical studies on this topic suggest that firm sick pay liability is an important determinant of employee sickness absence: Pertold and Westergaard-Nielsen (2018) find that sickness absence is more prevalent in insured compared to uninsured firms in Denmark, and Fevang et al (2014) show that short-term sickness absence rose significantly among pregnant workers in Norway when firms' pay liability for pregnant-related absences was removed. Böheim and Leoni (2020) study the consequences of abolishing a compulsory insurance against sick pay expenses for blue-collar workers in Austria and find that the reform led to a significant decline in absenteeism. Our results are in line with these patterns when it comes to middle-sized firms (on average 42 employees), but not for smaller firms.…”

“…However, extensive sick pay liability may also lead them to try to avoid hiring individuals who they perceive to have a high risk of being absent. How to optimally balance these two aspects is a key challenge in the design of employers' sick pay liabilities, but this question has received surprisingly little attention in the literature (see Fevang et al, 2014, andBöheim andLeoni, 2020 for two exceptions). The aim of this paper is to empirically investigate if employee shortterm sickness absence is affected by firms receiving a more generous insurance against high costs for sick pay.…”

“…Firstly, we contribute to the literature on firms' sick pay liability and worker absenteeism due to sickness. Earlier studies (Böheim and Leoni, 2020;Pertold and Westergaard-Nielsen, 2018;Fevang et al, 2014) have focused on the margin of introducing or abolishing an insurance. This is the first study on the margin of providing a more generous insurance that also addresses the importance of firm size.…”

Firm responses to a more generous insurance against high sick pay costs

“…However, extensive sick pay liability may also lead them to try to avoid hiring individuals who they perceive to have a high risk of being absent. How to optimally balance these two aspects is a key challenge in the design of employers' sick pay liabilities, but this question has received surprisingly little attention in the literature (see Fevang, Markussen, andRøed 2014, andBöheim andLeoni 2020 for two exceptions).…”

“…Firstly, we contribute to the literature on firms' sick pay liability and worker absenteeism due to sickness. Earlier studies (Böheim and Leoni 2020;Pertold and Westergaard-Nielsen 2018;Fevang, Markussen, and Røed 2014) have focused on the margin of introducing or abolishing an insurance. This is the first study on the margin of providing a more generous insurance that also addresses the importance of firm size.…”