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The individual cost of sick leave

Abstract

This paper aims to estimate the causal effect of sick leave on subsequent earnings and employment, using an administrative dataset for Norway. To obtain experiment-like variation in sick leave among otherwise similar workers, the leniency of these workers’ physicians—certifying sickness absences—is used as an instrumental variable for sick leave. A 1 percentage point increase in a worker’s sick leave rate is found to reduce his earnings by 1.2% 2 years later. Around half of the reduction in earnings can be explained by a reduction of 0.5 percentage points in the probability of being employed.

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Fig. 1

Notes

  1. For a recent study of performance-related pay, see Gielen et al. (2010).

  2. Hansen (2000) uses several instrumental variables of which the policy reform is arguably the most credible.

  3. Even if cyclical absenteeism is more costly for males than females, the “quantity effect” dominates the “price effect” as females have more cyclical absences than males.

  4. Since health is unobserved, controlling for unobserved heterogeneity is crucial when estimating duration dependence. The workers who first return to work are the ones with best health, meaning that as duration increases, the remaining population on sick leave becomes more and more disadvantaged. This results, almost mechanically, in negative duration dependence.

  5. G is a unit for calculation of social benefits in Norway that is adjusted for inflation.

  6. There is one exception, current earnings, which is measured in year t − 1. Earnings in year t may be affected by sick leave in year t from reduced overtime payment and lost bonuses for absent workers. Earnings exceeding 6G will also not be replaced by the sickness insurance (unless covered by the employer) which also may make earnings in year t dependent on sick leave in year t.

  7. A detailed description of their estimation strategy is provided in the Appendix.

  8. I am grateful to one of the referees for suggesting this approach.

  9. There is a potential caveat regarding the results on employment. If physicians lenient in sickness certification also are lenient when certifying disability insurance, this may lead to the same results, but with a different interpretation. However, normally it takes more than 2 years before a worker receives disability pension, and to qualify for such a pension one must also receive approval from a “neutral” physician, employed by the social security administration.

  10. When Markussen et al. (2011) estimated z i,t they used workplace fixed effects for all workplaces with at least 100 employees. In unreported results the sample is restricted to only include workers in firms large enough to be represented by a separate dummy variable when estimating z i,t . The sample is reduced by around 50%, but the estimated coefficient is not significantly different from the one in column (IV1) where all workers were included. In addition to the reported results the model is also estimated with fixed effects for all combinations of jobs (same 12 categories as in Table 5) and neighborhoods, in total more than 75,000 combinations. The results are almost identical to those reported in column IV2

  11. Unfortunately, jobs are not observed directly in the data. The jobs described in Table 3 are defined using a combination of sector of employment and education.

  12. Workers with small children have a quota of ten sick leave days a year to take care of sick children. These absence spells are not covered by this dataset.

  13. In Ichino and Moretti (2009) employers expect females to have higher sick leave rates than males because of biological differences—the menstrual cycle.

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Correspondence to Simen Markussen.

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Responsible editor: Erdal Tekin

This paper is part of the project “A viable welfare state” financed by the Norwegian Research Council. I am grateful to Knut Røed, Oddbjørn Raaum, Bernt Bratsberg, Espen Henriksen, Ole Røgeberg, Erik Biørn, Kjell Arne Brekke, Magne Mogstad, Harald Dale-Olsen and Per Johansson for their comments. I am also grateful to two anonymous referees for the comments and suggestions.

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Markussen, S. The individual cost of sick leave. J Popul Econ 25, 1287–1306 (2012). https://doi.org/10.1007/s00148-011-0390-8

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Keywords

  • Sickness absence
  • Wage formation
  • IV estimation

JEL Classification

  • J22
  • J31
  • J71