The impact of firms’ adjustments on the indirect cost of illness
Illness-related absenteeism reduces firms’ output, an effect referred to as indirect cost (IC) and often included in cost-of-illness or cost-effectiveness (of health technologies) studies. The companies may foresee this effect and modify hiring or contracting policies. We present a model allowing the estimation of IC with such adjustments. We show that the risk of illness does not change the general shape and properties of the (expected) marginal productivity function. We apply our model to several illustrative examples and show that firm’s adjustments impact IC in an ambiguous way, depending on detailed company/market characteristics: in some cases the company reduces the employment (further increasing IC), in another—the opposite happens. Contrary to previous findings, teamwork and shortfall penalties may reduce IC in some settings. Our analysis highlights that IC should be split into the result of companies preparing for and actually experiencing sick leaves.
KeywordsAbsenteeism Indirect cost Teamwork Output shortfall Friction cost method Societal perspective
JEL ClassificationD21 J24 J21 L23
This paper was partially prepared when M. Jakubczyk was at The University of Iowa, Tippie College of Business, which was possible thanks to the Fulbright Senior Award 2015/2016. We would also like to thank R. Amir for useful comments.
Compliance with ethical standards
Conflict of interest
The authors declare that they have no conflict of interest.
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