Firms' sickness costs and workers' sickness absence

René Böheim, Thomas Leoni

NBER Disability Research Center Paper No. NB 13-07
Issued in September 2013

In many countries, social security insures firms against their workers' sickness absences. The in-surance may create a moral hazard for firms, leading to inefficient monitoring of absences or to an under-investment in the prevention of absences. This paper contributes to our understanding of how firms respond to changes in sick leave costs by investigating an insurance scheme that covered firms in Austria until 2000. Until September 2000, firms were insured in case they had to pay wages for their sick blue-collar workers. If a firm's total monthly wage bill exceeded a threshold, it was considered a large firm and as such had to pay a deductible of 30 percent. Small firms, in contrast, received the full amount of paid wages. We exploit this discontinuity using administrative social security data to identify the causal effect of the deductible on sickness ab-sences in firms. We expected that firms required to pay the 30 percent deductible would have lower absences among their blue-collar workers than firms that were full covered for their worker absences. Our results show that, in contrast to our expectations, the deductible did not result in different sicknesses in small and large firms. We interpret our findings that the deductible was too moderate to induce management responses.

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