A Kink that Makes You Sick: the Effect of Sick Pay on Absence in a Social Insurance System

Böckerman, Petri and Kanninen, Ohto and Suoniemi, Ilpo (2014): A Kink that Makes You Sick: the Effect of Sick Pay on Absence in a Social Insurance System.

Abstract

We examine the effect of the replacement rule of a social insurance system on sickness absence. The elasticity of absence with respect to the benefit level is a critical parameter in defining the optimal sickness insurance scheme. A pre-determined, piecewise linear policy rule in which the replacement rate is determined by past earnings allows identification of the causal effect using a regression kink design. Using a large administrative dataset, we find a substantial and robust behavioral response. The statistically significant point estimate of the elasticity of the duration of sickness absence with respect to the replacement rate in a social insurance system is on the order of 1.

• Item Type: MPRA Paper
• Language: English
• Keywords: Sick pay, labor supply, sickness absence, regression kink design, social insurance
• Subjects: I - Health, Education, and Welfare > I1 - Health > I18 - Government Policy ; Regulation ; Public Health; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J22 - Time Allocation and Labor Supply

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