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

Working Papers 297 Petri Böckerman, Ohto Kanninen, Ilpo Suoniemi

We examine the effect of the replacement rate of a social insurance system on sickness absence by exploiting a regression kink design. The elasticity of absence with respect to the benefit level, in addition to risk preferences, is a critical parameter in defining the optimal sickness insurance scheme. Using a large administrative dataset, we find a 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. Given our estimate, we characterize the optimal benefit level.

Keywords: Sick pay, labor supply, sickness absence, regression kink design, social insurance
ISBN: 978-952-209-137-6 (pdf)
ISSN: 1795-1801 (pdf)
JEL: H55, I13, J22
Publication (PDF)