Wednesday, October 28, 2009

Home Sick

Copyright, The New York Times Company

Although the recent health care debate has featured a number of comparisons of Europe and the United States, little has been said about sick leave. Economic research has shown that workers in the Netherlands, Sweden and Norway often stay home sick.

Incentives, and not the flu, seem to be the explanation.

Paul Krugman (among others) has claimed how Europeans are "healthier than Americans by just about every measure." Thus it may come as a surprise that our poor health does not keep us Americans away from work more often than European workers.

A study by the International Monetary Fund showed that American workers were less frequently absent from work for sickness than was the average European (during the years studied, 1995-2003). As shown in the chart below, workers in the Netherlands, Sweden and Norway stayed home sick about twice as much as American workers did.

Economists have been aware of these differences for a while now, and have understood them to be the result of incentives. Quite simply, the financial penalty for work absence in the Netherlands, Sweden and Norway was quite small (as compared to the U.S. and other European countries), and the labor market responded by keeping workers home “sick” more often.

In Norway, for example, the social insurance system may have to pay a sick worker’s entire salary for the duration of a worker’s sickness, and require the employer to provide still further benefits. Under such a system, sick people are less likely to go to work when sick — but healthy people are also more likely to stay home claiming they are sick.

Indeed, a 2004 paper by the Stockholm School of Economics professor Skogman Thoursie found that the Swedish incentives were so strong that a large number of Swedish men reported sick merely to watch sporting events on television.

Thus, none of the studies have concluded that the Dutch, Swedes or Norwegians are sicker than we are. Regardless of whether you think these countries’ sick leave systems are on balance desirable because they allow sick workers to stay home, or counterproductive because they induce healthy workers to feign sickness, the literature concludes that financial incentives are affecting the size of the work force.

Nevertheless, consideration of incentives has itself been mostly absent from recent public policy proposals here in the United States.

From three consecutive federal minimum wage hikes to the marginal income tax rates created by the new home buyer tax credit and proposals to help employees cope with a health insurance mandate, much has happened in the United States to erode labor market incentives. If that’s our future, we’ll find our labor market to be just as sick as the Europeans’ because — whether we like it or not — incentives matter.

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