A kink that makes you sick: the incentive effect of sick pay on absence

: Böckerman Petri, Kanninen Ohto, Suoniemi Ilpo

Publisher: Institute for the Study of Labor (IZA)

: Turku

: 2014

This paper examines the effect of the replacement rule of the Finnish sickness insurance

system on the duration of sickness absence. A pre-determined, piecewise linear policy rule in

which the replacement rate is determined by past earnings allows identification of the effect

using a regression kink design. 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 is on the order of 1.4.

dp8205.pdf