The effects of expanding the generosity of the statutory sickness insurance system

Nicolas Ziebarth, Martin Karlsson
DIW Berlin, Germany

Statutory sick pay for sickness episodes up to six weeks was increased from 80 to 100 percent of forgone gross wages as of January 1, 1999 in Germany. We show that the generosity expansion has increased average absence days by about ten percent or one day per employee, per year. We find a substantial degree of effect heterogeneity. Employees in a bad health shape have reacted strongest. By contrast, employees' average health has not improved as a consequence of the reform. Our calculations suggest that the generosity expansion represents an annual increase in labor costs of about \EUR1.8 billion. Finally, we provide evidence suggesting that employers have tried to compensate this shock in labor costs by increasing overtime and decreasing wages.

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