Profiting from presenteeism? Effects of an enforced activation policy on firm profits

Abstract

Activation requirements and graded benefits are strategies for reducing social insurance costs in comprehensive welfare states. In Norway, a policy of issuing graded rather than full time sickness absence certificates, is viewed as a strategy not just to reduce direct costs of sick pay but also to facilitate returns to work and reduce inflows to permanent disability. This paper analyzes effects of graded sick leave on firm profits, on average and across different firm groups. A series of panel data models are formulated to estimate the effects of grading on firm profits. In these models, grading is found to mitigate the negative effects of sickness absence on firm profit. A one percentage point increase in full time sickness absence leads to a 1.7% reduction in return on assets relative to the sample mean; this negative effect is reduced by 70% when absence is graded. Effects are robust to inclusion of firm fixed effects as well as time-varying proxies for labor demand.