Paid Sick Leave – A Trade-Off Between Contagion and Work Avoidance

In Germany, paid sick leave regulations applicable to all companies have been enshrined in the law since 1994. The USA is lagging behind in this field. Although 65% of employees may stay at home when they’re sick, at 20%, paid sick leave is more of an exception than a rule, especially in the low-wage sector (Susser & Ziebarth 2016). However, things have developed since 2006 and paid sick leave is now being introduced on a gradual basis in various states and individual cities.

So what are the actual effects of sick pay schemes? In Germany, experts have suspected for some time that paid sick leave may, to some degree, result in increased work avoidance and absenteeism. This is, not least, due to the fact that attending doctors are free to determine the duration of the absence. By contrast, in the USA there is a maximum of seven days a year, which should significantly restrict the level of absenteeism.

Another key aspect is contagion. Employees who are paid to stay home when they are sick do not bring viruses to the workplace and hence do not infect colleagues or customers.

In their paper, Stefan Pichler and his co-author R. Ziebarth (Pichler & Ziebarth 2017) analyse the effect of the introduction of paid sick leave in the USA and the impact of the amended sick pay regulations in Germany on various diseases. In specific, they have developed a model which allows them to quantify the negative externalities resulting from contagion. Their paper thus provides a basis that facilitates the identification of contagion in various framework conditions. Their results also show that paid sick leave is a suitable measure to counteract these negative externalities.

Sick pay reduces the number of influenza cases

The paper, which has recently been published in the Journal of Public Economics, demonstrates that the introduction of paid sick leave in the USA has reduced the number of flu cases by at least 5%. Given the fact that this introduction is really an extension of paid sick leave (from previously approx. 65% of employees receiving sick pay to 100%), companies newly adopting a sick pay scheme may expect much greater effects.

By contrast, the reverse trend applied in Germany in 1998. Here, sick pay was reduced from 100% of the wages to 80%, leading to less absenteeism in general. Only contagious diseases were unaffected since cases of fresh contagion and fewer absences balanced each other out.

Impact on employment and wages?

However, as is often the case with statutory regulations, the question arises whether mandatory measures are required or whether companies should take their own decisions in the matter. At first glance, the fact that paid sick leave in the USA resulted in a decline of the flu rate supports the argument in favour of mandatory sick pay. However, this positive impact could be cancelled out by negative effects on wages or employment. In a related article (Pichler & Ziebarth 2016), the authors show that this is not the case, at least in the USA. The statutory introduction of paid sick leave did not affect either employment figures or wages.