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

Abstract

<div> This paper examines the effect of the replacement rule of the Finnish sickness insurance</div> <div> system on the duration of sickness absence. A pre-determined, piecewise linear policy rule in</div> <div> which the replacement rate is determined by past earnings allows identification of the effect</div> <div> using a regression kink design. We find a substantial and robust behavioral response. The</div> <div> statistically significant point estimate of the elasticity of the duration of sickness absence with</div> <div> respect to the replacement rate is on the order of 1.4.</div>