Absenteeism and the Role of Work Incentives

by: Mark Sunshine

Last Wednesday the New York Times Economix Blog published an article written by Casey Mulligan that was billed as a summary of how work incentives change employee behavior. I expected Professor Mulligan to educate readers as to how work and compensation incentives change worker behavior and affect business. I quickly realized, however, that the real purpose of Professor Mulligan’s article was to criticize health care reform and take a cheap shot at Paul Krugman. What really surprised me was that Professor Mulligan, a Professor of Economics at the University of Chicago, misused an IMF study to argue that providing health insurance to workers somehow promotes workplace absenteeism. Instead of being either persuasive or informative, Professor Mulligan hurt his credibility and that of the New York Times.

Professor Mulligan states in his article:

Although the recent health care debate has featured a number of comparisons of Europe and the United States, little has been said about sick leave. Economic research has shown that workers in the Netherlands, Sweden and Norway often stay home sick.

Incentives, and not the flu, seem to be the explanation.

Paul Krugman (among others) has explained how Europeans are healthier than Americans by just about every measure. Thus it may come as a surprise that our poor health does not keep us Americans away from work more often than European workers.

To prove his point, Professor Mulligan cites the IMF study that supposedly shows that U.S. workers have lower absenteeism rates than their European counterparts. As proof of this, Professor Mulligan reproduces a chart that shows that workers in the Netherlands, Sweden and Norway are absent from work at a rate a little more than two times the rate of the U.S.

Professor Mulligan fails to mention is that he selectively reproduced the IMF chart and conveniently ignored data that didn’t fit his theories. As it turns out, among the 18 European countries that the IMF studied, the U.S. absenteeism rate is about average (actually slightly lower than the arithmetic average of the IMF country data – there is no population weighted data provided but it is likely that the U.S. is above the average for absenteeism among the European countries studied if weighted for population). According to the IMF, the U.S. was dead center on the absenteeism chart. Actually, the IMF said there were 9 countries with higher absenteeism rates than the U.S. and 9 countries with lower absenteeism rates. I believe that the selective use of data by Professor Mulligan is at best misleading and at worst outright dishonest. It certainly isn’t something that the University of Chicago would tolerate from any of its students and isn’t something that the New York Times should have published.

Even worse, Professor Mulligan continues to state:

“Quite simply, the financial penalty for work absence in the Netherlands, Sweden and Norway was quite small (as compared with other European countries and the United States), and the labor market responded by keeping workers home 'sick' more often.”

Professor Mulligan freelances with the truth in this statement because the IMF came to a much different conclusion. In its report, the IMF identified work force participation as the greatest correlated factor driving absenteeism rates in the high absence countries. It said:

“High sickness absence reflects…high labor force participation, particularly of women and older people. Countries with high sickness absence have generally high participation rates…”

Many analysts believe that high worker participation rates is evidence of an advanced and effective health care system which is exactly the opposite of what Professor Mulligan hoped to persuade readers of. After all, when workers become older the ability to keep on working is evidence of good health and high participation by women is also typically evidence of overall good health (women tend to be primary care givers to sick family and participation of women in the work force is generally considered to be inversely correlated to the sickness of their family members).

By the way, the IMF study concluded that to the extent that financial incentives make a difference it isn’t the amount of paid sick leave that affects absenteeism rates but rather who bears the cost of sick leave. When employers pay some of the cost of sick leave absenteeism rates tend to be lower than when the government reimburses employers for 100% of the cost.

The authors of the IMF study explicitly stated that there are no clear relationships that they could find or studied between sickness absence and “health status, working conditions, and…public insurance schemes.” As such I can’t understand how Professor Mulligan can point to the IMF study as evidence that that “proposals to help employees cope with a health insurance mandate” will “erode labor market incentives.”

In a “gotcha” moment, Professor Mulligan proudly points out that because of generous sick leave laws in some countries, like Sweden, a large number of men stay home sometimes to watch sports on TV. I don’t know how to break it to Professor Mulligan but when I grew up in the 1960s and 1970s, American men used to stay home to watch the World Series on TV (it was before the games were played at night) and if Philadelphia beats the Yankees and takes the Series I can pretty much guarantee that absenteeism will be up in Philadelphia for a few days. Perhaps the fact that Swedish male absence is somewhat coorelated televised sports events isn’t a function of economics but rather a symptom of human nature and TV scheduling. I have travelled around the world and I have found that pretty much in every country I have been in some men stay home to watch “once in a lifetime” sports events.

What Professor Mulligan has proven to me in his article is why union rules that guaranty lifetime employment are a bad thing. Over the last 30 years union rules that protected workers hurt industries as varied as steel, autos and certain consumer goods. When workers are protected they have little incentive to make sure that their work is either valuable or of high quality. It is no different for tenured college professors. Professor Mulligan’s article on work incentives is a real life example what happens when workers start to believe their jobs and status are an entitlement.

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