Beiträge zur Jahrestagung des Vereins für Socialpolitik 2015: Ökonomische Entwicklung - Theorie und Politik - Session: Health Economics 2 B19-V3
This paper studies the relationship between sick leave, income and unemployment. In particular, it investigates this relationship under the generous German sick leave regulation of 100\% wage replacement, i.e., in an environment where workers do not bear any direct costs from missing work due to sickness. Using information from the German Socioeconomic Panel (GSOEP) I identify three stylized facts of sick leave in Germany. First, sick days show a strong pro-cyclical pattern. Second, average use of sick days is hump-shaped over income quintiles. Third, the number of sick days is a strong predictor of becoming unemployed. Using this micro-evidence I develop a structural model that rationalizes these facts. I argue that in absence of direct costs of sick leave the fear of future unemployment is the main driving force restraining sick leave. I then use the model to do counterfactual policy analysis.