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The impact of firms' expectations & adjustments on the productivity cost of illness

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Listed:
  • Michal Jakubczyk
  • Beata Kon

Abstract

Sickness-related absenteeism hinders firms' productivity and reduces output, an effect referred to as indirect cost (IC) and often included when assessing the burden of an illness or cost-effectiveness of a treatment. The companies may, however, foresee this risk and modify hiring or contracting policies. We present a model of a firm allowing to estimate IC while accounting for such adjustments. We show that the risk of illness does not change the general shape and properties of the (expected) marginal productivity function. We apply our model to several illustrative examples and show that firm's adjustments impact IC in an ambiguous way, depending on detailed company/market characteristics. Sometimes the company reduces the employment (further increasing IC), yet sometimes the opposite (even generating indirect gains). Contrary to previous literature findings, teamwork and shortfall penalties may reduce IC in some settings. Our analysis highlights that IC should be split into the result of companies preparing for and actually experiencing sick leaves, at least when friction cost approach is taken. To what extent the former counts as IC may depend on the (labour and good) market structure and the interpretation of equilibrium values. These considerations are usually not addressed in applied IC assessment, which may bias the results.

Suggested Citation

  • Michal Jakubczyk & Beata Kon, 2016. "The impact of firms' expectations & adjustments on the productivity cost of illness," KAE Working Papers 2016-008, Warsaw School of Economics, Collegium of Economic Analysis.
    • Handle: RePEc:sgh:kaewps:2016008
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    File URL: http://kolegia.sgh.waw.pl/pl/KAE/Documents/WorkingPapersKAE/WPKAE_2016_008.pdf
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    References listed on IDEAS

    as
    1. Mark V. Pauly & Sean Nicholson & Daniel Polsky & Marc L. Berger & Claire Sharda, 2008. "Valuing reductions in on‐the‐job illness: ‘presenteeism’ from managerial and economic perspectives," Health Economics, John Wiley & Sons, Ltd., vol. 17(4), pages 469-485, April.
    2. Krol, Marieke & Brouwer, Werner B.F. & Severens, Johan L. & Kaper, Janneke & Evers, Silvia M.A.A., 2012. "Productivity cost calculations in health economic evaluations: Correcting for compensation mechanisms and multiplier effects," Social Science & Medicine, Elsevier, vol. 75(11), pages 1981-1988.
    3. Thomas DeLeire & Willard Manning, 2004. "Labor market costs of illness: prevalence matters," Health Economics, John Wiley & Sons, Ltd., vol. 13(3), pages 239-250, March.
    4. Alex Bryson, 2013. "Do temporary agency workers affect workplace performance?," Journal of Productivity Analysis, Springer, vol. 39(2), pages 131-138, April.
    5. Koopmanschap, Marc A. & van Ineveld, B. Martin, 1992. "Towards a new approach for estimating indirect costs of disease," Social Science & Medicine, Elsevier, vol. 34(9), pages 1005-1010, May.
    6. Arnold, Daniel Timo & de Pinto, Marco, 2015. "Sickness absence, presenteeism and work-related characteristics," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113118, Verein für Socialpolitik / German Economic Association.
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    8. Koopmanschap, Marc A. & Rutten, Frans F. H. & van Ineveld, B. Martin & van Roijen, Leona, 1995. "The friction cost method for measuring indirect costs of disease," Journal of Health Economics, Elsevier, vol. 14(2), pages 171-189, June.
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    More about this item

    Keywords

    Absenteeism; Productivity; Indirect cost; Teamwork; Output Shortfall; Friction Cost Method;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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