The Impact of Sickness Absenteeism on Firm Productivity: New Evidence from Belgian Matched Employer–Employee Panel Data

• Published date: 01 January 2020
• DOI: http://doi.org/10.1111/irel.12252
• Date: 01 January 2020
• Author: Elena Grinza,François Rycx

The Impact of Sickness Absenteeism on Firm

Productivity: New Evidence from Belgian

Matched Employer–Employee Panel Data

ELENA GRINZA and FRANC

ßOIS RYCX*

Using rich longitudinal matched employer–employee data for Belgium, we pro-

vide a first investigation of the impact of sickness absenteeism on firms’produc-

tivity. To do so, we estimate a production function augmented with a firm-level

measure of sickness absenteeism that we constructed from worker-level informa-

tion on nonworked hours due to illness or injury. We deal with the endogeneity

of inputs and sickness absenteeism by applying a modified version of the semi-

parametric control function method developed by Ackerberg, Caves, and Fraser

(2015), which explicitly takes firm fixed unobserved heterogeneity into account.

Our main finding is that, in general, sickness absenteeism substantially dampens

firms’productivity. However, further analyses show that the impact varies accord-

ing to several workforce and firm characteristics. Sickness absenteeism is more

detrimental to firm productivity when absent workers are high tenure or blue col-

lar. Moreover, it is especially harmful to industrial, capital-intensive, and small

enterprises. These findings are consistent with the idea that sickness absenteeism

is more problematic when absent workers have in-depth firm-/task-specific knowl-

edge, when the employees’work is highly interconnected (e.g., along the assem-

bly line), and when firms face more organizational limitations in substituting

absent workers.

Introduction

Sickness absenteeism is a phenomenon that consists in workers’absence

from work due to illness or injury (Niedhammer et al. 1998). According to the

JEL codes: D24, M59, I15.

*The authors’affiliations are, respectively, Politecnico di Torino, 10129 Turin, Italy. E-mail: elena.grin-

za@polito.it; Universit

e Libre de Bruxelles, Brussels, Belgium; IZA, Bonn, Germany; Universit

e de Mons,

Mons, Belgium; Universit

e Catholique de Louvain, Louvain, Belgium. E-mail: frycx@ulb.ac.be. We are

most grateful to Statistics Belgium for giving us access to the data. We thank the Editor and two anonymous

reviewers for helpful comments and suggestions. Funding for this research was provided by the Belgian

Science Policy Office (BELSPO), within the IPSWICH and IMMIBEL projects. The usual disclaimer

applies.

INDUSTRIAL RELATIONS, DOI: 10.1111/irel.12252. Vol. 59, No. 1 (January 2020). ©2020 Regents of the

Universit y of Calif ornia. Published by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA,

and 9600 Garsington Road, Oxford, OX4 2DQ, UK.

150

World Health Organization (WHO 2019), an average of 11.9 days of work per

employee were lost in the EU in 2014 due to illness or injury. The Bureau of

Labor Statistics reports that 2 percent of working time was lost due to sickness

in the United States in 2018 (BLS 2019a).

It has long been acknowledged that sickness absenteeism imposes a consid-

erable cost on advanced industrialized societies (Eurofound 1997, 2010). This

cost is borne by different actors, notably workers, firms, and insurance provi-

ders. Concerning the individual worker, in addition to the pain and suffering

caused by sickness and to the potential extra expenditure on necessary care,

sickness absenteeism often causes a loss in labor income, especially in the case

of long absence periods.

1

Firms are also affected by sickness absenteeism.

They often bear part of the costs of sickness benefits. Depending on the insti-

tutional regime, the sickness benefits paid by the employers can represent the

totality of the worker’s income, at least for short-term sickness absence. Firms

typically need to resort to (costly) overtime work or substitute workers to tem-

porarily replace absent workers, thus incurring additional expenses. Apart from

these direct costs, it is widely acknowledged that there is a significant indirect

cost that firms likely bear due to sickness absence: diminished productivity

(Eurofound 1997, 2010; Gimeno et al. 2004; OECD 2005, 2009b; Whitaker

2001). Overtime work and substitute workers might be less productive than

the absent workers and might not be easy to find on short notice, especially

under specific circumstances, such as when the firm faces organizational limi-

tations preventing it from optimally staffing its workforce or when absent

workers are those more experienced. Finally, insurance companies, which are

typically the governments in EU countries, also incur a considerable cost due

to sickness absence. Usually, they are required to pay (a share of) the income

of employees that are absent due to sickness. If the workers’health problems

go on for a long time, the workers are more likely to enter disability (OECD

2009b), whereby they typically receive (permanent) disability benefits. In sum-

mary, the costs associated with ill health and injuries may potentially have a

substantial effect on a country’s economy.

National and supranational authorities have long tried to estimate the costs

associated with sickness absenteeism. As expected, these costs indeed appear

to be considerable. For instance, in the 1990s, Eurofound (1997) estimated that

sickness absenteeism represented a cost of more than 11 billion pounds (16.3

billion U.S.$) per year in lost production in the UK and more than 60 billion

German marks (34.6 billion U.S.$) in social security insurance paid by

1

Sickness benefits usually decrease with the duration of sickness absenteeism. Moreover, the first day(s)

of sickness absence is/are often not paid, either by the national insurance system or by the employer, so that

the worker loses the totality of the income for that initial period.

The Impact of Sickness Absenteeism on Firm Productivity / 151

employers in Germany. In 1995, Eurofound (1997) estimated that Belgium

spent 93 billion Belgian francs (2.6 billion U.S.$) for sickness benefits and 21

billion Belgian francs (0.6 billion U.S.$) for benefits on work accidents and

occupational diseases. In more recent years, Eurofound (2010) estimated that

the costs of sickness absenteeism for governments range between 1 percent

and 2 percent of EU countries’gross domestic products. In the United States,

the costs of sickness absenteeism for firms are similarly high. Losses in pro-

duction related to health problems were estimated by Stewart et al. (2003) to

cost U.S. employers a total of 225.8 billion U.S.$ annually.

National governments have thus made it a top policy priority to address

sickness absenteeism. In some countries, such as Sweden, sickness absen-

teeism is even considered an alarming problem: in Sweden, the absenteeism

rate due to sickness is uncommonly high, and the government is urgently tak-

ing active steps to try to enhance people’s health and reduce sickness-related

absences from work (OECD 2005).

However, estimating the actual costs of sickness absenteeism is not an easy

task. The direct costs of sickness absenteeism, which include sickness benefits

paid by firms and insurance systems, are difficult to estimate, especially when

it comes to cross-country comparisons, and estimating the indirect effects from

official statistics, such as productivity losses suffered by firms, proves to be

even more complicated, if not impossible (Eurofound 2010).

In this article, we contribute to the measurement of the costs that sickness

absenteeism imposes on society by concentrating on one fundamental aspect:

firm productivity. We focus on firm productivity because productivity growth

is well known to be a crucial determinant of sustained and sustainable eco-

nomic growth (Jorgenson 1988), and the potential for sickness absenteeism to

have a substantial impact on productivity is high. It is essential for researchers

in economic disciplines to understand which factors influence productivity and

in what way. Although a small but compelling line of literature has deepened

our knowledge of how several labor-related issues impact productivity in

recent years (e.g., Devicienti, Grinza, and Vannoni 2018; Giuliano et al. 2017;

Vandenberghe 2012), there has not been, to our knowledge, any empirical

study analyzing the impact of sickness absenteeism on productivity.

This lack of studies on sickness absenteeism is attributable to data limita-

tions. On the one hand, matched employer–employee data, which allow con-

structing detailed workforce characteristics, including absences, have been

available for a relatively short time (Card, Devicienti, and Maida 2014). On

the other hand, sickness absenteeism has not yet been explicitly analyzed due

to the impossibility of distinguishing between the various types of absenteeism

(Zhang et al. 2017). Instead, a vast literature assessing the determinants and

dynamics of sickness absenteeism—which resorts to individual-level data—

152 / ELENA GRINZA AND FRANC

ßOIS RYCX