^*Lusine Lusinyan is an economist with the IMF Fiscal Affairs Department. Leo Bonato is a senior economist with the IMF Middle East and Central Asia Department. This paper has benefited from comments from Krister Andersson; Marcello Estevão; Robert Flood; seminar participants at the Swedish Ministry of Finance, the Institute for Labour Market Policy Evaluation in Uppsala, and IMF headquarters; and an anonymous referee. The authors wish to thank the Eurostat New Cronos LFS team, Lyle Scruggs, and Xavier Debrun for providing inputs to the data set; Haiyan Shi for excellent research assistance with the data from the U.S. Social Security Administration; and Subhash Thakur for helpful advice.

Abstract

Work absence is a part of an individual's decision concerning hours worked. This paper focuses on sickness absence in Europe and builds on an analytical framework in which absence enters both labor supply and demand considerations, with sickness insurance provisions and labor market institutions affecting the costs of absence. The results from a panel of 18 European countries indicate that absence is higher under generous insurance systems and where employers bear little responsibility for their costs. Shorter working hours reduce absence, but flexible working arrangements are preferable if labor supply erosion is a concern.