On the Design of Paid Sick Leave: A Structural Approach. Barone, V. abstract bibtex This paper considers the design of an optimal paid sick leave contract and estimates the welfare gains of its implementation. I propose a model of paid sick leave provision. In this model, risk-averse workers face a health shock and decide how many days to be on leave. Given workers’ behavioral responses a risk-neutral social planner chooses the optimal contract to maximize social welfare; which is a function of workers’ utility and production losses and externalities induced by sick pay provision. Exploiting unique administrative data on paid sick leave utilization, I estimate workers’ preferences over sick leave utilization. I use the estimated model to derive the optimal sick pay contract and estimate the welfare gains from its implementation. I find that relative to the current system, the optimal system would provide more insurance for short-term sickness and less insurance, i.e., lower replacement rates, for longer sickness spells. I estimate that workers are willing to give up 1.53% of their earnings to be insured under the optimal policy.
@article{barone_design_nodate,
title = {On the {Design} of {Paid} {Sick} {Leave}: {A} {Structural} {Approach}},
abstract = {This paper considers the design of an optimal paid sick leave contract and estimates the welfare gains of its implementation. I propose a model of paid sick leave provision. In this model, risk-averse workers face a health shock and decide how many days to be on leave. Given workers’ behavioral responses a risk-neutral social planner chooses the optimal contract to maximize social welfare; which is a function of workers’ utility and production losses and externalities induced by sick pay provision. Exploiting unique administrative data on paid sick leave utilization, I estimate workers’ preferences over sick leave utilization. I use the estimated model to derive the optimal sick pay contract and estimate the welfare gains from its implementation. I find that relative to the current system, the optimal system would provide more insurance for short-term sickness and less insurance, i.e., lower replacement rates, for longer sickness spells. I estimate that workers are willing to give up 1.53\% of their earnings to be insured under the optimal policy.},
language = {en},
author = {Barone, Victoria},
}
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