0000000000267067
AUTHOR
Ilpo Suoniemi
A kink that makes you sick : The effect of sick pay on absence
We exploit a regression kink design to estimate the elasticity of the duration of sickness absence with respect to replacement rate. Elasticity is a central parameter in defining the optimal social insurance scheme compensating for lost earnings due to sickness. We use comprehensive administrative data and a kink in the policy rule near the median earnings. We find a statistically significant estimate of the elasticity of the order of one. peerReviewed
Domain-Specific Risk and Public Policy
We develop a method to estimate domain-specific risk. We apply the method to sickness insurance by fitting a utility function at the individual level, using European survey data on life satisfaction. Three results stand out. First, relative risk aversion increases with income. Second, marginal utility is higher in the sick state conditional on income, due to an observed fixed cost of sickness. Third, the domain-specificity of risk shifts the focus on the smoothing of utility, not consumption. The optimal policy rule implies that the replacement rates should be non-linear and decrease with income. nonPeerReviewed