SFB 504 discussion paper 08-14

Peter Dürsch
Department of Economics, University of Heidelberg
Grabengasse 14 D-69117 Heidelberg
peter.duersch@awi.uni-heidelberg.de

Jörg Oechssler
Department of Economics, University of Heidelberg
Grabengasse 14, D-69117 Heidelberg
oechssler@uni-hd.de

Radovan Vadovic
ITAM

rraaddoo@google.com

Sick Pay Provision in Experimental Labor Markets


Abstract:
Sick pay is a common provision in most labor contracts. This paper employs an experimental gift-exchange environment to explore two related questions using both managers and undergraduates as subjects. First, do workers reciprocate sick pay in the same way as they reciprocate wage payments? Second, do firms benefit from offering sick pay? Firms may benefit in two different ways: directly, from workers reciprocating higher sick pay with higher efforts; and indirectly, from self-selection of reciprocal workers into contracts with higher sick pay. Our main finding is that the direct effect is rather weak in terms of effort and negative in terms of profits. However, when there is competition among firms for workers, sick pay can become an important advantage. Consequently, competition leads to a higher provision of sick pay relative to a monopsonistic labor market.
Keywords:
JEL-Classification:
Project:
B8 Oechssler
Creation date:
2008-10-08
Publication Status
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http://www.sfb504.uni-mannheim.de/publications/dp08-14.pdf
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