Sick workers in many countries receive sick pay during their illnessrelated
absences from the workplace. In several countries, the social
security system insures firms against their workers' sickness absences.
However, this insurance may create moral hazard problems for firms,
leading to the inefficient monitoring of absences or to an underinvestment
in their prevention. In the present paper, we investigate firms'
moral hazard problems in sickness absences by analyzing a legislative
change that took place in Austria in 2000. In September 2000, an
insurance fund that refunded firms for the costs of their blue-collar
workers' sickness absences was abolished (firms did not receive a similar
refund for their white-collar workers' sickness absences). Before
that time, small firms were fully refunded for the wage costs of bluecollar
workers' sickness absences. Large firms, by contrast, were refunded
only 70% of the wages paid to sick blue-collar workers. Using
a difference-in-differences-in-differences approach, we estimate the
causal impact of refunding firms for their workers' sickness absences.
Our results indicate that the incidences of blue-collar workers' sicknesses
dropped by approximately 8% and sickness absences were almost
11% shorter following the removal of the refund. Several robustness
checks confirm these results.