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 generous sick pay with higher effort? Second, do firms benefit from offering sick pay? Our main finding is that workers do reciprocate generous sick pay with higher effort. However, firms benefit from offering sick pay in terms of profits only if there is competition among firms for workers. Consequently, competition leads to a higher voluntary provision of sick pay relative to a monopsonistic labor market.

Additional Metadata
Keywords Experiment, Gift exchange, Sick leave, Sick pay
Persistent URL dx.doi.org/10.1016/j.euroecorev.2011.08.002
Journal European Economic Review
Citation
Duersch, P. (Peter), Oechssler, J. (Jörg), & Vadovič, R. (2012). Sick pay provision in experimental labor markets. European Economic Review, 56(1), 1–19. doi:10.1016/j.euroecorev.2011.08.002