Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2004:6: Sickness Absence and Search Unemployment

Bertil Holmlund ()
Additional contact information
Bertil Holmlund: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: The paper presents a model that allows a unified analysis of sickness absence and search unemployment. Sickness appears as random shocks to individual utility functions, interacts with individual search and labor supply decisions and triggers movements across labor force states. The employed worker prefers absence for sufficiently severe sickness and the unemployed worker may prefer nonparticipation if the disutility of search is amplified by sickness. The decisions governing labor force transitions are influenced by social insurance benefits available for sick or unemployed workers. We examine how these benefits affect individual decisions on absence and search and the implications for employment, unemployment and nonparticipation. The normative analysis of the socially optimal benefit structure suggests that there is, in general, a case for benefit differentiation across states of non-work. In particular, there is a case for a benefit structure that rewards active job search.

Keywords: Sickness absence; search; unemployment; sickness benefits; unemployment benefits

JEL-codes: J21; J64; J65

38 pages, June 10, 2004

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