Disability rolls have been rising for decades in many OECD countries, entailing both a substantial volume of labor withdrawn from the market, as well as heavy social security costs. This has led to increased attention on the trade-off between generosity towards those hit by a negative health shock and potential moral hazard problems that faces any social security system. Traditional responses to this trade-off have been to establish strong screening criteria or other gatekeeping policies, or to limit the level or duration of benefits.
Activation reform in Norway
A new IZA Discussion Paper by Øystein Hernæs (Institute for Social Research and IZA) tries to answer whether an activation strategy based on graded sickness insurance, i.e. requiring temporary disabled workers to be partly back at work to the extent possible, as opposed to any absence automatically being 100%, can help reduce absenteeism and curb the corresponding social security costs. The paper analyzes a program implemented in the Norwegian region of Hedmark in 2013 aimed at strictly enforcing an already existing requirement that an employee on long-term sick leave be partly back at work unless explicitly judged by a physician to be unable to work at all, irrespective of adaptions at the workplace.
Absenteeism goes down markedly
The results show that the program to make use of the partial work capacity of workers on long-term sick-leave reduced absenteeism by 12 percent and brought large savings to the social insurance system. The effects were remarkably similar across gender and age groups, and somewhat smaller in the construction sector. Hernæs finds evidence that the absence rate declined not only through exploiting the partial work capacity of temporary disabled workers, but also by speeding up the transition rate back to full-time work. Consistent with expectations, the largest decline occurred for absenteeism due to musculoskeletal disorders, the smallest for respiratory disorders, with diagnoses for psychological and other disorders in between.
Viable alternative to traditional policies
Such an activation strategy represents an alternative to traditional attempts at welfare reform involving stricter screening or reductions in generosity, and may be more compatible with already existing legislation and contractual obligations, as well as easier to find support for across political priorities, according to Hernæs.
Download the complete paper (IZA DP No. 10991):