A TALE OF TWO CONTINENTS: INSURING WORKERS AGAINST LOSS OF INCOME DUE TO SICKNESS IN NORTH AMERICA AND EUROPE

Abstract

Sick pay has been debated recently in several economies, including the US, Germany and Sweden. There is, however, little academic discussion of the nature of sick pay, or of how it should be structured. This paper clears the ground for such a discussion in two ways; it identifies a conceptual difference between the North American model, rooted in job protection, and the European model, which is predominantly a form of social insurance. Secondly, it argues that experience-rated sick pay provided by employers avoids the classical problems of insurance markets. US-style paid sick leave is an example of such a scheme.

Keywords

Sick pay sick leave moral hazard adverse selection optimal insurance optimal sorting

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