Economic incentives and sickness absence in production teams– a field experiment

This project examines a regime shift in the compensation of sickness absence. The data is from the customer service centre of an insurance company. Agents work in teams and in 2001 the firm added a team bonus to the workers’ salaries. Since the bonus was intended to be a permanent pay supplement the firm had to negotiate its shape with the labour union. One of the union’s requirements was that sickness absence should be fully compensated: If a team member was missing due to sickness, the team should be allowed to ascribe the average team productivity to the person being absent.

         In 2004 the firm decided to terminate the negotiated bonus scheme, but it did not abolish performance pay. Instead of a permanent bonus plan the management introduced quarterly campaigns. It was mainly a change in name; the magnitude of the bonus was kept intact. A significant difference, however, was that with short term campaigns the firm was no longer obliged to negotiate the outline of the bonus with the worker union. When the management unilaterally could determine the design of the bonus they decided not to compensate sickness absence.

        To estimate the causal impact of the change in the compensation policy we compare absence in the customer service unit before and after the reform with the development of sickness absence in other divisions of the firm, not affected by the reform. Our case can shed light on several research and policy questions.