Business Economics and Public Policy Papers

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Journal Article

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Health Economics





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Most studies on the indirect costs of an illness and the cost effectiveness of a medical intervention or employer-sponsored wellness program assume that the value of reducing the number of days employees miss from work due to illness is the wage rate. This paper presents a general model to examine the magnitude and incidence of costs associated with absenteeism under alternative assumptions regarding the size of the firm, the production function, the nature of the firm's product, and the competitiveness of the labor market. We conclude that the cost of lost work time can be substantially higher than the wage when perfect substitutes are not available to replace absent workers and there is team production or a penalty associated with not meeting an output target. In the long run, workers are likely to bear much of the incidence of the costs associated with absenteeism, and therefore be the likely beneficiaries of any reduction in absenteeism. Copyright © 2001 John Wiley & Sons, Ltd.

Copyright/Permission Statement

This is the peer reviewed version of the following article: Pauly, M. V., Nicholson, S., Xu, J., Polsky, D., Danzon, P. M., Murray, J. F. and Berger, M. L. (2002), A general model of the impact of absenteeism on employers and employees. Health Econ., 11: 221–231. doi:10.1002/hec.648, which has been published in final form at This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving



Date Posted: 27 November 2017

This document has been peer reviewed.