Incentives and selection in cyclical absenteeism

Procyclical absenteeism might be due to the higher sick rates of marginal workers or a consequence of procyclical incentives to report sick. These hypotheses predict opposite signs for the correlation between sick rates and shares of temporary contracts. Workers on temporary contracts are associated with lower job security in comparison with workers on time-unlimited contracts, implying that temporary employees run the highest risk of lay-off and are expected to have stronger incentives for job attendance. Using industry-region panel data, we find a stable negative correlation between sick rates and shares of temporary contracts implying that procyclical sick rates are compatible with the idea that incentives to report sick are also procyclical.