Monitoring and disincentives in containing paid sick leave

This paper assesses the effectiveness of monitoring and monetary incentives in containing paid sick leave exploiting a sequence of sickness absence policy changes for Italian civil servants. Results, obtained analyzing 2004-2014 data and confirmed by a placebo test, show that sickness absence is sensitive both to the length of the intervals in which random medical inspections are carried out and to a 20% wage cut on short sick leaves. Monitoring was more effective for men while women were more sensitive to the monetary incentives. A simple cost-benefit analysis shows that enhanced monitoring is cost-effective and that without it the cut in replacement rates should have been twice as large in order to have a comparable drop in absence rates.