Abstract
Efficiency wages theories argue that the threat of firing, coupled with a high unemployment rate, is a mechanism that discourages employee shirking in asymmetric information contexts. Our empirical analysis aims to verify the role of unemployment as a worker discipline device, considering the different degree of job security offered by the Italian Employment Protection Legislation to workers employed in small and large firms. We use a panel of administrative data (WHIP) and consider sickness absences as an empirical proxy for employee shirking. Controlling for a number of individual and firm characteristics, we investigate the relationship between worker's absences and local unemployment rate (at the provincial level). We find a strong negative impact of unemployment on absenteeism rate, which is considerable larger in small firms due to a significantly lower protection from dismissals in these firms. We also find that workers who are absent more frequently face higher risks of dismissal. As an indirect test of the role of unemployment as worker's discipline device we show that public sector employees, almost impossible to fire, do not react to the local unemployment.
Highlights
In their seminal paper, Shapiro and Stiglitz (1984) showed that unemployment can represent a “worker discipline device” in moral hazard contexts
8 Conclusions An inverse relationship between sickness absences and unemployment has been documented in a number of studies
To the best of our knowledge, no studies have linked the role of unemployment as discipline device to the employment protection legislation
Summary
Shapiro and Stiglitz (1984) showed that unemployment can represent a “worker discipline device” in moral hazard contexts. Worker’s shirking has been proxied by the absenteeism rate: since the worker is typically fully covered by the national insurance system (or by the employer) when sick and her effective state of health cannot be observed by the employer, the worker has an incentive to take days off while preserving the whole wage, causing pecuniary and non-pecuniary costs to the firm. Along these lines, a few papers have shown an inverse relationship between industry or regional unemployment and absenteeism at individual level (Leigh 1985; Askildsen et al 2005). A much larger literature shows that employees’ sickness absences are positively related to the degree of job security (Ichino and Riphahn 2005, among others)
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
