Does graded return-to-work improve sick-listed workers’ chance of returning to regular working hours?

Abstract

Using Danish register and survey data, we examine the effect of a national graded return-to-work program on the probability of sick-listed workers returning to regular working hours. During program participation, the sick-listed worker works fewer hours and receives the normal hourly wage for the hours worked and sickness benefit for the hours off work. When the worker's health improves, working hours are increased until the sick-listed worker is able to work regular hours. Taking account of unobserved differences between program participants and non-participants, we find that participation in the program significantly increases the probability of returning to regular working hours.

Introduction

Work disability imposes huge economic and human costs on society. In a study of 19 OECD countries, 14% of the working-age population on average reported being disabled (OECD, 2003). While 71% of the healthy adult population was employed, this figure was only 44% for workers with disabilities (OECD, 2003). In response to disability-related labor market inactivity, policy makers and administrators try to find ways of improving the labor market attachment of people with temporarily reduced working capacity (sick-listed workers) and permanently reduced working capacity (disabled people). Economists have focused on how vocational rehabilitation (e.g., Berkowitz, 1988, Dean et al., 1999, Aakvik et al., 2005) and economic incentives, such as cash benefit programs (e.g., Meyer et al., 1995, Oleinick et al., 1996, Johnson et al., 1998, Galizzi and Boden, 2003, Johansson and Palme, 2005), influence sick-listed and disabled people's labor market status. However, economists have not spent much effort exploring how workplace accommodations, including graded return-to-work, affect the labor market attachment of people with temporarily or permanently reduced working capacity.

This paper studies how a national program of graded return-to-work affects the hazard rate of long-term sick-listed workers returning to regular working hours, i.e., pre-sick leave hours. The program allows fully sick-listed workers to initially work fewer hours on return-to-work. When the worker's health improves, the working hours are gradually increased until the sick-listed worker is able to resume regular working hours. During the period of reduced working hours, the participant receives his or her normal hourly wage for the actual hours worked and sickness benefit for the unworked portion of the work week. The sick-listed worker is expected to leave the program and return to regular working hours as quickly as possible. Throughout the paper we label sick-listed workers who participate in the graded return-to-work program as “program participants” and sick-listed workers who do not participate in the program as “non-participants.” Furthermore, we refer to a “program effect” or a “treatment effect” as representing the event that program participants return to regular working hours more rapidly than non-participants.

This paper adds to the existing literature in three important ways. First, it is the first attempt at measuring the employment effect of a national graded return-to-work program. Second, while previous econometric studies examine workers with permanently reduced working capacity (Butler et al., 1995, Campolieti, 2005), we study sick-listed workers with temporary reduced working capacity. Third, the previous studies of disabled workers either do not take account of possible unobserved differences between program participants and non-participants (Butler et al., 1995) or do so under restrictive assumptions (Campolieti, 2005). Our data and recently developed econometric procedures enable us to adjust for possible selection effects under less restrictive assumptions than Campolieti (2005). While Campolieti (2005) used time-invariant information about the return to reduced working hours of injured workers, we use information about the duration until the sick-listed workers enter the graded return-to-work program. With this information we can simultaneously estimate the process that determines the selection into the graded return-to-work program and the process that determines whether the sick-listed workers return to regular working hours. Using the timing-of-event approach within a hazard-rate model framework, we can identify an unbiased estimate of the effect of the graded return-to-work program under weaker assumptions than in previous studies (Abbring and van den Berg, 2003).

Using data on 934 workers who were sick-listed for more than 8 weeks, we find that program participation significantly increases the probability of sick-listed workers returning to regular working hours. Furthermore, our findings illustrate the importance of correcting for possible unobserved heterogeneity. Without such correction, the program effect is significantly overestimated.

The rest of the paper is organized as follows. Section 2 describes the Danish sick leave policy and the graded return-to-work program and its potential effects on the program participants’ subsequent labor market attachment. Section 3 provides an overview of the relevant literature, and Section 4 describes the data and the variables included in our analyses. Section 5 outlines our econometric hazard-rate model, how it is specified, and how we identify the effect of the graded return-to-work program on the sick-listed workers’ probability of returning to regular working hours. Section 6 presents our findings and the results of robustness checks to our empirical model. Section 7 concludes.