Swedish Professors Argue Against Abolishing Sickness Benefit Waiting Period

Two economics professors are urging the Swedish government to reject proposals to eliminate the sickness benefit waiting period, known as 'karensavdrag'. While acknowledging that removing this deduction might seem compassionate by preventing income loss during illness, they argue it fundamentally alters the incentives within the social security system.

“

The proposal to abolish the waiting period for sickness benefits sounds humane. But the deduction exists for good reasons. Sick leave cannot be understood solely medically; decisions are often made in a gray area.

The professors assert that the waiting period serves a crucial purpose by influencing behavior. They explain that when sick leave becomes financially less costly due to the absence of a waiting period, individuals are more likely to take time off. This effect, they note, is not about widespread fraud but rather about people responding to economic incentives, a phenomenon observed across various aspects of the economy.

Drawing on historical Swedish data, the authors highlight a consistent pattern: periods of more generous sickness benefits, implemented in 1963, 1967, 1974, and 1987, were followed by increases in sick leave. Conversely, reductions in benefits in 1991 led to a decrease in sick leave, particularly in the number of reported cases. Their research, spanning 1955-1999, robustly indicates that reforms making the system more generous correlated with persistently higher rates of sick leave per employee.

“

This means that people react to incentives. This is true in all other areas of the economy, and it also applies to the sickness insurance system.

The core argument is that sick leave cannot be viewed solely through a medical lens. While genuine illness requires support, many decisions about taking sick leave occur in a gray area. The professors emphasize that when benefits are fully compensatory and there is no self-risk, the tendency shifts towards taking more time off. They recall Sweden's experience in the late 1980s, when a highly generous system led to sharply rising costs.

“

Reforms that made sickness insurance more generous were associated with persistently higher sick leave per employee, while austerity measures worked in the opposite direction.