This paper analyses the causal effects of weaker dismissal protection on the incidence of long-term sickness (> six weeks). We exploit a German policy change, which shifted the threshold exempting small establishments from dismissal protection from five to ten workers. Using administrative data, we find a significantly negative reform effect on transitions into long-term sickness in the second year after a worker has entered an establishment. This response is due to a behavioural, rather than a compositional effect and is particularly pronounced among medium-skilled males. Our results further indicate that the reform did not alter the probability of involuntary unemployment after sickness.
Gürtzgen, Nicole and Karolin Hiesinger (2020), Dismissal Protection and Long-term Sickness Absence – First Evidence from Germany, ZEW Discussion Paper No. 20-040, Mannheim. Download