Coughing up: the economics of sick leave

August 5, 2026

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5 min read

Germany is considering requiring a doctor’s note on the first day of sick leave, up from the fourth day, to curb absenteeism that now averages over 20 days per worker per year. But as economist Nicholas Zebart explains, the economics of sick leave are more complicated than a simple crackdown. The real challenge is balancing two opposing behaviors: “contagious presenteeism”—coming to work sick and infecting others—and moral hazard, where workers take time off they don’t really need.

The case for paid sick leave: negative externalities and adverse selection

The strongest economic argument for mandated paid sick leave is what economists call a negative externality. When a contagious worker shows up because they cannot afford to lose a day’s pay, they spread illness to colleagues and customers. This is a cost imposed on others, analogous to secondhand smoke. “Even conservatives in the United States would accept” this logic, Zebart says. During COVID, the mechanism became impossible to ignore, and his own research—previously a hard sell—was suddenly in demand.

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What you'll learn

1 (00:00) **Why Sick Leave is an Economic Issue** - Host Carmel Crimmins introduces the topic, framed by Germany’s crackdown on rising absenteeism and a broader push to boost economic growth.
2 (01:50) **The Economic Rationale for Paid Sick Leave: Negative Externalities** - Guest Nicholas Zebart (Mannheim University) explains the primary economic justification for mandating paid sick leave.
3 (04:16) **The Market Failure Argument: Adverse Selection** - Nicholas explains why the private market alone will under-provide paid sick leave, even if it is efficient.
4 (05:47) **The Cost of Presenteeism vs. The Risk of Moral Hazard** - The central trade-off of any sick leave policy is defined: reducing “presenteeism” (working sick) versus preventing “moral hazard” (shirking).
5 (08:56) **Does Moral Hazard Actually Destroy Value?** - Nicholas reframes the debate on “shirking,” arguing that a rise in absenteeism is not automatically a bad thing.
6 (10:50) **Short-Term vs. Long-Term Sickness: Different Incentives** - The behavioral response to sick pay is very different for short-term versus long-term illness.
7 (12:30) **The Global Smorgasbord of Sick Leave Policies** - A quick tour of different national systems, highlighting the lack of a single “best” model.

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Show Notes

Germany is cracking down on sick leave to cut costs and boost growth. But could it backfire? Host Carmel Crimmins talks to economist Nicolas Ziebarth about the hidden economics of sick leave, from adverse selection and moral hazard to the trade-offs involved in calling in sick and working while ill.

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