How Can Employers Limit the Cost of Absenteeism? An International Look

By Mary Nichols, on October 30th, 2008

Unscheduled staff absence due to illness or other reasons can be very costly for employers, official statistics and survey data reveal. In the UK it was reported by the Health and Safety Commission that 36 million days of work were lost due to sickness absence in 2006 and 2007, and the Chartered Institute of Personnel and Development (CIPD) estimated the annual cost of sickness absence to UK employers to be £659 per employee. An earlier study by the Institute of Employment Studies (2001) had put the potential costs much higher at between 2% and 16% of the total salary bill, or up to £2,271 per employee. This study found that employers significantly underestimated the costs to their organizations of unplanned absenteeism.

In the United States, the 2007 Mercer National Survey of Employer-Sponsored Health Plans, which covered 455 employers, found that the equivalent of around 9% of total salary costs were incurred due to unplanned absence. However, the costs of unplanned absenteeism in the U.S. vary considerably between different types of organizations, being much higher in the U.S. public sector than in the private sector, for example, due to a higher rate of sickness absence among government employees. Illness is by no means the only reason for unplanned absence – the CCH Inc. 2000 Unscheduled Absence Survey found that sickness absence accounts for only around 40% of all unscheduled absenteeism, followed by family factors which account for 21% and “personal needs” accounting for 20%. However, there is international evidence of a worrying increase in sickness absence, especially long-term absence, which is related to stress and other mental health problems. In the UK, a study by the Sainsbury Centre for Mental Health puts the total cost to UK employers of sickness absence due to mental health problems at £8.4 billion, with an average of 21 days leave being taken by each employee suffering from mental health-related sickness.

International Trends

Overall patterns of sickness absence are quite similar between different countries, being higher among women than men and among older rather than younger employees. However, there are also considerable variations in overall levels of sickness absence between countries, which may be attributable in part to legislation regarding sick pay benefits. In many countries, employers are required to provide employees with a minimum number of paid sick leave days per year, and there is some evidence that levels of absence are higher where benefits are generous, as in Sweden. On the other hand, other countries such as France also have good sick pay benefit systems but considerably lower rates of absence, so the relationship is not a straightforward one.

The United States is quite unusual among developed countries in that employers are not generally required by law to make sickness absence payments, and it has been reported that many workers, especially in lower-paid and part-time jobs, have no provision at all for paid sick leave. Moreover, there has been a recent trend for employers who previously paid employees for sick leave to reduce the maximum number of days payable, or to replace paid sick leave with “time off” programs, in which each employee can take a specified maximum number of days off in a year for the purpose of vacation, sickness or other reasons. A countervailing recent trend, however, is for state and city governments to introduce paid sick leave legislation to protect workers. Some argue that the costs of paying sick leave benefits if required to do so by law will just encourage employers to compensate by cutting back on salaries and other employee benefits.

Absenteeism vs. Presenteeism

However, there are some hidden costs of not providing paid sick leave. For one thing, there are likely to be reduced productivity costs associated with sick employees attending work rather than losing pay, a phenomenon sometimes referred to as “presenteeism,” not to mention the knock-on costs of reduced productivity or absenteeism among coworkers if contagious illnesses are involved.

Employers can take steps to reduce the overall costs of sickness absence and other forms of unplanned absenteeism by proactively looking after the health of their employees and providing employment conditions which facilitate a healthy work-life balance. For example, they might introduce health screening programs for employees, ensure that working conditions do not contribute to stress or mental health problems or introduce working time arrangements which help for employees to combine their work and family responsibilities. Studies have provided considerable evidence that preventative measures like these can have a significant impact on reducing unscheduled absences.

References

Anonymous (2001). Absence makes the business run slower. The Journal of Business Strategy 22, 1, p.3.

Anonymous (2008). Leave Benefits in the United States. Medical Benefits 25, 17, p.3-4.

Barmby, T., Ercolani, M. & Treble, J.G. (2002). Sickness Absence: An International Comparison. Economic Journal, 112, pp. F315-F331.

Bevan, S. & Hayday, S (2001). Costing Sickness Absence in the UK. Institute for Employment Studies report 382.

CCH Inc. (2002). 2002 CCH Unscheduled Absence Survey. Available from http://www.cch.com/press/news/2002/20021016h.asp.

Chartered Institute of Personnel & Development (2008) Annual Report 2008: Absence Management. Retrieved from http://www.cipd.co.uk/NR/rdonlyres/6D0CC654-1622-4445-8178-4A5E071B63EF/0/absencemanagementsurveyreport2008.pdf.

Dewis, P. & Bevan, S. (2002). Counting the Cost. Occupational Health. 54, 11; pp. 21-23.

Health and Safety Commission (2007). HSC/E publishes Health and Safety Statistics for 2006/07. Retrieved from http://www.hse.gov.uk/press/2007/c07020.htm.

Mercer (2008). 2007 National Survey of Employer-Sponsored Health Plans. Available from http://www.mercer.com/ushealthplansurvey.

Parsonage, M. & Grove, B. (2007). What are the costs of mental ill health at work? What can we do about them? The Sainsbury Centre for Mental Health. Retrieved from http://www.publicmentalhealth.org/Documents/749/Bob%20Grove.pdf.

Tanner, L. (2004). Paid time off offers greater flexibility. Dallas Business Journal. 28, 4, p. 29.



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Why You Shouldn’t Patent Your Invention Just Yet

By Bhagwad Jal Park, on October 30th, 2008

Can you imaging inventing something new and refusing to patent it? We game theorists are a greedy lot. While not doing anything actually illegal, we show no mercy when it comes to an opportunity to make lots of money. In this latest nefarious article, I am going to demonstrate how it is in your best interests to keep silent about your latest invention when it suits you.

First we must understand a key concept in game theory called a “holdup.” A holdup is a situation where you are able to demand almost any amount of money from a person because they have no choice but to pay you or suffer incredible losses. This isn’t just restricted to extorting money at a petrol bunk. Holdups are frequently seen in businesses.

For example, suppose all the pilots in a particular airline decide that they’re not getting paid enough. All they have to do is to go on a collective strike and ask for a 300% raise. Assuming that there are very few pilots around, such a strike will have a compelling power. The reason is twofold. First of all, being a pilot is a specialized skill. And second, the cost of paying a pilot is minimal compared to the cost of maintaining an airplane. So if the airline stops operating because of the pilot strike, they can hardly save any money by not paying the pilots since their fixed costs on machines, etc., is sky high anyway. The pilots are trying to “holdup” the airline company.

Image Credit: Ismael Olea

Patent

In fact, the threat is so real, that certain governments have imposed rules on how long skilled labor such as pilots can go on strike.

Such a strike would not work in McDonald’s for the reasons mentioned. The labor is pretty unskilled, and a strike would hurt McDonald’s much less since McDonald’s would save on employee fees which are pretty high. So if the employees threaten to strike (remember that the more people who strike, the more difficult it is to maintain the strike since a strike is like a cartel), McDonald’s would simply fire them and hire more workers since they are easy to replace. Thus, an attempted “holdup” of McDonald’s would not succeed.

Patent law gives inventors the potential to holdup companies that rely on the patent. Wouldn’t it be nice if I had a patent on the technology used to create integrated circuits (IC)? Every single chip company in the world would pay me money, and I would be a rich man with no worries (financially at least).

But suppose I’m a manufacturing company, and I have several ways to manufacture a particular product. I must check beforehand whether any of the steps involved in a particular method have a patent on them. If they do, then I must either come to an agreement with the patent holder to pay her a reasonable sum of money before I Invest heavily into it or choose another method.

If I’m foolish enough to blindly set up my manufacturing plant in a way that utilized a method that has a patent on it, the patent holder can holdup my firm. They can demand outrageous fees for allowing me to utilize that method since it will cost me millions of dollars to set up a new plant that avoids that step.

But suppose I do the research beforehand and find that no one holds a patent for a particular step, and I build my factory around it. After this, a clever inventor reveals that he has just now got a patent for a particular method that my plant utilizes, and I’m screwed. The crafty inventor had purposely delayed his patent on that technique so that when I did a check, nothing showed up. Now after my plant is complete, he has completed the process and obtained a patent. He is now in a position to hold up my firm.

So if you’re thinking of obtaining a patent, it is worthwhile for you to hold off a little bit and wait till a firm invests heavily into a product or process which utilizes your invention. Then you must strike and obtain a patent and keep holding up the hapless firm! I can well imagine professionals having dozens of unpatented inventions, keeping a keen lookout for an opportunity to pounce on a company that will utilize one of their inventions.

Yes, we game theorists are crafty. Nothing wrong in that, is there?

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Should Patients Be Allowed to Direct Their Own Care?

By J.C., on October 30th, 2008

Some people have suggested that one way to prevent the wasteful costs of healthcare is to have a menu of treatment options, with their costs, that is presented to the patient. For example, when you are admitted to the hospital as an inpatient, the physician typically orders tons of tests, medications, and nursing orders. Most often you will likely have an intravenous fluid running, be on a stool softener, multivitamins, pain medications, daily blood work, etc. But all of these treatments and medications have a cost.

When I was a resident we had an attending on rounds who always would ask us if we knew what the costs were of every drug or treatment that we ordered. Most of the time we did not know. We ordered what was commonly ordered. We did not typically try to find out the cheapest alternative. Occasionally we would have a patient who insisted to know the cost of every medication they were receiving and all of the cheaper alternatives.  Wouldn’t it be great if we could provide a menu of treatment options and their costs to every patient and allow them to direct their care?

There have been many times in my career where I felt that was the case. However, being in the hospital and seeing a menu of medications and their costs is not like going out to dinner and choosing off of a menu. Even though we describe the patient as the “consumer,” they really are not the consumer. They are the patient. They must consent to treatment and can choose treatment options, but they cannot “direct” their own care. If they could direct their own care then doctors would not be needed. As I’ve mentioned previously doctors are licensed to practice medicine and usually are board certified in their specialty. They have been trained for at least a decade to become licensed. Thus they direct patient care. Patients can choose treatments, but doctors ultimately are responsible for what happens to the patient.

In many ways, a doctor is a parent and a patient is the teenager. The teenager is almost a fully functioning adult, able to make their own decisions, but they are not old enough to be independent from the parent. A good parent makes decisions with consultation from the teenager. And ultimately the parent is responsible if anything bad happens to the teenager. There are many adult concepts a teenager cannot understand without extensive explanation. Even after such explanation they still may not understand. Thus it is not feasible to explain the pros/cons of every treatment or medication, the potential side effects, sequelae, the recent literature on outcomes, and the whole volume of information out there on every treatment and drug. Doing so would be unacceptable, and, even if you did do this, the patient may still not understand everything.

While a menu of treatment options and their costs may sound attractive in theory, it simply is not feasible and would clearly highlight that the patient is a patient and not a consumer.



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