Rising Sick Days Are Costing Europe Billions Every Year
As companies struggle with chronic shortages, critics blame an overly generous welfare system, where spending on health-related benefits outranks other developed nations. The IMF calls it “costly and distortionary” and says that reform should be a priority. Workers get their full salary for a year, with a cap at somewhat higher than the average wage, and then two thirds of former income after that.
“Companies tell us that more time is spent on recruitment, getting hold of the people with the right skills, while there is more wear and tear on the employees who remain,” said Odd Arild Grefstad, chief executive officer of Norwegian pensions and insurance firm Storebrand ASA. “All of that means that productivity drops.”
But lavish benefits are far from the only cause, and the situation is worsening across Europe. Ageing workforces and more awareness of stress and mental health, particularly among younger generations, have been blamed, as have repercussions from the COVID pandemic.
As the numbers increase, so too do the economic costs. For many governments, grappling with weak growth or debt burdens that have put investors on alert, it’s an extra financial strain. Businesses say illness absences are exacerbating gaps in labor, hampering output, while for workers, being out of work affects earnings and livelihood, with further implications for wellbeing and sense of self worth.
In the UK, the number of economically inactive working-age people has risen by almost 800,000 since early 2020. Long-term sickness is taking a near £33 billion ($42 billion) toll of productivity, a number that could double by the end of the decade, according to Zurich Insurance. Prime Minister Keir Starmer unveiled a plan last week to try to reverse that and get more people into work. The ambition is to boost economic growth and reduce a soaring benefits bill.
Similarly dramatic numbers have emerged elsewhere in Europe. Employers in Germany spent a record €77 billion ($81 billion) last year on employee sick leave, more than double 2010 levels, the IW economic research institute has said. The country is losing about €200 billion a year from sick days, government estimates show. In France, the head of the national health insurance agency has warned of increased costs that are straining the budget.
Help for people who are ill and can’t work is a vital part of the social safety net. But money is just a part of that, and governments want to stop people drifting further away from work, particularly if there’s a way to get them into meaningful, secure employment that doesn’t leave them worse off.
“One of the most frightening statistics in this field is that if someone has been on sick leave for at least six months, the likelihood that he or she would leave the labor force altogether is higher than the likelihood of returning,” said Christopher Prinz, senior labor market analyst at the OECD in Paris.
Any response is complicated, given that there are multiple factors at play, sometimes involving personal physical or mental issues. Governments and businesses have to tread carefully and sensitively. Otherwise, their actions can come across as thoughtless or cruel.
Additionally, simply getting people to reduce sick days doesn’t always mean an economic boost. OECD research shows that people coming to work while ill — so-called presenteeism — are more harmful to productivity than losses from those staying away, by two to three times.
Genuine Need
In Norway, architect Andreas Tingulstad doesn’t work full time since suffering a stroke and brain injury, and relies on benefits to top up his salary. The 47-year-old appreciates that the welfare model isn’t perfect, but says misuse by a minority shouldn’t be an excuse to scrap something that works for genuine users.
“I don’t expect NAV to fix my life, but they are existential,” he said, referring to the country’s Labour and Welfare Administration.
“Usually a disability or sickness is no one’s fault. It just happens,” he added. “I’m sure there are lots of people that do take advantage, I don’t think you can ever get rid of those people. But you can work to improve it.”
Norway is lucky in one respect, having the backstop of a $1.8 trillion sovereign wealth fund. However, the government still says that some change is needed. It highlighted “reducing sick leave and preventing dropouts from the workforce” as “key objectives” in a report this year.
Politicians elsewhere are also looking at options, particularly France, which is desperate to save money.
The national health insurance agency plans to contact those off work for more than 18 months to see about managing some form of return. It will also review some doctors and tighten the sick note system.
The French national auditor has made a controversial proposal to stop compensation for absences of less than eight days, which could save €470 million a year.
Unsurprisingly, there is pushback. The Unsa trade union has said people must “stop stigmatizing the sick.”
In the UK, Starmer’s plan to get more people into work comes alongside a second measure aimed at improving workers’ rights, including proposals to widen sick pay access. While the latter reforms will cost businesses up to £4.5 billion a year, the government argues that the expense will be partly offset by “greater worker wellbeing” that lifts output.
Almost 80% of UK firms have experienced increased absenteeism due to long-term health issues, according to a survey by consultancy Barnett Waddingham. A third said this has damaged productivity.
But solutions that everyone can agree on are proving difficult. Back in Norway, talks between employers’ organization NHO and labor unions on their longstanding “inclusive working life” agreement are deadlocked on the issue of benefits.
“Society cannot afford sickness absence to continue as it is now,” said Anne Louise Aartun Bye, the head of labor market department at the NHO. “We have a shared responsibility to reverse this trend.”
Photograph: Commuters cross a pedestrian bridge heading towards the Bardcode Project financial district in Oslo, Norway, on Monday, Oct. 16, 2023. Photo credit: Fredrik Solstad/Bloomberg