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The wages of absenteeism is low status

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Empty desksTo what extent do absolute wage levels, relative wages compared with colleagues, and the position in a firm's hierarchy affect workers' absenteeism behaviour? A recent study used the personnel data of a large German company from January 1999 to December 2005 and analysed the attendance patterns of over 1,100 full-time white-collar workers.

The study found that absenteeism negatively correlates with absolute wages, relative wages, and hierarchical levels, and that a positive relative wage has a stronger impact than a negative relative wage, giving rise to the issue of unequal wage structure. Status-related factors such as relative wage and hierarchical level affect employees' work effort, and so unequal wage structures can be efficient to some degree.

Workers with higher absolute and relative wages and at higher hierarchical levels are less absent, which points to the importance of individual interdependent preferences and status. Higher-paid workers may have a stronger work ethic and motivation to come into work despite receiving sick pay. This may be down to not wanting to let colleagues or management down or time pressures. The factors vary from person to person.

Positive relative wage positions have a larger effect than negative relative wage positions, which gives rise to the issue of the efficiency of unequal wage structures.

Absolute wages

Going by the static neo-classical labour supply model, absenteeism can be interpreted as a worker's adjustment-to-equilibrium strategy. If a worker has taken on a job role with a larger than sustainable number of working hours, he or she might use absenteeism to decrease his or her working time and maintain his or her equilibrium.

A higher wage can be interpreted as compensation for working more hours and for being less absent. In Germany, workers who are absent due to sickness still receive their daily pay and firms can’t verify with certainty the true health status of absent workers. A so-called “lazy” or “greedy” worker therefore has an incentive to enjoy absenteeism as a free holiday and to pretend sickness as much as possible. However, workers might not be that “lazy” or “greedy” and choose the initial utility maximizing level (the total overall value derived from the income) as a reference point, even if they receive wage replacement sick pay. In a dynamic context, workers might also consider that absenteeism today might negatively affect their career advancement tomorrow.

Another explanation lies in the gift-exchange model. If the firm pays a high wage, workers might interpret the firm's behaviour as a gift and react with positive reciprocity, i.e. they provide more work effort and are less absent. Conversely, workers react with negative reciprocity and more absenteeism to low wages. Non-shirking efficiency wage models also predict reduced absenteeism. In contrast to the gift-exchange model, the worker gets no gift but is punished (i.e. is warned, and then fired). The worker's loss if caught shirking positively correlates with his wage level.

Relative wages

In contrast with absolute wages, the impact of relative wages is largely related to comparisons with co-workers. Happiness studies have found that satisfaction does not only depend on actual income but also on relative income, i.e. job satisfaction. Since job satisfaction negatively correlates with absenteeism, a higher relative wage is likely to be associated with less absenteeism.

Equity theory concentrates on a fair proportion between outcomes and inputs. Equity theory follows that a worker who feels overpaid or underpaid will adjust his or her work effort accordingly. A relatively higher wage should be associated with relatively larger effort and, consequently, with less absenteeism.

A higher relative wage can also be a status symbol. Social status theory suggests that the relative wage within a group is one determinant of the local social status within this group. If status increases a worker's job utility, it should reduce absenteeism for three reasons:

  1. In the static labour supply model, the utility maximizing number of working hours does not anymore depend solely on the absolute wage, which is used for consumption, but also on status in form of the relative wage position. For example, a lower absolute wage can be compensated by higher status.
  2. The worker enjoys his status primarily if he is at work.
  3. If absenteeism is interpreted as shirking and the firm fires detected shirkers, the worker could lose his status.

“An unequal wage structure has the benefit of relatively better-paid workers being absent less, while the costs of higher absenteeism for workers at the lower end of the wage scale are lower.”

Hierarchical levels

Higher hierarchical levels are associated with higher status, comprising features like autonomy, authority, responsibility, access to centres of power, and titles. Contrary to relative wages, status in the form of hierarchical levels does not imply that a gain in status by one person is at the expense of a status loss for other persons by the same amount.

Firms’ role

After considering workers' behaviour, firms' behaviour in form of screening has to be taken into account, too. A firm is likely to select and to promote workers with less absenteeism to higher hierarchical positions because absenteeism is more costly at higher levels. Moreover, if a worker is absent, the firm cannot learn about the workers' productivity and, hence, the probability to assign him to a higher level declines.

Due to a self-enhancement motive, workers make downward comparisons in order to make themselves feel better. Consequently, workers with a lower wage rank do not feel underpaid and do not react with more absenteeism.

Contrary to this is the motive of self-improvement. Workers make upward comparisons and choose higher reference standards to improve their own performance, which would also lead to less absenteeism (or, at least, not to more absenteeism).

Since the analysed company pays wages above the level agreed with the industry union, workers might be worse off if they have to move elsewhere. Workers therefore have incentives not to shirk and not to be absent even if they obtain a lower rank in the wage hierarchy in their current company.

Another status-related explanation follows a different model. Workers are not paid according to their marginal product because they have different preferences concerning their relative wage positions. Workers at the lower end of the wage scale get paid above their marginal product, and workers at the upper end of the wage scale are paid less than their marginal product. The line of reasoning for this kind of wage structure is that workers at the upper end gain utility from their higher relative wage position, while workers at the lower end get compensated for their loss in status. Workers at the lower end of the wage distribution have lower preferences towards status because they could have moved to another firm with a different wage structure, in which they are at the upper end. Therefore, they have no incentive to be more absent than workers at the upper end. Conversely, workers at the upper end of the wage distribution might provide more work effort because they could lose their status if they have to move to a different wage structure.

Implications

It follows that an unequal wage structure has the benefit of relatively better-paid workers being absent less, while the costs of higher absenteeism for workers at the lower end of the wage scale are lower. However, since the returns on higher wages and, consequently, the gains from a steeper and more unequal wage structure are diminishing, the application of efficient wage inequality as a strategy is contentious.

January 2011
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This is a shortened version of “Impact of wages and job levels on worker absenteeism”, which originally appeared in International Journal of Manpower, Volume 31, Number 1, 2010.

The author is Christian Pfeifer.