Spikes in sickness benefit claims stem from delayed take-up rather than moral hazard, so clearer information and closer monitoring can help sick workers obtain support sooner
A well-known pattern in unemployment insurance systems is the presence of “spikes”: sharp increases in the number of workers leaving unemployment insurance exactly when their entitlement ends. Some of these exits lead to employment, but many workers instead move into sickness or disability schemes. These spikes, whether into work or sickness benefits, are often interpreted as evidence of moral hazard: workers are thought to stay on unemployment benefits as long as possible, and then switch to sickness benefits simply to prolong the period during which they receive support.
While most existing research focuses on moral hazard as the main explanation for benefit substitution, our new study shows that another explanation is more plausible. We examine the case of the Netherlands, where unemployed workers remain eligible for sickness benefits throughout their unemployment insurance entitlement. We argue that the spike in sickness benefit claims is not the result of strategic, benefit-maximizing behavior. Instead, it reflects a catch-up of initial non-take-up: workers who are genuinely too sick to work may not realize they qualify for sickness benefits while on unemployment insurance. Only when their unemployment benefits expire do they receive information about their eligibility, and then apply.
These two interpretations have very different policy implications. If moral hazard drove the spike, policymakers might respond by tightening screening procedures or reducing benefit generosity. But if the spike is mainly due to delayed take-up, the appropriate response would instead be to improve information and monitoring, so that sick individuals receive sickness benefits earlier and gain access to timely rehabilitation services.
Which of these explanations is correct depends crucially on the health status of workers who apply at the end of unemployment insurance entitlement. Under moral hazard, the spike would mainly consist of individuals with relatively mild health issues. But if their health conditions resemble those of workers who claim sickness benefits earlier, this suggests the spike is simply due to delayed applications.
To distinguish between the two, we compare detailed patterns of healthcare use, both mental and physical, between two groups: the “spike cohort,” who apply for sickness benefits at unemployment benefit exhaustion, and the “pre-spike cohort,” who apply earlier. We find that the two groups have nearly identical healthcare utilization. This indicates that the spike is driven by a catch-up of initial non-take-up, not by moral hazard.
Does this mean the two groups are identical in every respect? Not quite. We find that the spike cohort has much lower exit rates from sickness benefits. This generates selection effects: over time, the average health of the spike cohort appears less severe than that of the pre-spike cohort. Yet their healthcare patterns remain similar. Potential explanations for this finding could be status quo bias or a lack of information on ongoing benefit conditions. This may then also explain why the spike cohort exhausted unemployment benefits before applying for social insurance benefits. This suggests that workers in the spike cohort are less likely to exit sickness benefits even after recovery, a sign that improved follow-up and clearer information during sickness benefit receipt are also needed.
In short, our results show that the spike into sickness benefits is not driven by moral hazard but by delayed take-up. The policy conclusion is clear: better information and closer monitoring during unemployment benefit receipt can help sick workers access the right benefits sooner and receive more effective support.
© Pierre Koning, Roger Prudon
Pierre Koning is Professor at the Vrije Universiteit Amsterdam, Netherland, and IZA Research Fellow
Roger Prudon is Assistant Professor at Lancaster University, UK
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We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.
Related IZA World of Labor content:
https://wol.iza.org/articles/privatizing-sick-pay-does-it-work by Pierre Koning
https://wol.iza.org/articles/presenteeism-at-the-workplace by Claus Schnabel
https://wol.iza.org/articles/how-to-reduce-workplace-absenteeism by Wolter Hassink
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