Work absence and insurance design: moral hazard and utilization in Chile’s sick-leave program (1998–2023)

Worker absenteeism due to illness is a growing concern in many economies, raising questions about the incentive properties of sick-leave insurance. This paper examines how the design of Chile’s sick-leave program affects worker behavior and aggregate expenditure. Using administrative data (1998–2023) and original micro evidence, we document a sustained rise in sick-leave utilization that cannot be explained by changes in aggregate morbidity or in the observable demographic composition of the workforce. We uncover patterns that are consistent with standard models of insurance-induced moral hazard: discontinuities in the benefit schedule distort the marginal price of absence, shifting behavior along both the extensive and intensive margins. We show that household constraints and workplace monitoring further shape utilization, amplifying or dampening these incentive effects. Framed within the economics of insurance, our findings highlight how contract structure influences labor-supply responses and fiscal pressure. We discuss design reforms aimed at restoring incentive alignment while maintaining adequate income protection.