GETTING PEOPLE BACK TO WORK FROM SICK LEAVE: Evidence from Sweden that early interventions are counterproductive

Early interventions to provide vocational rehabilitation for people on sick leave actually prolong the time they spend away from work. They also increase by a fifth the risk that the individuals concerned will end up permanently on disability benefits.

These are among the findings of research by Per Engström, Pathric Hägglund and Per Johansson, which is published in the March 2017 issue of the Economic Journal. They report the results of an unusual Swedish field experiment among individuals on sick leave.

Sickness and disability is a key economic policy concern for many OECD countries, including Sweden. Early identification and, when necessary, early intervention, in terms of vocational rehabilitation, are commonly recommended policies to reduce the risk of long-term benefit dependence.

Co-author Per Johansson says:

''Although it may be intuitive, the strategy of early intervention relies on the presence of efficient back-to-work strategies. But previous research offers no strong evidence of a reduction in sick leave due to different vocational rehabilitation programmes.''

To analyse the impact of early interventions, the researchers designed an experiment within the sick-leave process, where one group of individuals was prioritised for screening for the need for rehabilitation measures – and rehabilitation if thought necessary – whereas another group had to wait a period for the same intervention.

With this design, the impact of intervening early compared with the impact of intervening late could be measured. In total, 13,500 individuals were involved in the experiment.

The results are disappointing. Following the groups for 15 months, the prioritised group on average remained longer on sick leave than the waiting group. In the longer run, the prioritised group were also more likely to be receiving disability benefits. Receiving disability benefits is often preceded by extensive periods of sick leave.

The researchers also find that larger effects for unemployed people (who are also covered by the sickness insurance scheme) than for the employed. This result is consistent with the view that there is large uncertainty involved in assessing the need for rehabilitation. Individuals differ not only in their health but also in their incentives to work.

Since the economic incentives (and potentially the health incentives) to remain on sickness benefits are higher for the unemployed than they are for the employed, there should be greater uncertainty (and risk) involved in assessing the need for rehabilitation among unemployed.

Per Johansson adds:

''We conclude that the negative effect stems from the case workers having difficulty in distinguishing between individuals in need for rehabilitation and those with low incentives to return to working life.''

''Instead of returning to work (or unemployment), people remain on sick leave in the short run, which increases the risk that they will be receiving disability benefits in the longer run.''

According to the OECD''s Employment Outlook, expenditures on disability programmes in many countries far exceed expenditures on other income-replacement programmes (for example, unemployment benefits) for people of working age. The results of the new study, showing negative effects from early intervention in people''s sick leave, contradict the findings of earlier research (de Jong et al, 2011).

One likely explanation for the different conclusions lies in the differences in institutional settings. In Sweden, for example, employers have no costs for long-term sickness absence among their employees, and there is no maximum time limit for receiving sickness benefits. This reduces the chances for any rehabilitation to be successful.

The most important policy lesson from this study is thus that the success of a strategy involving intervention early in the sick-leave process is dependent on the institutional settings. If the incentives among the individuals involved are not well designed, the outcome of the policy may be counterproductive and instead prolong benefit dependence among workers and make it permanent.

''Early Interventions and Disability Insurance: Experience from a Field Experiment'' by Per Engström, Pathric Hägglund and Per Johansson is published in the March 2017 issue of the Economic Journal. Per Engström and Per Johansson are at Uppsala University. Pathric Hägglund is at the Swedish Social Insurance Inspectorate and the Swedish Institute for Social Research. Examples of recommended early interventions feature in the OECD''s 2007 report Sickness Disability and Work: Breaking the Barriers – Australia, Luxembourg, Spain and the United Kingdom.