Can the Government boost the economy by tackling sick leave?

"A new system to get people off sickness benefit and into work could increase economic output by up to £900 million a year, ministers will say today."

The Telegraph, January 18, 2013

"The longer people are out of the workplace, the harder it is for them to return."

This is the driving belief behind a new government report, which aims to reduce the number of people off work on sickness leave, to cut the benefits bill by up to £60 million, increase National Insurance revenues by £100—215 million and save employers between £80 million and £165 million a year in reduced sickness absence payments. All of this is estimated to increase economic output by £450 million to £900 million. 

That's a lot of numbers.

Why is sick leave being reviewed?

In November 2011, Dame Carol Black - then National Director for Health and Work- and David Frost, the former Director General for the British Chambers of Commerce were tasked with putting together a review on the sickness absence system.

They found that every year 300,000 people leave their jobs and go on benefits because of health-related issues. They also estimated that the government spends £13 billion a year on health-related benefits, while employers spend £9 billion every year on sick pay and associated costs.

The Department for Work and Penions (DWP) assessed the report's findings on the impact of sickness absence on employers, the State and individuals and found that the best way to intervene is to create a new health advice system which will assist businesses in tackling this issue. 

How the advisory service will work

A 'network of occupational health professionals' will be tasked with advising employers and employees on getting those on sick leave back into the workplace. This applies to employees who are off for four weeks or more. The service will be provided via a phone helpline or by visiting advisers in a network of local and regional offices.

If successful, could this scheme inject up to £900 million in the economy? 

The DWP chose to make this figure their own headline claim, so it's easy to see why the Telegraph ran with the story as well. But where does this number come from?

A close read of the government response to the review reveals more:

"Our analysis suggests that a health and work assessment and advisory service will... increase economic output by £450 million — £900 million per year."

So £900 million is at the upper bound of the DWP's estimate - and the range is a quite considerable £450 million.

How do we get to this range? The DWP further estimate that the service will reduce the average user's term of sick leave reduced by 8-17 working days. Assuming that an individual's productive output equals their salary plus other employment costs ("classical economic theory") and that all 560,000 expected users of the system are worth around £94 per day gets you to the £450-£900 million estimate.

Reading further, the basis of the key figure - the 8-17 working days that will be saved by the average user of the government's new service - boils down to:

"Our expert advisers agreed the projection that the service would reduce the net cost of sickness absence associated with its customers by 20% to 60% [equating to 8-17 working days using a conservative 20-40% range], which is consistent with interventions of this nature."

All this is far from simple to follow, but the large number of assumptions involved is obvious. The DWP name Dr Nick Kendall, Professor Kim Burton and Dr Steve Boorman as the expert advisors and the source for their insights.

The problem from a lay reader's perspective is that, while the estimate is clearly grounded in well-cited research, it's largely left to the reader's imagination to determine how this insight applies to the Government's proposed scheme and how the 20-60% was arrived at. This is important as it forms the basis of the £900 million estimated boost to the economy.

This isn't to say the estimate is faulty, but without more transparent evidence it's prudent to treat it with caution for the time being.

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Image courtesy of 401(K) 2013