There are many studies and analyses that examine the impacts of absenteeism on firms. These impacts include:

• Lost output
• Disrupted output flow
• Extra supervisory time
• Training time
• Morale effects
• Overtime pay
• Temporary worker replacement costs

Absenteeism costs can make up as much as 10% of a firm’s payroll costs.

The Impact Model focuses on the replacement costs of absenteeism and the financial effect on employers. The average daily compensation of the absent worker is used as a proxy to reflect the costs of replacement workers, or lost output, or other aspects of absenteeism. The Impact Model uses the average daily compensation by industry, and by region, and the estimated prevalence of depression within a workforce, to calculate part of the financial impact of depression for employers.

See clinical evidence on depression

The costs of absenteeism

Measurement of the financial impact of absenteeism, and/or low productivity at work, will vary widely from firm to firm and industry to industry. Economists generally separate the costs of absenteeism into direct costs (lost output) and indirect costs.

Direct costs: Economic theory argues that the value of the output from an employee must be at least as much as the compensation (wages and benefits) given to the employee. So unless the absent worker is replaced or the work load shifted, on average the lost output to the firm during the absence will be as much or more as the employee’s compensation during that time.

Indirect costs of absenteeism and low productivity include effects on the work process and on other employees, such as:

• Disrupted workflow
• Extra supervisory time needed
• Overtime pay for other employees
• Training costs
• Morale effects on other employees

Other factors that affect the costs of absenteeism include:

1. The skill level of the employee: Employees with specific skills that involve detailed training will have more costly absences.
2. The wage rate of the employee: Absences by employees with higher wages will generally be more costly than absences by employees with lower wages.
3. The nature of the production process: Some labor is a “perfect complement” to revenue, meaning the labor is entirely necessary for the business to run. Other labor is not complementary, meaning the business will continue to run, although not as effectively.
4. How the organization handles absences: Organizations deal with absenteeism in different ways. Some are more costly to the company bottom line than others.

For indirect costs and for these other factors, there is not much data on the specific financial impact on the employer. In order to establish a baseline measure of costs for absenteeism, the Productivity Impact Model uses the employee’s average daily compensation to represent some of the costs of absenteeism and low productivity.

Additional references:

Brown, Sarah and Sessions, John G., (March 1996) "The Economics of Absence: Theory and Evidence," Journal of Economic Surveys, volume 10, Issue 1, pages 23-53.

Coles, Melvyn G. and Treble, John G. (1996) “Calculating the price of worker reliability.” Labour Economics. volume 3, pages 169-188.

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