PAY, TECHNOLOGY AND THE COST OF WORKER ABSENCE Melvyn Coles (University of Essex) Joseph Lanfranchi (ERMES, Université Panthéon-Assas, Paris II) Ali Skalli (ERMES, Université Panthéon-Assas, Paris II) and John Treble (University of Wales, Bangor and ILR, University of Essex) June 2002 ABSTRACT Conventional studies of absenteeism concentrate on labour supply. In this paper we analyse records of worker behaviour which enable us to investigate whether or not demand side effects exist. Using a compensating differentials model, we study how the shadow cost of absenteeism varies across firms which operate different technologies, (The shadow cost is the amount a firm would be prepared to pay to achieve a given small reduction in its absence rate.) It is to be expected that pay for a less reliable workforce would be less than for a more reliable one, and we confirm this expectation. More subtle is the rate at which remuneration should fall with increased unreliability. We claim that just-in-time technology implies that absence will be more expensive for firms adopting it. The loss of productivity when absence occurs will be greater for such firms than for others, and the wage premium for reliability should thus be higher for such firms. Using a matched employee/employer dataset from France, we are able to establish the existence of statistically significant differences of the kind predicted by the theory, and estimate the shadow cost of worker absence for firms operating different kinds of technology. ACKNOWLEDGEMENTS: We are grateful to the British Council and the French Ministry of Foreign Affairs for financial support under the Alliance programme, and to Thomas Coutrot (DARES) and INSEE for permitting us access to the data. Coles and Treble are also grateful to ERMES at Université Panthéon-Assas, Paris II for their hospitality and assistance. Earlier drafts of the paper have been presented at seminars at Oxford, Manchester, Newcastle, Arizona, CREST (Paris), the 2001 EEEG Conference (Leicester), the 2001 CAED Conference (Aarhus) and SOLE 2002 (Baltimore). Comments from participants are gratefully acknowledged, especially those from Martyn Andrews, Tim Barmby, Peter Dolton, Francis Kramarz, Naçi Mocan, Ron Oaxaca and Jean-Marc Robin.