Question: A firm wants to offer paid sick leave to its workers, but it wants to encourage them not to abuse it by being unnecessarily absent.
The firm is considering two options:
a. Ten days of paid sick leave per year; any unused leave days at the end of the year are converted to cash at the worker's daily wage rate.
b. Ten days of paid sick leave per year; if no sick days are used for two consecutive years, the company agrees to buy the worker a $100,000 life insurance policy.
Compare the work-incentive effects of the two options, both immediately and in the long run.