Marczell Kinga (CEU) The Effect of Managers’ Health Shocks on Employment Practices with Hajdu Gergely (CEU)

We investigate the effect of managers’ health shocks on the separation rate of their employees. Our hypothesis is that previous illness experience of division leaders at a company may affect their attitudes towards employees. To test our hypothesis, we measure changes in the separation rate of employees assigned to managers before and after the managers’ illness episodes. Our results show that employee separation rate increases in the manager’s employee pool after the manager’s illness by 8%, a phenomenon mostly driven by an increase in the number of dismissals, as opposed to an increase in the number of employees leaving the firm voluntarily. We provide a descriptive analysis of managers’ own employment outcomes as well. We find that adverse employment effects are present even four years after the illness episode. While 18.23% of previously ill managers has no job by this time, the corresponding ratio is only 13.02% for the control group, and this difference is almost entirely coming from the difference in their likelihood of having a manager position. Conditional on staying at the firm, managers’ wage decreases by 13.4% following the year of illness, compared to the wage evolution of their matched healthy counterparts.