EXPLAIN HOW ALLEN (1981) ADAPTED THE STANDARD NEOCLASSICAL MODEL OF LABOUR SUPPLY TO PROVIDE A THEORETICAL MODEL OF ABSENTEEISM. EXPLAIN THE KEY PREDICTIONS MADE BY THIS MODEL AND DISCUSS THE EXTENT TO WHICH THE EMPIRICAL LITERATURE SUPPORTS AN ECONOMIC MODEL OF ABSENTEEISM.

1. EXPLAIN HOW ALLEN (1981) ADAPTED THE STANDARD
NEOCLASSICAL MODEL OF LABOUR SUPPLY TO PROVIDE A
THEORETICAL MODEL OF ABSENTEEISM. EXPLAIN THE KEY
PREDICTIONS MADE BY THIS MODEL AND DISCUSS THE EXTENT
TO WHICH THE EMPIRICAL LITERATURE SUPPORTS AN
ECONOMIC MODEL OF ABSENTEEISM.

2. Table of Contents
Introduction................................................................................................................................2
Neo-Classical Model of Labour Supply ....................................................................................2
Theoretical Model of Absenteeism and the Key Predictions.....................................................4
Limit of Predictions Support on Absenteeism Economic Model ..............................................5
Conclusion .................................................................................................................................7
References..................................................................................................................................8

3. Introduction
Worker absenteeism involves a considerable loss of time at work and hence, there is a
constitution of significant implications for both organizational productivity and household
income. Irrespective of this, the field of economics has been identified as laggard in relation
with other disciplines to address the specific phenomenon (Blundell and Walker 2003).
However, the situation has been changing, as recently a mild flurry of activity has been
witnessed. Irrespective of this, considerably less attention has been given to the literature of
economics to either the effects and the causes of absenteeism. However, the discipline has
gained the benefits from a rigorous yet basic structure of theory identified over static neo-
classical theory of labour supply. The effect of absenteeism on organizations or also a
national economy is major, in which there is a consideration of associated costs. The
determinants of absenteeism should be understood in a better way as they are valuable for
policymakers and organizations.
The aim of this essay lies in explaining the theoretical model of absenteeism and neo-
classical model of labour supply, while conducting a full discussion about the main prediction
regarding this model of Allen (1981). Further ahead, discussion will be conducted on the
limit to which the economic model of absenteeism is supported in empirical literature, based
on which conclusion will be presented.
Neo-Classical Model of Labour Supply
The theory regarding supply of labour is set on the basis of model for choice made by
consumer in the consumption of more goods and the consumption of more leisure. With
respect to this, the properties regarding labour supply can be elucidated and the scenario of
participation can be understood in the market of labour(Bosworth et al. 1996). There has been
a major enhancement of the model for increasing the preciseness of theory related to labour
supply, and at times, for making profound modification, taking into consideration the
production of household principally, the collective aspect of decisions related to supply of
labour, and the aspect of life- cycle related to these decisions (Blundell and Walker 2003).
The basic model regarding a trade- off between leisure and consumption provides principal
properties related to labour supply. In the specific sense, it depicts that the supply of labour
cannot be considered as a monotonic function of wages necessarily. This suggests that there
is a growth in the supply of labour when the amount of wage is low, and there is a subsequent

4. reduction of wage when the supply of labour is considerably high. The trade- off between
leisure and consumption has been shown with the appropriate utility function performed with
each and every individual that depicts U(C, L), in which there lies a respective designation of
L and C as the consumption of leisure and the consumption of goods (Allen 1981b).
(Fig: An Indifference Curve for Consumption of Leisure and Consumption of Goods)
In the specific sense, following are the key properties of this neo- classical model
(Killingsworth 1983):
(1) Each curve of indifference will be corresponding to a higher scope utility, the curve at the
farther end depicts the point of origination. Hence, the consumer will be showing preference
for indifference curves situated beyond the point of origin.
(2) There is no intersection in the curve of indifference. If there is an intersection, the point
will be corresponding with a combined consumption and leisure by which the individual will
be having two different degrees of satisfaction. In these kinds of preferences, there is an
exclusion of incoherence.
(3) The rise in the functions of utility with respect to each of the components provides an
implication that there is a negative slope in the curves of indifferences. The slope across the
curve of indifference at a specific point helps in defining the marginal level of substitution
between leisure and consumption. It provides a representation of quantity related to goods
which must be renounced by the consumer in exchanging the supplementary leisure for a
period of one hour, with no change in the level of satisfaction.
(4) There is an assumption that there is readiness among individuals for sacrificing low level
of consumption for an addition period of leisure hour when there is a dedicated period of time

5. to the increase of leisure. This property provides the significance for the marginal level of
substitution between leisure and consumption ends up falling with the time of leisure.
Further ahead, income of an individual can be derived out of the activity as earner of wage
and from the activity beyond the market of labour. If the actual wage per hour is designated
by “w”, the income earned from these wages will be designated by “wh” (Allen 1981a).
Income from investment, income being transferred, even the gains derived out of illegal or
undeclared activities, are certain examples of what can be acquired by an individual beyond
the market of labour.
Theoretical Model of Absenteeism and the Key Predictions
A number of researchers have endeavoured for the incorporation of considerations regarding
labour demand. According to the theoretical model of absenteeism by Allen (1981),
absenteeism is treated as a non- pecuniary attribute related to the package of compensation by
the development of hedonic framework (Allen 1981a). The offer function has been derived
by Allen regarding an employer indicating the combined rates of absence and wage within
the willingness of provision at a specific amount of profit. Provided that each and every
employer is categorized by such a curve of offer, the enveloped of each and every curve will
help in yielding the trade- off between absence and wages in existence across the market
(Allen 1981b). In the similar sense, a family regarding the curves of indifference represents
the preferences between absence and wages can be derived out of each and every individual,
who will be choosing the employer such that there is a tangent curve of indifference to the
envelope regarding the offer curves of every employer. Provided that absence is an agreeable
attribute of job, the model helps in predicting the inverse relationship between absence and
wage rates. Even though the hedonic approach seems to be incorporating both, the
considerations of labour supply and labour demand, it is disappointing to state that there has
been failure of subsequent authors for following the lead of Allen (Blundell and Walker
2003).
A number of evidences support the claim that rates of absence is higher across industries in
which the hours at work on weekly basis is considerably high. All of this lays emphasis on
flexibility playing a crucial role to determine the decisions of absence. However, this
particular area cannot be considered problematic, with respect to the fact that as a concept,
difficulty is faced in defining and measuring flexibility (Allen 1981b). Allen (1981) has

6. incorporated variables of dummy within his equation of regression for the representation of
flexibility. There lies significance in the estimated coefficient and there is an indication that
worker groups have been working in the same hours on daily basis are categorized by a
higher scope of absence (Bosworth et al. 1996).
The mechanism of selection as expressed by Allen (1981) involves the use of equations with
hedonic wage capturing the idea that there lies a trade- off between expected absence and
wages faced by potential work force, by the creation of compensating differentials related to
absenteeism (Allen 1981b). As per this particular approach, absence is considered as an
attribute of job, based on which the following statement has been remarked by Allen (1981):
“The ability to miss work repeatedly while keeping one's job is a job characteristic desirable
to many workers, regardless of whether that time is spent recovering from short-term
illnesses or enjoying three-day weekends” (Allen, 1981; 332).
However, the model by Allen tends to be operating over the principle that there is adjustment
of wage only as changes take place in absence. The implicit assumption is that the other
arguments within the utility function of an individual are fixed. In a consequent sense, there
can be an ignorance for a number of aspects related to the decision of labour supply.
However, the results are not completely with respect to the ones who seek for exploring the
factors determining observed behaviour of absence, in general, which helps in suggesting that
there is concentration of absenteeism among the youngest and the oldest employees
(Killingsworth 1983).
This provides an implication of several facts. Firstly, the elasticity related to absenteeism for
a specific wage holds a negative value, but is not significant for each and every group.
Further ahead, the rates of absenteeism in female are higher in comparison with the rates of
absenteeism in male (Allen 1981a). There lies huge significance for condition related to
employees, in which the level of absenteeism is high in the scenario of dangerous work place
and less where there lies flexibility regarding the duration of hours.
Limit of Predictions Support on Absenteeism Economic Model
Based on this discussion, it can be stated that the limit to which the individual has the ability
of engaging in absenteeism is highly dependent on the attribute regarding contract of
employment and taken up measures by the employer for its enforcement (Blundell and
Walker 2003).

7. Absenteeism with respect to the simple analysis of labour supply arises because of the
imposed constrain of hours. If the hours of contract had not been defined, then there will be
no existence for the concept of absenteeism. However, the constraint of hours will be
representing only one attribute regarding the contract of employee. This particular
relationship has subjectivity with further complex scenarios since the hours of contract set do
not have general independence to determine the offered rate of wage. For the presentation of
more integrated theory related to absenteeism, certain explanations to determine hours having
constraint is a major requirement.
Employers can be successful in lost productivity, absenteeism and significant expense when
there is an understanding about the causes regarding absenteeism at the business
organization, and there is an adoption of targeted strategies for addressing them. However,
the key issue is that a number of organizations do not have track of absence in an accurate
manner, and there is only a basic requirement for verifying absence as a significant measure
for its management (Allen 1981a).
Work place absenteeism and attendance are of fundamental significance to the society of
industrialization. Primarily, this does not seem to be having a direct impact on the industry as
the cost of production, however, the less of productivity also impacts the entire society and
economy indirectly and directly. It is an addition to the cost, or there might be a reduction of
quality, related to private and public services and products (Allen 1981b). Within the work
place, additional burdens may be placed on the workers and employers, specifically a
crucially significant times, or within the main processes. There have been changes in the
environment of business to the limit to which that currently there is huge significance for the
performance of economy for the achievement of international and local competitiveness
(Bosworth et al. 1996). The attendance of employee at work, organizational commitment and
productivity have been identified as crucial components for the performance of human
resource. This is initiating change, in terms of necessity, with the perception that less can be
done for influencing the expense of absenteeism, and a number of organizations have been
showing readiness to make inroads for the improvement of rates in work attendance (Blundell
and Walker 2003).
The new environment of industry refers that there may be a rise of opportunities, by the
bargaining of enterprise and restructuring, for the alteration of condition related to
employment for meeting the needs of employees and employers in a better manner. These

8. have and can be inclusive of the management related to sick leave and work place absence.
Absenteeism and work attendance have significant link with a number of factors, though not
being sole factors determining the incapacity related to disease (Killingsworth 1983). There is
a general consideration of work attendance for reflecting the complex relationship between
society and enterprise, and work and employees.
A number of factors have been showing marked differentiation among the individuals, work
groups, work places, industries and societies. Not each and every factors results in having a
significant impact on each and every case. In terms of reality, there lies a straightforward
attribute in few interpretations and situations (Ashenfelter and Heckman 1974). This
particular complication may end up making it a difficult issue for serving, managing and
understanding caution in accordance with the generalization.
Conclusion
The discipline of worker absenteeism have been significantly gaining the advantages from a
basic yet rigorous structure related to theory identified over static neo- classical theory of
labour supply. The impact of absenteeism on business or also a specific economic
background is major, in which a number of associated costs are considered (Bosworth et al.
1996). The factors determining the absenteeism should be understood in an improved and
better manner as these have major value for policymakers and organizations.
Several evidences have been supporting the claim that there are higher rates of absence across
several industrial backgrounds in which the hours at work on weekly basis is significantly
high. All of this tends to be laying emphasis on flexibility which plays a crucial role for the
determination of decisions related to absence (Blundell and Walker 2003). However, this
specific area does not seem to be involving major problem, in accordance with the fact that as
a concept, difficulty is faced in defining and measuring flexibility.
As per the discussion conducted in this essay, it is important to mention that the extent to
which any individual gains the ability for engaging across the across the activity of
absenteeism has a major dependence on the characteristic regarding contract of employment
and taking up measures by the employer for the enhanced scope of enforcement
(Killingsworth 1983). This specific complication may end up involving a difficult problem
for serving, managing and understanding caution with respect to the generalization.

9. References
Allen, SG. 1981a. “An Empirical Model of Worker Attendance.” Review Of Economics and
Statistics, 63, pp. 77-87.
Allen, SG. 1981b. “Compensation, Safety and Absenteeism: Evidence from the Paper
Industry.” Industrial and Labor Relations Review, 34, pp. 207-218.
Ashenfelter, O. and Heckman, J. 1974. “The Estimation of Income and Substitution Effects in
a Model of Family Labor Supply.” Econometrica, 42, pp. 73-85.
Bosworth, D., Dawkins, P. and Stromback, T. 1996. Economics of the Labour Market,
Pearson Education.
Blundell, R. and Walker, I. 2003. Working Families’ Tax Credit. A Review of the Evidence,
Issues and Prospects for Future Research, Institut d’Economie Publique, De-Boeck and
Larcier.
Killingsworth, M. 1983. Labor Supply. Cambridge University Press: Cambridge, Ch1-3.