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Appendix B Productivity and Absenteeism This appendix examines the effects of unexpected absenteeism on redundant employment. As an explanation of productivity differ- entials, absenteeism may have two effects. First, where a pool of relief workers must be carried to cover for unexpected absences, some redundancy is likely to be experienced. The extent of this effect depends critically on the variation in the daily absenteeism rate. Second, fill-in workers may be less familiar with the absentees' jobs or not as effective in the affected work group. G iven the nature of the jobs and the organization of work, however, industry sources generally view work disruption as a minor factor, with redundancy in the relief pool of much greater importance. Table B.1 presents an analysis of absenteeism and productivity In the auto industry using data averaged over several firms and establishments. Before discussing the approach and results it must be stressed that we have focused on the impact of absence on labor hours per vehicle. Absenteeism will have an additional effect on costs through the fringe benefits that are paid to absentees. Even though straight-time wages are not paid to those absent, fringe benefits tend to be unrelated to hours worked and thus are paid irrespective of the number of days of absence. This effect has been captured in the employee cost per hour used in our earlier calculations. The absenteeism analysis in Table B. 1 assumes that only unexpected or unplanned absences are relevant to estimation of redundant labor hours. Time away from work that is predictable can be planned for so that no redundancy occurs. In the case of planned absence, only the effects of disruption in work groups or job unfamiliarity are relevant; we assume these effects to be relatively negligible. Using industry-wide data we estimate that unexpected, unplanned absenteeism averages 3-6 percent. The lower bound is obtained by counting only "absent without notice" as unplanned, while including all short-term absence yields the 189

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190 TABLE B.1 Absenteeism and Productivity: U.S.-Japanese Differences Category United Statesa Japan Absenteeism (percentage of employed hours) Absent without notice Medical Personal Other bury duty, etc.) Total 3.0 1.0 1.8 0.6 Redundant Labor Hours Relief Pool Average unplanned absenteeismb (percentage) 4.5 Peak unplanned absenteeism (percentage) 11.25 Average redundancy (percentage of employed hours) 6.75 Productivity Impact Labor hours per vehicles Absenteeism effect if U.S. redundancy drops to zero (hours per vehicle) Absenteeism effect if U.S. redundancy drops to Japanese level (hours per vehicle) N/A N/A N/A N/A 0.5-1.0 0.75 1.9 1.15 82.0 53.0 5.5 4.6 a U.S. estimates are approximate industry averages based on data from panel members; Japanese estimates based on data from panel members. b This assumes some of the medical, personal, and other absenteeism is planned. c Assumes all absenteeism occurs on Monday and Friday; thus, 4.5 = (2/5 x%), where x% is the Monday (Friday) rate. ~ For a small car, based on Ford and Toyo Kogyo estimates in Table A.3 in this volume. upper bound; we use the midrange of 4.5 percent in subsequent calculations. Even though the average is something like 4.5 percent, varia- tion above the average may influence staffing decisions. To estimate an upper bound on the effect of absenteeism, we assume that all unplanned absence occurs on Monday and Friday. With no absenteeism in midweek, Monday and Friday will average 11.25 percent t(4.5 x 5~/0.24. If we assume that the relief pool is staffed to the peak, then on average there will be 6.75 percent redundant hours of work (11.25 - 4.5~. In other words, plants must hire 6.75 percent more labor hours than they actually need to produce a given level of output, simply to cover for unplanned absence. What impact does this have on hours per vehicle? Using the Ford estimates for a small vehicle from Table A.3, the analysis implies that unplanned absence accounts for 5.5 hours per vehicle. This amounts to almost 20 percent of the estimated Ford-Toyo Kogyo productivity gap.

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191 There are several reasons to suppose that 5.5 hours is an over- estimate of the true value. In the first place we have implicitly assumed that the relief pool must be hired for a full week, even though they work for only two days. The fact that some unplanned absence occurs on Tuesday, Wednesday, and Thursday would lower the redundancy estimate somewhat. Moreover, there is some evidence that production managers make use of short-ter m employees to cover 1- to 2-day shortages, without having to add them to the relief pool on the other days. There is also the obvious point that we have assumed that the Japanese producers have no unplanned absenteeism, when in fact industry sources suggest that the actual rate is likely to range from 0.5 to 1.0 percent. Applying the same analysis to the Japanese data yields a redundancy rate of 1.2 percent. If U.S. plants were to achieve that level, 4.6 hours or 16 percent of the productivity gap would be closed. Factoring in other adjustments probably reduces the effect to between 10 and 12 percent. While not a dominant factor the analysis thus implies that absenteeism has a noticeable impact on the productivity differential. Clearly, when the effects of fringe benefits are added, its impact on overall costs could be sizeable. Industry sources suggest that from $100 to $150 in cost per vehicle could be eliminated with reductions in absenteeism to the Japanese level. Cumulated over several million vehicles, the absolute impact is sizeable.