We analyse the impact of a social security reform that changed the costs incurred by firms due to sickness absences. The reform abolished a compulsory insurance for firms, which insured them against the wages paid to sick blue‐collar workers. During the first year after its introduction, we estimate that the reform resulted in about 6.3 percent fewer sickness absences, and in about 8.6 percent fewer absence days. We do not find evidence for changes in hiring or firing, and we find only limited workforce composition changes. We do not find spillover effects on the absences of white‐collar workers. Robustness checks confirm these results.