This is a model of endogenous sick leave in the presence of endemic infectious diseases. The prevalence rate elasticity with respect to sick leave is unity, when workers are paid their marginal product, and firms profit maximise. Full information contracts yield a compensating higher wage to the sick than to the healthy workers. Sick leave pay is greater than the healthy working wage. The contracted sick leave period falls with: the external disease transmission, the productivity of the ill, the discomfort when ill on sick leave and reductions in the work discomfort of the ill. Full insurance breaks down under asymmetric information, where implicit contract firms may offer more sick leave than profit maximising firms with the same payment schedule. (C) 2003 Elsevier Science B.V. All rights reserved.