There has been very little research into sickness absence in Vietnam. This article reveals how the labor market might adjust to more generous illness benefits offered by the Vietnam Social Insurance Law. In the study, we combined the difference‐in‐differences and matching techniques and used data from four waves of the Vietnam Labor Force Survey. The results indicate that the generosity of the benefits positively links to both the incidence and the duration of sick leave. The article also sheds light on the mechanism underlying the relationship by disaggregating the effects on gender, income, and job tenure groups. The results support current government efforts to enhance the public social insurance system.Key Practitioner Message: • Sickness insurance affects sick leave incidence and duration; • Low‐income workers and female workers are sensitive to sickness benefits reform; • There is a link between job tenure and sick leave.