What are the costs and benefits of a national holiday?

Current issues related to economy, (responsible) investment, pension and income: every week an APG expert gives a clear answer to the question of the week. This time: Thijs Knaap, chief economist at APG, on the costs and benefits of a national holiday.

Spring is the time of the holidays. We have just had Easter and King’s Day is already upon us. Not long after that will come Liberation Day, Ascension Day and Pentecost. There is no law in the Netherlands that stipulates that employees have the day off on a holiday. However, many collective bargaining agreements do stipulate that employees have a day off on a public holiday. How much does a holiday actually cost the economy? And does it also contribute something?

Modest shrinkage

The nine holidays on which we are don’t work in the Netherlands - four of which may fall on the weekend - seem to do justice to our Calvinist disposition. In fact, many other countries have more days off. Yet we are also at the bottom of the international rankings in terms of the number of hours worked. This is because part-time work is common here and employees get a fair number of vacation days.

There are some pretty accurate figures available around how much a holiday costs the economy, an analysis by the European Central Bank (ECB) proves. Knaap: “If you assume an entire lost business day for a public holiday, or 1 divided by 250 working days per year, then it amounts to a 0.4 percent shrinkage of the gross domestic product (GDP) a year. Because regular work gets shifted to other days and sectors such as hospitality and tourism have more turnover on a holiday, the actual loss on an average holiday is more like between 0.05 and 0.1 percent. If you have a lot of extra public holidays, the effect will become greater, because it will become increasingly difficult to make up the work later.”

The celebration of the 70th Jubilee of Queen Elizabeth II of the United Kingdom last May also proves that regular work on a public holiday gets shifted to the future. The extra day off cost British GDP 0.5 percent over the second quarter. “If you divide that by four, you get the annualized effect, which is slightly above the ECB’s estimate,” he said. The loss in production was expected to be largely made up in the third quarter, helping the British economy avoid a recession.

Productivity
Purely judging by the numbers, therefore, a holiday costs economic growth. But is a worker who works more hours always more productive? "In the United States, they have very few days off and part-time work is rare. In the Netherlands, we don't have that many holidays off either, but we do have a fair amount of vacation time, and we also often work part-time. If you look at production per capita, the average American produces more than the average Dutch person. But the American also works much more, so judging by production per hour, we are actually much more productive."

This can have several causes, such as the degree of automation, bureaucracy and what industries are dominant in a country, Knaap continued. “But I think it’s also very much because the longer you work, the less productive you become. For example, you will do a lot less work during your sixtieth hour than you did during your first hour. And it can also bring down your overall production level because you start a new work week tired. So, there are also going to be an optimal number of hours in a work week, and for most people I think that’s below forty hours.”

World Cup final
A day off gives the working person the opportunity to recharge and take a break from the routine. An important question here, Knaap believes, is whether you let the employee choose when to take time off by giving more vacation days, or coordinate it nationally with official holidays. “A day off for an employee does not necessarily have to coincide with an official holiday. One advantage is that on such a day it is easier to meet with friends and family because most people are off then. At the same time, there is a risk that if you force employees to take time off on a specific day, you will always frustrate someone who wants to work on that day. So it’s good to leave it largely up to the employee when they have time off,” Knaap concludes. “Then you will still find that many people take the same day off, for example on the day of a World Cup final.”