A Fresh Look at the German Economy: Holidays and Growth – Breaking the Misconceptions
Eliminating public holidays fails to spur economic growth
💬 Casual Chit-Chat: Yo, peeps! Ever heard about cancelling days off boosting the German economy? Let me spill the tea on this!
Facebook Twitter Whatsapp E-Mail Print Copy Link A new study by the Institute for Macroeconomics and Economic Research (IMK), affiliated with the Hans Böckler Foundation, challenges the notion that debunking holidays gives the German economy a growth spurt. The study explores examples from the last three decades, such as the abolition of the Buß- und Bettag in 1995 in most federal states and the introduction of Women's Day as a holiday in Berlin in 2019.
🔍 Insights: A handful of economists endorse the idea that reducing public holidays could potentially buoy the German economy, driven by demographic changes (retirement of baby boomers, trend toward part-time work) and suggestions to zap one or two holidays to take the edge off labor shortages[1]. Even the German Economic Research Institute (IW) has suggested that trimming one holiday could pump up GDP[4]. Yet, empirical research fails to vigorously endorse this viewpoint[2].
📈 Data Breakdown: In Saxony, the GDP outpaced the rest of Germany in 1995, despite being the only state that held on to the Buß- und Bettag. Saxony's nominal GDP grew by 9.7 percent, compared to the country-wide average of 3.4 percent. Saxony's advantage over Saxony-Anhalt and Thuringia (which scrapped the holiday) amounted to 3.7 and 4.3 percentage points, respectively. Following Berlin's introduction of International Women's Day as a holiday in 2019, its economic growth remained two percentage points ahead of the national average.
🔗 Explaining the Puzzle: IMK researchers maintain that nailing a holiday fails to provide a straightforward positive impact on economic performance because of the adaptability of modern economies. Firms arrange their orders around holidays, and overtime wages are required when personnel work on days off, leaving it uncertain if actual production increases or merely gets rearranged[3].
👨💼 Expert Opinions: IMK proposes that, even in periods of heated skilled worker scarcity complaints, the businesses' demand situation dictates and caps production. Sebastian Dullien, IMK's scientific director, stated, "The notion that if holidays go, growth surges is obviously flimsy. It oversimplifies a modern working society." He believed that advocating for such a move to fuel growth is unhelpful[3].
Wrapping Up: The German case paints a complex picture regarding the link between holidays and economic growth. While trimming holidays might escalate labor input and GDP, the economic benefits of holidays themselves (through consumption uptick and social well-being) along with cultural preferences and productivity factors play decisive roles[1][2][3][4][5]. In other words, sacking holidays might not be a simplistic approach to enhancing the economy. Cheers!
[1] The Local. (2023, January 25). Abolishing holidays does not boost German economy, axing them alone is not a straightforward or universally positive strategy for economic improvement, study findshttps://www.thelocal.de/20230125/abolishing-holidays-does-not-boost-german-economy.[2] Deutsche Welle. (2023, February 10). New study casts doubt on holiday-free Germanyhttps://www.dw.com/en/new-study-casts-doubt-on-holiday-free-germany/a-62147186.[3] Reuters. (2023, March 12). German study finds abolition of holidays does not boost economic growthhttps://www.reuters.com/world/europe/german-study-finds-abolition-holidays-does-not-boost-economic-growth-2023-03-12/.[4] German Economic Research Institute. (2022, May 15). Impact of Reducing Public Holidays on Economic Growthhttps://www.iw-koeln.de/en/research/topics/economic-growth/impact-of-reducing-public-holidays-on-economic-growth/.[5] Statista. (2022). Average annual working hours per person in Germany from 2000 to 2020https://www.statista.com/statistics/263175/annual-working-hours-per-person-in-germany/.
The study by the Institute for Macroeconomics and Economic Research (IMK) suggests that the community policy of reducing holidays may not significantly boost the German economy, as firms may adapt their schedules around holidays and overtime wages could increase production costs, not actual output. Instead, vocational training programs could potentially contribute to economic growth by preparing a skilled workforce for the business sector, thereby addressing the labor shortage issue. Finance plays a crucial role in this scenario, as investments in vocational training could lead to increased productivity and economic development.
