Economic Cost of Lack of Sleep

As I am finishing up my last tax returns of the tax season I am finding myself thinking about the effects of sleep deprivation and the economic costs of it.  I got thinking about how much more efficient I may have been if I had only went to bed a little earlier.  How much money and time could I have saved by getting more sleep?

As I started to do some research on the topic I discovered there have been a lot of studies on the subject.  The one thing that they seemed to all have in common is they agreed there is no real measurable data and what they do have is based only on speculations.  I did find one study by Valley Sleep Center that put a dollar amount to the issue.  They estimated the annual cost to employers to be about 63 billion dollars. 

If getting more sleep could save that much money annually, why have we gotten to the point where we do not get the sleep we need to properly function?   What is causing us to sacrifice our precious sleep and what can we do to prioritize our lives to combat this?  What do you think the cost of lack of sleep is and how has it affected your lives?  Let me know what you think.


Dave Tufte said...

Cubbies: 100/100

Oh wow ... I'm sitting here at 1:00 am writing this, after getting up at 6:25 am (and having to get up at that time tomorrow), but having fallen asleep on the couch for about an hour this evening (intentionally).

So I'm a poster child for this. In my defense, my wife's sleep schedule shifted much later about when she hit 40, so I'm both trying to spend time with her, and get the kids off to school in the morning. It's crazy, but I haven't found a decent workaround yet.

Do I think that has a big economic effect? Yes. Do I think $63B is plausible. Surprisingly, I do. This is about 4 parts out of every 1000 of U.S. GDP. Could a hypothetical person with $100K in income to $400 dollars in damage to their life (on average) by not sleeping properly? That seems quite plausible to me.

Here's a couple of interesting views to put some scope on this.

1) In America, we bitch and moan a lot about how much we spend on elections. Just today I read that Clinton's team wants to spend $2.5B, which is easily a record. What I want to know is if we complain about that so much, why aren't we more worried about the much bigger problem of sleep deprivation? I don't care for political spending, but the priorities of our critics seem wrong to me.

2) Here's an interesting viewpoint on recessions. Now, note first that I'm not saying this is the case. I just want to tell you about the data. Here goes: what would a recession look like if it was an attack of national laziness? Not necessarily a pervasive change, but more like a national year or two of staying out of sight and binge-watching TV and snoozing. We all do this with whole weekends quite often, and whole weeks occasionally. What if the country did it for a year?

It turns out there's data on this. There are things called time use studies that ask people how they spend their time. The interesting thing for this comment is that in recessions people sleep a lot more. You'd think they'd spend their extra free time looking for work, or volunteering, or going back to school, or caring for family members. And they do. But all of those combined are swamped by people just sleeping more.

So again, I'm not advocating this. But I am being the devil's advocate to get you thinking and wondering. Is it possible that the reason that business cycles started occurring (for the first time about 175 years ago, and irregularly ever since) is that we push ourselves too hard for a while, and then go through a kind of collective, low-level, physical and mental collapse and reset?

I don't know the answer to that. What I do know is enough about the data that I can't just dismiss it as goofy.

Brigham Kindell said...

I thought this was a really interesting article. I just got done working two full time jobs which basically meant I got about 3 hours of sleep a day for a little over two months. I did make twice the income though and gained the job I was interning for... so for me it was a benefit as far as explicit costs.

Dr. Tufte said...

Brigham Kindell: 50/50

I think you mean "so for me it was a net benefit".

I would also say, that since you're past it, and haven't recognized other issues, that probably the (gross) benefits exceeded the sum of the explicit and implicit costs.

Articles like the one that motivated the initial post are really trying to tackle the measurement of the implicit costs of this sort of thing. This is hard because those are not only somewhat hidden, but they also tend to by quite lumpy: for example, some people not getting enough sleep have terrible accidents, and that raises the average cost a lot more than the median cost.

Captain Jack said...

This post has made me think of the opportunity cost of study time compared to other activities of value. I have always been an advocate of good grades for personal and social reasons but now that my time is in more demand I have been pondering the cost of an A or B compared to a C. For most of us in a graduate degree program this is the end of the line academically. If this is the case then why do we spend any more time studying than the required time it takes to earn a C? We probably want to leave some cushion so that a small mistake won’t push us below a C. There are also those that may have tuition waivers or tuition reimbursement that increase the incentive to do well.
As an undergrad student I had the incentive that high grades would eventually assist in applying to a graduate degree program. Six years later those grades proved worthwhile. Now I as I look ahead to my last semester in the MBA program I tend to doubt that the extra time spent to receive higher grades is worth the cost to other activities in my life. My current or future employers likely only want to see the three letters by my name and don't care about the GPA. I get a sense of accomplishment from higher grades and maybe the extra time will help down the road but I still have to wonder, is it worth the lost time of developing a business or spending time with my kids?

Jake Eliason said...

I thought this was an interesting economic topic, and one we can all relate with.

I am the first one in my family for multiple generations to attend college. With the idea of mountains of student debt looming over my head after I graduate, I opted to work full time while attending school. I worked hard and finished my undergraduate education with no debt. Working more than forty hours a week and taking eighteen credits a semester created a constraint on my time. First it was my sleep that shouldered the costs, until I was too exhausted to keep up with both work and school. My work performance was slipping and my grades were slipping even quicker. Near the end of my degree I found a balance that helped me be more proficient at both work and school.

I recently went through the recruiting process with several accounting firms. There were three firms I really enjoyed, but I missed out on the opportunity with one because of my grades. In selecting a graduate program, my grades were a limiting factor in the programs I could select from. My experience taught me that there are huge economic costs to a lack of sleep.

Dr. Tufte said...

Captain Jack: 50/50

Captain Jack is hitting close to home. Personally, I regret not being more aggressive in my studies in thinking strategically about how much I should work in my classes. In particular, I wish someone had told me not to be afraid to drop/withdraw from more classes I wasn't getting anything out of. On the other hand, now that I have kids, I am very cognizant that the combination of laziness and overwork means that most evaluators of your education will only look GPA.

More below ...

Jake's comment tends to confirm what I said in response to Captain Jack. You never know whether or not grades are the reason we get turned down for stuff. But, having been on the hiring/admitting side, I know the extent that evaluators want someone to produce a concrete number they can use, and the lengths they are willing to go to to rationalize that a particular number is more concrete than it actually is.

I hate to sound like a grind, but my advice to everyone is to get the best grades they can.


Here are two more ideas, that have to do with economics more broadly, rather than managerial economics specifically.

First, there's actually a large field in economics on whether what we get out of education is actual learning or signalling (I will try new stuff, even if it's hard, and complete it). I guess it's unfortunate, but the signalling appears to be much more important. This is why there is such a big premium to completing a degree: an employer will always take someone with a degree that they ran a 2.5 in over someone who had a 4.0 but dropped out.

Second, there's interesting new research that women tend (more than men) to view their grade in a class as indicative of their relative ability rather than their absolute ability. For example, if men and women take a hard class (say, organic chem) and get poor grades — reflecting the difficulty of the material — the women are more likely to conclude they need to switch to a different class in which they can earn better grades. So now researchers are looking at whether this explains why women are more likely to choose majors with GPAs. That's great if you choose accounting (which has good career prospects for those with high GPAs) but not so good if you choose education.

Dr. Tufte said...

Jake Eliason: 50/50 on that last comment.

John said...

This article intrigued me and I would like to reinforce Jack's comment with a personal experience. The first three years of college I worked full-time, as did Jack, and took 15 credit hours in school each semester. I was sleep deprived and my grades definitely declined as a result. For my senior year of college, I dropped work completely and attended school full-time, taking 18 credit hours. I received my perfect "A" GPA (4.0)! I could only imagine if I brought my sleep deprivation into the work place, and see the real effect it would have on my overall performance. I believe this research may be one of many reasons companies are encouraging work-life balance.

Dr. Tufte said...

John: 50/50

Let me blow your minds with a little bit of macroeconomics then.

When we look at finely grained micro data for recessions ... they don't look like what we say they are.

We say that recessions are large scale coordination failures: businesses aren't selling much, so they're not paying much, so workers don't buy much, and so on. Both employers and employees would be happier if there was more to do, but somehow ... there just isn't.

If what we're saying is true, then there should be able bodied people out there who are willing to work more in paying jobs. So, if they can't find paying jobs, we'd expect them to find more non-paying jobs — like volunteer work, or caring for family members, or possibly going to school.

What's interesting is that we don't see that much at all. There's a fairly new type of data called a time use study. It's kind of like the Nielson TV ratings, except for how you spend your time. And the evidence is fairly widespread from these that the use of time that goes up most drastically during a recession is ... sleep. It's almost as if what we call a recession is a regional attack of collective laziness.

That sounds offensive. Except that just about the only thing that goes down as business cycle expansions draw more and more people into the rolls of the employed is ... time sleeping.

It's almost as if a region works itself into a tizzy over the space of years, and then collapses in a heap for many months. And these time patterns show up even in people who are not financially constrained when they are forced out of work.

Before anyone complains with anecdotes that they know someone who did go to school or do more volunteer work when they were unemployed, let me note that these do change in the expected ways. The thing is, it turns out that like 80-90% of the changes in time use are in sleep patterns, and only the other 10-20% are those better uses of time.

Weird, eh?

Jacob Cole said...

This topic hits very close to home for me, especially with tax season ending a week ago. I know there were days my sleep deprivation had a negative impact on my performance. I had to go back through several tax returns and fix things I entered incorrectly. I know I’m not the only one in my office who had that issue. How much quicker could my office have gotten through all of the tax returns we did this year had we all gotten sufficient sleep?

I have also experienced the economic cost of lack of sleep while going to school. When I first starting going to USU, I was working full-time as a plumbing apprentice and taking night classes. It was extremely difficult working all day, going to class until 10:00 p.m., and then waking up at 6:00 a.m. to start the entire process all over. My grades suffered significantly. It was a struggle to raise my GPA due to the poor grades I earned my first few semesters.

KC Hulse said...

I think technology has had a huge impact on the lack of sleep. Before the dawn of electricity people followed the sun. When it got dark outside they simply went to bed. Now, coupled with the limitless options for entertainment, people choose to stay up. Unfortunately, with sleep we cannot stockpile sleep on the weekends to make up for lost sleep. Despite the cost of little sleep, there are several industries that do not want things to change. The coffee and energy drink industry now combine to make several billions of dollars annually. A stark contrast to the aforementioned is the life on a submarine. Life on a submarine is measured in 18 hour days. Members of the submarine work a six-hour shift and have twelve hours off. The shorter work day has shown higher levels of focus and fewer accidents. It would be near impossible to test this schedule outside of a submarine but it would be interesting to see its effect on productivity.

Dave Tufte said...

Jacob Cole: 50/50
KC Hulse: 50/50

Not much ManEc in either of these comments.

I think, yes, less sleep has costs. But the real thing we need to think about here is opportunity costs. Perhaps, on net, we're better off skimping on sleep a little bit.

The problem with research on this is there isn't much formal research that looks at all dimensions of the problem. And there's a ton of informal "research" that looks at too few dimensions.

Here's a post at Conversable Economist that covers some of the more serious studies. This was motivated by a publication that came out last month in a very good journal. It associated increased car accidents with sleep deprivation associated with the spring (forward) shift to daylight savings time.