Should Ukraine Stimulate the Economy by Having More (or Less) Holidays

At the beginning of May many Ukrainians take a long break between Labor Day on May 1st and Victory Day on May 9th. How will it effect the economic growth?

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At the beginning of May many Ukrainians take a long break between Labor Day on May 1st and Victory Day on May 9th. How will it affect the economic growth?  And will changing the number of days of vacation or holidays stimulate the economy?

Given the dire state of the Ukrainian economy, one needs to be creative when thinking about possible solutions to bring back economic growth to Ukraine. One recent such proposal is that Ukraine might want to consider producing cannabis. But other innovative solutions need to be considered too. At the beginning of May, when many Ukrainians take a long break between Labor Day on May 1st and Victory Day on May 9th, it’s natural to ask whether changing the number of days of vacation or holidays might just be another such creative solution.

Internationally, there is a lot of variation in the number of days off. Data from the World Bank’s Doing Business index, for example, shows that in the United States there is no obligation for an employer to provide paid leave, that employees have a minimum of 5 days of paid leave work days in China, 10 days in Canada, 25 days in Sweden and even 30 days in France. To paid leave, one can further add the number of public holidays which also varies a lot across countries, from 7 in Mexico to 18 in Colombia, bringing the potential days off to 38 in countries like Austria and Malta. With its 18 days of paid leave, Ukraine is close to the international average of 17.2 paid days of leave. Adding the 8 to 10 annual public holidays in Ukraine suggests Ukraine is still very far from the top holiday countries mentioned above, but also quite far from the bottom holiday countries.

Several governments have already decided to change the number of days off in order to stimulate the economy. Some governments have increased the number of holidays in the hope of stimulating the economy. In October 1999, the Chinese government gave the Chinese population a one week holiday to celebrate the 50th anniversary of Communist rule in China, followed later by a week in February to celebrate the Chinese lunar year and a week to celebrate May 1. In 2001, the Phillipine Government followed the Chinese example and decided to create extra holidays by turning a working day that falls between two non-working days also into a holiday. With these ‘holiday economics’ schemes, both the Chinese and the Philippine government hoped to boost consumer spending as people could use these holidays to spend money on travel, on renovating their housing or more generally go on shopping sprees.

Other governments have decreased the number of holidays. For example, at the end of the sixties, the government of Singapore reduced the number of official holidays from 16 to 11 “in order to improve productivity. It was a time of uncertainty, as the new-born nation of Singapore faced probable economy upheavals and high unemployment rates”. Similarly, in 2014, Puerto Rico reduced the number of public holidays from 19 to 15, also with the hope of boosting the economy.

But is there such things as an optimal level of holidays? Probably there is, as there should be a trade-off between the loss of production of an extra holiday, and the boost in consumption that days off might bring in case there is under-consumption or the gain of productivity that an extra holiday might bring (in case one works too much). It is not clear what the optimal level is, however, as so far there are few serious economic impact evaluations of changing the number of holidays. One study found no significant impact of the number of holidays on economic growth across countries. The most comprehensive study, an impact evaluation of a one time holiday introduced to celebrate the Queen’s Diamond jubilee in 2012, was also inconclusive: it estimated the impact of that extra day off at between +1.2 billion pound, in an optimistic scenario, and – 3.6 billion pound, in a pessimistic scenario’.

Given that Ukraine is currently somewhere in the middle of the number of days-off ranking, and the inconclusiveness of the research on the optimal number of days-off, it seems safe to say that other creative solutions will be needed to revive Ukraine’s economy – let’s hope the May holidays will stimulate our creativity.

The article appeared also on Forbes.ua.

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