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The Economics of Sleep

By Andrew Leigh - posted Thursday, 15 April 2010

Did you get enough sleep last night? According to time use surveys, the typical Australian gets about eight hours of sleep. But one-fifth of us kip for less than 6.5 hours per night. Certain workers, such as bankers, truckers and new parents, often boast about how little sleep they can survive on. ‘Did you know I only sleep five hours a night?’ a colleague will say as she falls asleep in her espresso.

The standard economic perspective on sleep is that higher wages make sleep less attractive. The more you earn by putting in another hour on the job, the likelier you are to go to bed late and arise early. This helps explain why the rich sleep less than the poor, as well as why average hours of sleep have fallen over the past century. Moreover, the fact that wages rise over the lifecycle may also account for the fact that 25 year-olds get more sleep than 45 year-olds. Indeed, sleep is negatively associated with the business cycle, suggesting that more red eyes on Martin Place and Collins Street may point to a strong economy.

Should we care if people are cutting back on their shut-eye? There is clear medical evidence that too little sleep can be unhealthy. Physiologically, sleep allows the body to repair tissues and replenish hormones. Sleep deprivation has been linked to an array of health problems, including heart disease, diabetes, and weight gain. In one experiment, patients were given a vaccine, and then kept awake that night. A month later, their immune response was half that of patients who had a full night’s sleep after getting the vaccine.


However, if sleep deprivation were only about people opting to live longer days and fewer years, the rest of us should probably stand back and let them make that tradeoff. So the question is: does sleep deprivation also have adverse impacts on those around you?

To test the impact of sleep deprivation on workers’ productivity, an intriguing new strand of research takes volunteers into the laboratory and keeps them awake for 30-40 hours (the equivalent of pulling an all-nighter). They are then asked to complete tests alongside other subjects who are properly rested. In one experiment, sleep-deprived individuals were less willing to trust others. Another experiment indicated that sleep-deprived individuals did only about half as well on cognitive tests as their rested counterparts. Corroborating this, evidence from brain scans of sleepy and well-rested participants indicates that sleep-deprivation leads to less rational and more emotional behaviour.

In practical terms, employees who are untrusting, dim and over-emotional are likely to be bad for the firm’s bottom line. Much of business is about knowing who to trust, and carefully balancing decisions on their merits. Without enough sleep, you may miss key details, and make vital decisions based on gut instinct rather than careful reasoning.

Within the firm, sleep-deprived bosses who lose their temper are likely to cause subordinates to quit or slack off. On the road, sleepy drivers have the reaction time of drunk drivers, and contribute to more crashes. Perhaps it is no surprise that major accidents such as Chernobyl and the Exxon Valdez oil spill are associated with sleep deprivation. And in a team that works at the pace of its slowest member, sleepy workers can cause decision-making processes to lag (this is the point at which I should apologise to my Dean for falling asleep at last month’s research committee meeting).

Despite the potential negative impacts of sleep deprivation on those around us, it is probably not all that surprising that policymakers have stayed away from yawn taxation and sleep subsidies. Yet it is a trifle strange that firms do not do more to encourage well-rested employees. While many large Japanese firms have ‘nap rooms’, any Australian who lies down under their desk risks being awoken by the shriek of ‘he’s fainted!’.

We all have a bad night's sleep from time to time. In certain high-pressure occupations, working late may be the norm. And some people simply have the genetic luck to need less sleep. But for the rest of us, it could be time to start changing the culture. Rather than seeing sleep deprivation as a sign of toughness, perhaps we should begin to regard it as a problem to be addressed. Just as unions fought for the eight-hour day, does Australia need a social movement to bring back the eight-hour night?

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This article was originally published in the Australian Financial Review, 13 April, 2010.

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About the Author

Andrew Leigh is the member for Fraser (ACT). Prior to his election in 2010, he was a professor in the Research School of Economics at the Australian National University, and has previously worked as associate to Justice Michael Kirby of the High Court of Australia, a lawyer for Clifford Chance (London), and a researcher for the Progressive Policy Institute (Washington DC). He holds a PhD from Harvard University and has published three books and over 50 journal articles. His books include Disconnected (2010), Battlers and Billionaires (2013) and The Economics of Just About Everything (2014).

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