"Time for a break... But maybe not!" IW Director Hüther suggests scrapping a holiday for Germany's economic growth
Director Hüther advocates for the implementation of a time off period
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Michael Hüther, Institute of the German Economy's (IW Cologne) director, mulls over the idea of fewer public holidays in Germany. He ventured that scrapping one holiday could significantly bump up economic output in the short term, stating his thoughts to Funke media group's weekend editions. According to IW's calculations, an extra working day could pump up Germany's GDP by up to 8.6 billion euros.
Hüther draws attention to the removal of Buß- und Bettag as a public holiday in 1995. He maintained, "More work can indeed be managed if one desires it." This idea was in response to a demand by the Association of Bavarian Businesses, who urged for the elimination of a religious holiday earlier this week.
Yet, Marcel Fratzscher, head of the German Institute for Economic Research (DIW Berlin), presents an opposing view. Fratzscher stated, "The labor shortage in Germany won't be solved by annulling holidays or tax breaks for overtime." Instead, Fratzscher advocates for eliminating barriers to employment for women, refugees, and other foreign nationals. "The labor shortage will only be alleviated by a significant increase in immigration and breaking down barriers for women," Fratzscher insisted.
[Source: ntv.de, AFP]
Insights:
The debate about wiping out public holidays in Germany to bolster economic output is a tug-of-war, balancing potential economic benefits against social and welfare concerns. Key arguments on both sides are as follows:
Advantages of Abolishing Public Holidays for Economic Growth:
- Boost in Annual Economic Output: The Ifo Institute predicts that wiping out one public holiday could add roughly €8 billion to Germany's annual economic output [1][2] by increasing labor hours available.
- Addressing Labor Shortages: Germany grapples with a labor shortage, especially as the government aims to beef up military strength and modernize infrastructure. With near-full employment, additional spending poses the risk of wage inflation in crucial sectors like defense and construction, potentially diverting workers away from essential services such as healthcare and caregiving. Eliminating holidays might expand the labor pool to meet these demands without aggravating wage inflation or workforce shortages [1][2].
- Precedent from Other Countries: Denmark logged the removal of "Store Bededag," a minor public holiday, in 2023 to tackle similar labor supply concerns, offering a real-world example of this approach [2].
- Fund national priorities: The policy is prompted by the urgent need to fund and staff Germany's military expansion and infrastructure upgrade without solely resorting to borrowing, which can't address manpower shortages [1][2].
Disadvantages of Abolishing Public Holidays:
- Social and Well-being Impact: Public holidays offer essential relaxation time, celebrate cultural or religious events, and foster family bonding. They contribute to a better work-life balance, reduce stress, and promote job satisfaction, all of which can contribute to increased productivity upon return [5].
- Positive Economic Spillover from Holidays: Public holidays stimulate consumer spending and tourism, positively impacting various economic sectors. Scrapping holidays could shrink these economic activities and weaken societal connections through shared cultural experiences [5].
- Productivity Trade-offs: While an extra workday might seem advantageous in the short term, a lack of rest could impair long-term productivity and employee well-being. Studies generally suggest that rest periods can maintain or even enhance productivity, indicating that deleting holidays may offer diminishing returns over time [3].
- Potential Persistence of Wage Inflation and Labor Shifts: Though eliminating a holiday could mitigate some labor shortages, it does not entirely address underlying issues. Redistribution of work hours could lead to wage inflation in certain sectors or produce shortages elsewhere without additional policy measures [1][2].
- The Institute of the German Economy's (IW Cologne) director, Michael Hüther, suggests that removing a public holiday could increase Germany's GDP by up to 8.6 billion euros, as employment policy might expand the labor pool to meet demands without aggravating wage inflation or workforce shortages.
- However, Marcel Fratzscher, head of the German Institute for Economic Research (DIW Berlin), argues against eliminating holidays, stating that the labor shortage will only be alleviated through significant immigration and breaking down barriers for women, rather than by annulling holidays or tax breaks for overtime, as these measures overlook the social and well-being effects of public holidays.
