The economics of sleep deprivation

Sarsha Crawley


March 13th, 2019

One in four Australians is sleep deprived, a silent burden to Australia’s health care sector and productivity possibilities. Sarsha Crawley explores the national economic cost of insufficient sleep and how it constrains individual economic potential.

Money never sleeps – or so the age-old adage goes. Yet sleep deprivation has a profound impact on Australia’s productive potential, costing $66.3 billion annually. The cornerstone of a healthy lifestyle, sleep is essential for physical, mental and emotional wellbeing. Inadequate sleep is associated with impaired learning and memory abilities, attentional lapses and increased physical health risks including heart attacks and obesity. Now more than ever, sleep is being treated as a tradeable commodity in a culture where work, study and social commitments increasingly demand attention at all hours of the day. This begs two fundamental questions—what are the drivers of sleep deprivation and what then is the economic cost of sleep impairment?

Why are we sleeping less?

Emblematic of a culture that requires constant connectedness and immediate communication, average sleep time has decreased over the past six decades from an average of eight hours to six and a half. Coincidentally, as sleep has decreased, caffeine supply has increased dramatically, with caffeine becoming synonymous with the demands of a 24/7 lifestyle that leaves little time for sleep. In Australia alone, there are 9908 coffee shops and cafes. To put that into perspective, there are over 29,000 Starbucks stores globally.
One of the biggest contributors to sleep deprivation in modern society is the influence of blue light from technological devices on sleep cycles. It is estimated that one in two adults attempt to sleep directly after using a smart device or laptop. The blue light that emanates from screens suppresses the sleep-inducing hormone melatonin and delays sleep onset. This impact can last for over three hours, meaning that even with adequate opportunity for seven hours of sleep, technology may make this impossible.

Similarly, the demands of a 24/7 lifestyle have contributed to the phenomenon termed ‘social jetlag’—the misalignment of sleep and wake times on work days compared to non-work days. The difference observed between biologically-driven sleep time and socially modulated sleep time creates a jet-lag effect, with every hour of misalignment the equivalent of travelling one time zone. One in three Australians suffer the consequences of social jetlag, with this subsequent sleep deprivation creating barriers for productivity in the workplace.

The cost of sleep deprivation reaches far across the nation

So what are our 24/7 lifestyles costing the nation? According to Deloitte Access Economics, a total of $66.3 billion annually.
The majority of this is incurred in non-financial, wellbeing costs which total $40.1 billion alone.

So what are our 24/7 lifestyles costing the nation? According to Deloitte Access Economics, a total of $66.3 billion annually.
The majority of this is incurred in non-financial, wellbeing costs which total $40.1 billion alone.

The financial costs as a whole total $26.2 billion and include a deadweight loss of $2.3 billion when combining the inefficiencies of forgone taxation revenue and increased welfare payments caused by sleep deprivation. Most significantly, these costs are dominated by $17.9 billion worth of productivity losses or $2418 per person. The already hefty cost to health care systems of $1.8 billion is worryingly dwarfed several times over by productivity losses.

Source: Sleep Health Foundation. (2017). Asleep on the Job: Costs of inadequate sleep in Australia. Australia: Deloitte Access Economics.

Indeed, the health impacts of inadequate sleep constrain labour supply with Australia’s productive potential hindered by sleep deprivation. Estimates suggest that individuals suffering excessive daytime sleepiness are 3.4 percent less productive daily than colleagues who have adequate sleep. Furthermore, a sleep deprived workforce is more error prone, with impaired decision making caused by reduced cognitive functioning.

What all this means is that Australia must prioritise sleep within the national health agenda to ensure full productive potential is reached by the workforce.

A microeconomic analysis of sleep deprivation

Widespread sleep deprivation in every corner of our society implies that national, top-down action is required to enable individuals to switch off and get a good night’s rest. Curbing excessive working hours and shift work are some of the recommendations that have been floated for industry and government. But what does the research on sleep mean for individuals? Basic microeconomics emphasises the need to maximise utility for the lowest possible cost within a budget constraint. Yet when this economic reasoning is applied abstractly to sleep, most people tend to make one terrible mistake. there are stark inefficiencies between time spent sleeping and desired daytime alertness.

To help explain, let’s look at the student experience. Sleep deprivation has become a normalised aspect of the student experience with studies suggesting that increasingly, sleep is viewed as a currency which can be spent or saved in exchange for fulfilling other commitments. In a microeconomic sense, current trends suggest that students believe their utility (in this case, we treat utility as productivity and the alertness required to be productive) will be maximised at a point where they sleep less and stay up and ‘do more’. However, this trend has measurable impacts on academic performance, with lower grades associated with insufficient sleep because of reduced alertness. In economic terms, one’s ‘utility function’ is maximised at a point that involves more sleeping than most people believe. Why? Because sleep is vital for modulating memory consolidation, attention span and stress levels – all processes pivotal to divergent thinking. Divergent thinking is the creative thought process that allows people to solve challenging problems – perhaps surmising the requirements of exams, assignments and assessment centres.

Psychological studies have demonstrated that sleep deprived participants perform worse after learning a cognitive exercise than before they were taught it. In direct contrast, participants who were well rested improved performance on the subsequent task because they were able to consolidate the learning. This suggests that in exams or workplace settings, the detriments of sleep deprivation effectively erase studying and learning time.
Reduced wellbeing from sleep deprivation indirectly costs every Australian $5420 annually. Combined with poorer academic performance and inhibited decision making, the personal impact of sleep deprivation may even translate to an inability to reach academic potential, and subsequent career and earning goals. In these terms, tiredness costs more than daily coffee runs and stifled yawns – it could be preventing you from achieving your economic potential.

So… what now?

Sleep is serious business and sleep deprivation is implicating wider micro and macroeconomic consequences. The demands that have created a culture of sleep deprivation—including increased pressure from academic, social and work commitments along with the rise of blue light emitting technology—will continue to exist. Instead, sleep must be considered an important component of national health policy to ensure that its economic impact is reduced.

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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