Date posted: 29/05/2023 10 min read

The price of public holidays

Talk around public holiday costs overshadows a greater need to lift productivity and living standards.

In Brief

  • Public holidays generally cost a country money, but often measurements fail to account for productivity gains from a day of rest.
  • A bigger handbrake to New Zealand’s productivity than an extra day off is the country’s onerous holiday pay legislation, says CEO of PaySauce, Asantha Wijeyeratne.
  • Beyond public holidays, recent trials of a four-day work week show it could produce a lift in productivity and living standards.

Last year New Zealand celebrated a new public holiday, Matariki, to mark the start of the new year in the Māori calendar. At least one political leader in New Zealand said the country could not afford it.

Similar cost concerns were raised in Australia in September last year, when the country marked the British Queen’s passing with a national day of mourning.

The economic theory around public holidays goes like this: total costs – from loss of production and increase in wage costs for working staff – generally outweigh the increase in spending on the day in retail, hospitality and tourism sectors. Therefore holidays cost the economy money.

In its assessment of the impact of Matariki on the economy, New Zealand’s Ministry of Business, Innovation and Employment (MBIE) did something a little different. They used research that says individuals value leisure at a rate of 50–100% of their average earnings to calculate the benefit of an additional day of leisure and added it to the equation.

Even with a leisure benefit quantified, MBIE said Matariki would have a net impact to the economy of between +NZ$25.7 million (benefit) and -NZ$133 million (cost), stating that the holiday was likely to result in lower gross domestic product (GDP).

MBIE acknowledged that extra time off could lead to improved productivity and employee health, but said there was not enough empirical data to quantify these benefits.

Auckland-based economist Donal Curtin believes the cost of Matariki is probably lower than what the MBIE has forecast.

“People could shift things in their working week and get the work done, so they can have a long weekend. That kind of enforced productivity gain might happen,” says Curtin.

“It still doesn’t address who’s bearing the cost. Ultimately, it’s half a million small businesses who are paying for five million people to have an extra holiday.”

“Ultimately, it’s half a million small businesses who are paying for five million people to have an extra holiday.”
Donal Curtin, Economics New Zealand Ltd

The real handbrake

Small business owner Asantha Wijeyeratne, who is chief executive officer of PaySauce, is not concerned about the cost of the extra holiday to his business. He is more worried about the burden New Zealand’s onerous holiday pay legislation places on small business.

Under New Zealand’s Holiday Act 2003, an employer must first determine whether the employee would normally work the day the holiday falls on. If the employee would, they then need to pay the employee an average day’s pay. This is the higher amount of the employee’s average pay for the last 52 weeks or the prior four weeks, requiring employers to make both calculations.

Wijeyeratne says even he struggles to understand the Act.

“There’s a whole checklist of things. You need to be a rocket scientist to work it out,” says the chief executive officer, who manages over 50 staff in PaySauce’s Wellington office.

“It creates a fear that I’m going to get this wrong, which becomes another reason why businesses won’t take on a young person and end up doing the work themselves. That is a far greater handbrake on growth and sustainability in New Zealand than an extra public holiday.”

Wijeyeratne would like to see New Zealand adopt Australia’s leave loading model, which he says is far simpler to understand and comply with.

“New Zealand’s legislation was written when people worked regular hours and days. More people are working varied hours and days, which has made the legislation less relevant and organisations less compliant,” he says. “Not even the department policing the Holidays Act was compliant. If larger organisations like that are struggling, what are the chances of a corner store owner with two employees getting it right?”

A holiday every week?

Complex holiday legislation appears to be a small part of a bigger problem that countries like Australia, New Zealand and others have been grappling with for at least a decade.

It is called the productivity paradox. A country has invested in technology and other foundations that aid productivity, yet the investment has not corresponded to enhanced productivity levels and higher living standards.

Charlotte Lockhart may have the solution for any country hamstrung by the productivity paradox: a four-day work week.

Lockhart’s organisation, 4 Day Week Global, is facilitating trials with companies in the US, UK, Australia and New Zealand, who have agreed to operate on a four-day week roster for around six months. Results so far indicate employee wellbeing increases and productivity levels remain the same, despite people working one less day.

“Parkinson’s law says that work expands to the time you make available, so when you make time smaller, people start to prioritise how to work more effectively,” says Lockhart.

“There are inefficiencies within most businesses that no one has been motivated to do anything about because people think ‘we’ve always done it that way’. Our program sees employers partner with teams to improve their business and reward them with time off they can spend in another way that is valuable to them.

“What it needs is agile leadership,” she stresses. “It’s a bottom-up process. It’s about letting your people find the ways in which they can reduce work time in the organisation, while still being 100% productive.”

On the cusp of significant change

A UK trial of the four-day week involved 61 companies and 2900 staff. It demonstrated a number of improvements in employee wellbeing and company revenue rose by an average of 1.4%. More tellingly, the majority of companies said they were satisfied with productivity levels and 92% said they would continue to work to a four-day week.

University of Queensland economist professor John Quiggin, who is working on the Australasian trial of the four-day week with 15 companies, says the idea is the advancement in productivity and living standards the working world has been waiting for.

“Countries like Australia and New Zealand have not seen a reduction in working hours in 40 years. We want to take some of the benefits of productivity and translate them into a better work-life balance,” Quiggin says.

“Countries like Australia and New Zealand have not seen a reduction in working hours in 40 years. We want to take some of the benefits of productivity and translate them into a better work-life balance.”
Professor John Quiggin, University of New England

“The work we’ve done with 4 Day Week suggests people would actually be more productive with more free time and there is less absenteeism and staff turnover, which offsets the costs of working one less day.”

Curtin would like to see more trial results. He admits the old, hierarchical way of working where managers sit on the shoulder of employees is looking “extraordinarily passé”, in part due to the pandemic.

“It’s dawning on businesses that, left to their own devices, employees can be a lot more efficient. I’m convinced cost and managerial overhead can be taken out of businesses if they operate more flexibly,” says Curtin. “And maybe there is some productivity uplift available from working more efficiently in the time you do work. It’s still a big unknown.”

Wijeyeratne’s customer support team is currently experimenting with a four-day roster. One of the early investors in PaySauce was 4 Day Week Global co-founder, Andrew Barnes, giving Wijeyeratne a front seat to the development of the idea.

“Being available seven days a week, 24/7, has led to burnout. Our people need to spend time with their family and have a life. COVID has taught us that we can have flexibility and the world doesn’t end, and the economy doesn’t plummet.”

The price of public holidays

Holidays on demand

Another idea that is also gaining momentum is employees taking public holidays on a date that suits them best. In Australia, for example, many people are choosing to celebrate Australia Day on another date, because of the contentious issues around the day’s origin. Curtin says it’s a good idea and would better account for the diversity of the workforce.

“The reality is populations like Australia and New Zealand are multicultural and there are bound to be dates that are culturally important to some and not others. A little bit of juggling and communicating that you won’t be there next Tuesday; I think most employers can live with that,” he says.

Which country has the most public holidays?Which country has the most public holidays?Click image to enlarge.

† Days vary from 37 to 42 depending on religion and canton
* Days vary depending on state/canton
§ Days vary from 12 to 15 depending on the state or territory
ǂ Days vary depending on the country. The United Kingdom (UK) is made up of England, Scotland, Wales and Northern Ireland.