The Sleepless World: One more piece of low hanging fruit?

Update: more detail on the argument and responses to it here and minor edits in this post

Tyler Cowen at Marginal Revolution is a major proponent of the Great Stagnation thesis: that new innovations are not having the same impact on productivity as those we saw in the previous 150 years. Think of iPads versus electricity and cloud computing versus the railroad. Hence, we can expect to see slowing growth in GDP per capita as future productivity gains will take much more effort to unlock. This week The Economist took up this line of thought with a thorough briefing on the subject that broadly agreed with Cowen, although with some equivocation.

Overall, I think the argument has a lot of merit but there may be at least one more piece of low hanging fruit: a vast reduction in our need for sleep.

The American Time Use survey reports that an average American work day includes 8.8 hours of work and 7.6 hours of sleep. Sleep is the second largest single use of time. However, new drugs such as Modafinil appear to vastly reduce the need for sleep without significant side effects (at least so far). Based on anecdotal reports from users, it seems that people could realistically [edit: potentially (see update)] cut their sleep requirements to as few as 2.5 hours a night without a decrease in mental acuity. That gives us another 5 hours to distribute over the day.

Workers would probably prefer to allocate the bulk of that extra time to leisure but I doubt employers will let that happen. Let's make a generous breakdown and give work an extra 3 hours and let workers spend another 2 as they wish. This increases working hours by around 34% and potentially increases leisure time by 80%. This increases the number of hours a worker spends at work from around 1800 hours a year now to about 2,400.

So would this lead to an increase in productivity? That partially depends on how we measure it. If we look at output per worker, then a 34% increase in hours worked would be a substantial boost in productivity and would surely lead to increased economic growth. This alone makes a sleepless world a classic example of low hanging fruit (although it may be closer to an increase in labour force participation than a productivity boost from innovation).

However, there are also reasons to think that output per worker hour may be improved by longer hours. Let's assume that the additional hours worked allow companies to keep the same production with a quarter fewer workers.  Why hire four workers for a task, when you can hire the three workers who are most productive to do more hours?

That process would be a major gain for firms. They can hugely reduce costs by spreading the fixed cost per worker over more hours of work. More hours worked shouldn't increase costs of healthcare, training and fringe benefits so the fixed costs fall in line with their reduced workforce.

There are also productivity boosts by lengthening the work day itself in terms of travel time, starting up computers and lunch breaks that we wouldn't expect to increase at the same rate as hours worked. The longer work day may also push forward globalization as workdays overlap for longer periods across time-zones.

Once again though, the gains go even deeper than this. Probably the largest productivity improvement  of all will be in human capital accumulation and the returns an individual can expect from it. From the perspective of a student, a sleepless world is an increase of a third in expected working lifespan giving a longer time period for her to benefit from the investment she has made in her human capital. It also means she can potentially finish her education in a shorter time or use the additional waking hours in employment, reducing the opportunity cost of an extended university education.

The sleepless world may finally begin to reverse the age inequality in employment (at least temporarily). Young people will accumulate job experience at a faster rate through more hours of work experience. They may also be more willing to adopt the new drugs than older generations increasing their relative value as employees.

So given the benefits, do we want to grab this piece of low hanging fruit?

The main argument against it is that it will not be a voluntary choice for an individual. If these drugs become widely available then workers who are willing to use them will easily out-compete those who do not. In addition, if the drugs are expensive then it will further increase inequality between those who can afford them and those for whom the price is prohibitive. However, a Google search of various dubious websites suggest the current drugs retail for around $5 a day. At that price, even those working at minimum wage would find it worthwhile to buy the pills.

The final argument against is that a rapid introduction of these pills would amount to an increase in the labour supply and cause a fall in hourly wages or unemployment. However, it's likely that individuals would generally still see an increase in their overall income and their additional leisure time (2 hours extra) would allow this to be translated into an increase in demand in the economy through increased consumption.

Overall the transition to a sleepless world seems beneficial to humanity. There's nothing special about the 7 hours of sleep we get right now and I think people would rightly be opposed to a change that made everyone spend an extra hour asleep every day.

Caveats:

• I've never used Modafinil. This is because I don't know where to buy it, I have some moral qualms about using it when the rest of the world is not and because it is still a bit early to conclude that there are no long term health effects;
• Some people I've talked to have raised the issue of environmental damage. I think the total environmental impact of a sleepless world could be positive or negative but surely the damage would be lower per unit of output (because there are a lot of fixed carbon outputs per work day such as commuting and building overheads). At the very least, a sleepless world looks like a more environmentally friendly growth strategy;
• This argument is premised on the safety of these drugs. Clearly the calculus will change if they are shown to have negative long term consequences;
• For those people who already work long hours with little sleep, these drugs should at least make that lifestyle less dangerous. There is convincing evidence that chronic lack of sleep is harmful in normal circumstances;
• The precise amount of sleep that a Modafinil user can get by with seems to vary but all sources I've seen suggest it is dramatically lower;
• The short term costs of a rapid change might be substantial so gradual adoption is probably preferable from the standpoint of welfare.