Revocation of civilian and religious holidays has negligible economic impact

We are experiencing an unprecedented pandemic crisis that is affecting the worldwide economy. Portugal is among the countries that are suffering most during the crisis. According to INE, the Portuguese GDP decreased 16.5% in the second quarter when compared with the same period in 2019. Between April and June 2020 the decrease was of 14.1% in relation to the previous three months of the year. The same source highlights the drop in exports and tourism as the main drivers of such worrying results.  It is now important to find solutions to overcome the crisis and, in particular, not to repeat some of the (questionable) austerity measures of the past that have yet to prove to be worthy.

One of the measures adopted in the aftermath of the global financial crisis (GFC), was the revocation of four general holidays, for both public and private employees: two civilian (Republic Day and Restoration of Independence) and two religious (Corpus Christi and All Saints Day) holidays. The policy was put into effect starting in 2013 lasting until 2015.  The underlying rationale for canceling the holidays was to increase labour hour input, resulting from the four additional workdays and thereby lowering labour costs. This would lead to a greater expected production or services provided, an expected to increase firm output, and thereby, labour productivity. Revocation would also have spillover and economic multiplier effects in the economy. However, it was also plausible that the desired effects would not be realized.

The espoused policy motive of improving labour productivity was tested in a recent ¹study for the case of State-Owned Enterprises (SOEs) in Portugal, concluding that additional four working days did not lead to meaningful labour productivity improvements.  The results show that during the revocation period, the non-central SEO had no meaningful improvement in labour productivity relative to non-revocation period. As for the case of central SOE, they had a higher labour relative to non-revocation period. However, the difference in productivity for central SEOs before and after the revocation translates to about only 1.04 Euros per employee.  This effect is “negligible”, and it seems that the effects of revoked holidays were not economically meaningful but rather a ceremonial gesture.  Behaviourally, employees may resent working four additional days without additional pay and the intended gains may not come to fruition.

The lack of economic benefits does not imply that the policy was a failure. Policymakers adopt policies for social, psychological and institutional reasons, in addition to the economic benefit. Perhaps the holiday revocation was one such non-economic policy being a precursor to inducing more discipline among SOE employees in the long-term and impacting work culture in such firms.

However, the findings do make an economic case for the lack of efficacy of this policy during that period and the result should be taken into consideration before similar measures are proposed as a way to counter the effects of the new pandemic crisis.

^{1 _{Afonso, A., Guedes, M. J., & Patel, P. (2020). Labour Productivity in State-Owned Enterprises. EconPol Working Paper, 45-2020 (April Vol. 4).}}