Sunday, March 11, 2012

Daylight Savings Time Costs \$2 Billion per Year

This is a slightly revised post from exactly a year ago.....

In 2008, economist William F. Shughart did a back-of-the envelope calculation and estimated that the opportunity cost of daylight savings time was \$1.7 billion per year:

"Although it is unclear what benefit Americans derive from adjusting their timepieces twice a year, the costs they bear are clear. As the Benjamin Franklin adage goes: Time is money, and time spent resetting clocks and watches is time that cannot be devoted to other, more valuable uses. Switching between daylight saving and standard time has what economists call an ‘‘opportunity cost.’’

Economists typically value the opportunity cost of a person’s time at his or her wage rate. The U.S. Department of Labor’s Bureau of Labor Statistics reports that the average American’s hourly wage was \$17.57 in September 2007. Assuming that it takes everyone 10 minutes to move all of their clocks and watches forward or backward by an hour, the opportunity cost of doing so works out to \$2.93 per person. Multiplying that number by the total U.S. population (excluding Arizona) yields a one-time opportunity cost for the nation of just under \$860 million—or, to be more precise, \$858,274,802. Since clocks must be changed twice every year, this back-of-the-envelope calculation must be doubled, to approximately \$1.7 billion annually."

MP: Since 2008, the average hourly wage has increased about 10%, and the U.S. population has increased about 2.9%, so that would put the annual cost today of changing clocks twice a year at almost \$2 billion (\$1.92 billion).

Note: If we adjust the time cost of ten minutes per each housing unit (130 million)  instead of for each person, the cost would obviously be less - about \$836 million.

Update: Tim Worstall points out by email that another cost to the U.S. DST is that we are not synchronized with Europe, partly as a result of the "Energy Policy Act of 2005."  We used to switch on the first Sunday in April and the last Sunday in October, which was  only one week different than Europe - last Sunday in March and last Sunday in October.  Following the 2005 legislation, we now switch on the second Sunday of March and the first Sunday in November.  So for the next two weeks, and for the first week of November, the U.S. will be on DST, but Europe will remain on regular time.  This lack of coordination for three weeks every year likely imposes additional costs on both the U.S. and European economies.

Here's a detailed discussion of Daylight Savings Time at Wikipedia, which includes the world map above (click to enlarge).

At 3/11/2012 10:57 AM,  Larry G said...

oh GEEZE! the time zones themselves... could probably be shown to have an opportunity cost for truckers and railroads, eh?

At 3/11/2012 12:12 PM,  rjs said...

wasnt the "Energy Policy Act of 2005." one of Bush's green ideas?

At 3/11/2012 12:22 PM,  Sprewell said...

Does any one still use clocks? I don't think I've reset one in my life, so I've certainly never lost time on them. I've never liked watches either and always used my cell phone for the time. Almost all the computerized clocks I've dealt with do the switch automatically, the real opportunity cost for me was that I've had the "luck" to have lived many years in two different places in the US that did not do DST, because they're on the borders of time zones or didn't care, so I've had to spend a fair amount of time on this webpage over the years, whenever I've needed to talk to someone outside my timezone, to figure out what the time difference is. You could never be sure beforehand, as I didn't pay much attention when the DST switches took place. Also, a computer or two didn't do the time bump automatically on occasion, so I had to set them manually.

At 3/11/2012 12:48 PM,  Mace said...

Just another way that the government makes us wear the yoke.

At 3/11/2012 12:48 PM,  juandos said...

"wasnt the "Energy Policy Act of 2005." one of Bush's green ideas?"...

A Google result, this from govtrack.us: H.R. 6: Energy Policy Act of 2005
109th Congress: 2005-2006
To ensure jobs for our future with secure, affordable, and reliable energy.

This bill became law. It was signed by George Bush.

At 3/11/2012 12:53 PM,  Buddy R Pacifico said...

Arizona does not obersve Daylight Savings Time, but the Navajo Nation in Northern AZ does.

The Navajo Nation is the largest reservation in the U.S. and includes land in Utah and New Mexico. Therefore, the Navajos synch their timepieces with the majority of their states.

BTW, their are a few other tribes that observe Daylight Savings Time in northeast AZ.

At 3/11/2012 1:37 PM,  Jon Murphy said...

It's maps like this that show you what a crazy concept time is.

You must forgive me. I have a weird obsession with time. I have 1 clock per 100 sq ft. in my apartment (excluding cell phone and appliance clocks).

At 3/11/2012 4:51 PM,  AIG said...

Oh come on! So let me get this straight, not only is the average wage in the US \$17,57, but every human being in the US that engages in "watch adjusting" during any part of the day has the same opportunity cost as this. Not only this, but every single one of our 24 hours, is discounted equally at this rate.

So when you scratch your bu**, that costs you 10 seconds of that \$17.57. When you sleep for 8 hours, you've just cost yourself an entire day's wages.

And of course, when you spend 10 minutes a day doing anything, even if its not during working hours, at which point your opportunity cost is certainly...NOT...\$17.57, you are costing \$1.7 billion annually.

And of course, how many clocks and watches must one have to spend a full 10 minutes trying to adjust them?

If this logic was correct, than in terms of opportunity cost, we are loosing approximately 2 times as much every day, as we make in those 8 hours of work every day. After all, if you are wasting 8 hours sleeping, and 5 minutes reading Carpe Diem, and 10 minutes typing this reply...in term of economic costs...you are loosing every day.

The time devoted to adjusting clocks...the full 1 minute of it, is time that the typical American would have spend sitting on a couch watching American Idol. Somehow, I'm pretty sure that the opportunity cost of this time...is the prevailing hourly wage.

Come on!

At 3/11/2012 5:04 PM,  AIG said...

So the guy who did this "back of the envelop" calculation is an...economist? Really?

It appears Afghanistan and Somalia never observed DST. I can only guess as to why they are not richer than us by now, given all the opportunity costs they must have spared themselves from.

So let me do a "back of the calculation" model myself, using equally unrealistic assumptions. What would be the REAL costs, not opportunity, of 1 less hour of daylight after work? Additional heating of homes, additional lighting of homes and streets, increased consumption of anti-depressants, increased suicide rates, increased costs from traffic accidents due to driving in the dark, increased damage to eyes due to squinting in the dark, increased injuries due to slipping on ice that forms after light, increased crime rates in dark alleys...and any number of other made-up equally ridiculous costs.

My back of the envelop calculation easily puts this in the trillions of dollars.

Is my "economic analysis" any less valid than that economist's "back of the envelop calculation"? If so, how?

At 3/11/2012 6:10 PM,  QT said...

This comment has been removed by a blog administrator.

At 3/11/2012 11:04 PM,  Stuart Lynne said...

The best way to eliminate the "waste" involved in switching is just to stay on Daylight Savings time 365(6!) days a year.

At 3/12/2012 8:33 AM,  Hydra said...

All of my clocks reset themselves, except the one on the programmable thermostat.

At 3/12/2012 11:08 AM,  Omar Guzman said...

One of the Non considered "opportunity cost" of this change is related to all the people that needs to work with other locations outside of the US.
The non synchronized DTS of the US with the rest of the world creates a problems to coordinate activities with Business partners outside of the US, which sometime translates in missing meetings, longer delivery times and lost of productivity (men-hours) due to these changes. I don't think this "hidden" cost is big enough for the general population to be relevant..but it certainly affects the day to day operation of any businees "dealing" with partners overseas.

At 3/12/2012 11:23 AM,  AIG said...

Omar, one cam make lots of such arguments. However, if we follow this logic, aren't "time zones" themselves causing problems and creating opportunity costs for people? Aren't "time zones" arbitrary boundaries imposed on us by "government"?

Yes they are, but one can make endless arguments of what the benefits or costs of such things can be. The one thing that is for certain however...is that we can't assign costs or benefits, yet.