The labour market returns to sleep

Despite the growing prevalence of insufficient sleep among individuals, we still know little about the labour market return to sleep. To address this gap, we use longitudinal data from Germany and leverage exogenous fluctuations in sleep duration caused by variations in time and local sunset times. Our findings reveal that a one-hour increase in weekly sleep is associated with a 1.6 percentage point rise in employment and a 3.4% increase in weekly earnings. Such effect on earnings stems from productivity improvements given that the number of working hours decreases with longer sleep duration. We also identify a key mechanism driving these effects, namely the enhanced mental well-being experienced by individuals who sleep longer hours.