Explained: How a shorter work week can benefit an economy and your finances

What’s changed?

With this move the UAE became the first nation in the world to introduce a national working week shorter than the global standard i.e. a five-day week.

Most countries of the world adopt Saturday and Sunday as a weekly holiday, including many Arab and Islamic countries, such as Morocco, Turkey, Malaysia, Indonesia and others. Like other Gulf nations, it currently has a Sunday-to-Thursday working week.

The public sector’s working hours are now set to 38.5 hours per week, with employees also allowed to choose flexible work or work-from-home options on Fridays. The private sector is urged to make use of the new system as well.

Macro alignment

From an economic perspective, the new working week is set to better align the country with global markets, ensuring smooth financial, trade and economic transactions with countries that follow a Saturday/Sunday weekend.

The new working week will also bring the UAE’s financial sector into closer alignment with global real-time trading and communications-based transactions such as those driving global stock markets, banks and financial institutions. The move is expected to boost trading opportunities as well, analysts opine.

Other countries across the GCC may follow suit. In 2006, the UAE became the first in the Gulf to move its weekend from Thursday and Friday to Friday and Saturday. It was followed by Saudi Arabia in 2013 and then much of the Gulf. Kuwait, however, signaled on Tuesday it did not plan to make such a change.

However, let’s break it down further and understand how this global move towards a shorter working week has helped economies in the recent past, and how it improves not only work life balance but also your finances.

Global experiment

The idea of supporting the transition to a shorter working week has been gaining traction worldwide. Research show that some companies have tried a shorter workweek and benefited, suggesting that when long working hours are cut, individual productivity rises, and fewer mistakes are made at work.

A four-day workweek has been tried by certain companies in the UK. Last month, the UK's Atom Bank has adopted a four-day work week for its 430 employees, reducing weekly hour requirements from 37.5 hours to 34, and the extra day off is voluntary. 

In Japan, known for its hard-working workforce, Microsoft tested a shorter workweek. Productivity soared 40 per cent. The test run boosted sales per employee by 40 per cent compared to the same month a year earlier. 

Iceland recently experimented with a shorter working week and claimed it had been an overwhelming success. Spain and New Zealand have both recently announced trials of a shortened work week.

But what does a shorter work week translate to worldwide in terms of the number of working hours?

It is currently a shorthand for a world where people typically work for 30-plus hours a week, with flexibility over when to work those hours – but this is far from the standard practised worldwide.

Statistics indicate that the average number of weekly hours people worked worldwide fell from about 70 in the 1800s to about 60 in the 1900s, and then an average of 50s in the 1950s. By 2019, average hours worked by men and women employees were about 40.

Long-term trends?

Economists evaluate how that one factor that is driving these historically long-term trends is certainly the growth in hourly real wages (the pay a person can expect to receive after factoring in the current inflation rate; it is expressed in terms of purchasing power as opposed to actual money received).

As real wages grow over time, workers tend to choose more leisure time over working. From this perspective, a slight slowing of the rate of decline in hours worked since 2009 in most key economies is likely to be due in part to the stagnation in real earnings growth.

However, employment regulations and institutions have played an important role too. A relatively recent example is the implementation of the European Working Time Directive (WTD).

Policy and institutional factors also help to explain cross-country differences in hours worked. Back in the 1960s and 1970s, workers in Germany and France worked similar hours as those in the UK and the US. Since then, hours worked have fallen more rapidly in Germany and France.

In the UK, maximum weekly hours are legislated at 48 hours, the maximum permissible under the WTD. Yet most other countries, including France, Germany and Sweden, tend to legislate for shorter standard weeks, with the possibility for extensions under certain conditions or circumstances.

Economic effects

Analysis of historical economic data indicates how working fewer hours help boost productivity and hence wage growth, with economists evaluating how this productivity boost will initially ‘pay’ for the shorter working week.

The Icelandic trials, which ran between 2015 and 2019, covered 66 public sector workplaces. These were not strictly of a four-day week, but of reductions in the working week of between one and four hours with no loss of pay – with reductions achieved through shortening meetings and longer coffee breaks.

“Because of the way in which weeks were shortened, the reduction in hours was achieved without any loss of output or service quality, therefore ‘raising’ productivity at the same time as workers’ wellbeing.” (Source: Icelandic researchers Haraldsson and Kellam, 2021 report).

“This clearly provides some evidence of beneficial impact. Importantly, the trial did not include schools, hospitals or the private sector, but focused largely on relatively small hours reductions in office-based workplaces.”

Bottom line

In the long term, history has proven that an economy can grow over time, that investments can earn returns, and that the value of currency can remain relatively stable. In the short term, however, that is not always true as it is often too soon to signify an impact.

So understanding large-scale economic patterns and factors that indicate the health of an economy can help you make better financial decisions. While economic indicators like inflation and exchange rate impact an individual’s finances directly, others like GDP rate indicates where the economy is headed.

Financial planning has to take into account conditions in the wider economy and in the markets that make up the economy. The labour market, for example, is where labour is traded through hiring or employment. Workers compete for jobs and employers compete for workers.

In the capital market, capital (cash or assets) is traded, most commonly in the form of stocks and bonds (along with other ways to package capital). In the credit market, a part of the capital market, capital is loaned and borrowed rather than bought and sold. These and other markets exist in an economic environment, and those realities help plan your finances.

Key takeaway: What does a shorter work week mean for the UAE economy?

Multiple Dubai-based economists opine when it comes to a shorter work week in the UAE, it will take time to be felt from an economic growth perspective. However, they add that bringing the workweek in line with global norms will boost various sectors including travel and tourism.

Being closely aligned to the Western counterpart, many multinational companies who want to set up their Middle East base would likely choose UAE as their preferred destination, further improving economic prospects for the Emirates.

For the UAE, the Saturday-Sunday weekend is expected to boost trade and economic transactions with countries that follow a Saturday-Sunday weekend, business analysts noted.

From a banking perspective, UAE banks will be compete more effectively with global banks across the world and participate in global remittance transactions more efficiently, the analysts added.

Banks fulfil several key functions in the economy – allocating scarce capital in the economy by extending credit to where it is most productive, as well as allowing households to plan their consumption accordingly, over time by allowing residents or citizens to save and borrow more.

Moreover, the rapid roll-out of COVID-19 vaccines is already expected to boost domestic spending and lead to a recovery in tourism, the World Bank noted in its last report. “This coupled with a recovery in global trade, rising oil production and higher oil prices, will support recovery in the medium term.”

Key takeaway: What does a shorter work week mean for your finances and investments?

Like mentioned earlier, with a shorter work week comes higher productivity. As productivity rises it takes fewer hours of work to produce the same amount of economic output. This allows employers to increase wages.

Higher real wages enable workers to afford higher levels of consumption, enjoy more leisure, and potentially invest more in their health, education, among others. Economic growth also has implications for your financial plan, including short-term as well as long-term goals.

Moreover, UAE’s loan growth has already been picking up pace and economists have been widely weighing that this is indicative of the country's healthy financial profile.

To explain how this works: Banks provide liquidity to the economy as at its core, it is in the business of funding illiquid (not easily convertible to cash) assets – i.e. loans – with highly liquid (easily convertible to cash) liabilities – i.e. deposits.

So banks help savers manage their risk to turn cash liquid (hard cash), while at the same time enabling long-term investment. The ability to take loans also means that the economy recovers much faster. So maintaining a good saving, spending and borrowing rate is a great cure for the economy.

A shift to higher economic growth should be good for stocks, driving up corporate profits and allowing companies to strengthen their balance sheets further, while boosting merger activity and delivering more money to investors as dividends.

Historically, stock prices have surged during economic expansion, and valuations don't appear all that lofty, making them more accessible to new and experienced investors.

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