Why Unpaid Overtime Destroys National Productivity

0:00Lucas: So there is this data point that I keep coming back to, and it kind of lives in my head rent-free. The OECD tracks average annual hours worked per person, and also GDP per hour worked — productivity, basically. And when you line those two up, you get this really stark picture. Luna: I think I know where this is going. The countries that work the most hours tend to have the lowest productivity per hour, right? Lucas: Exactly. Mexico tops the hours chart — around 2,100 hours per worker per year. But its productivity is less than a quarter of Ireland's, which works about 1,600 hours. And it's not just a developing-country thing. The US averages about 1,800 hours — higher than Germany at 1,350. But US productivity per hour is actually lower than Germany's. We work more, produce less per hour. Luna: That is the productivity paradox of overwork in a nutshell. More hours, less efficiency. Lucas: Right. And economists have a name for it — the 'fatigue effect.' After about 40 hours in a week, marginal output per hour starts to drop. By 50 or 60 hours, you're basically just spinning your wheels. But companies still demand it, and workers feel pressured to comply. Luna: Especially in knowledge work where output is hard to measure. A software developer who works 60 hours might produce the same code as one working 40 — or less, because of bugs and burnout. Lucas: And that's where unpaid overtime comes in. In the US, the Fair Labor Standards Act exempts salaried employees making over a certain threshold — currently about 35,000 dollars a year — from overtime pay. So millions of professionals are expected to work extra hours for free. And the data shows it doesn't boost national output. Luna: But it does boost corporate profits in the short term, since labor costs stay flat. That's the perverse incentive. Lucas: Exactly. But at a national level, it's a drag. A 2025 OECD working paper estimated that if the US reduced average hours to German levels — about 1,350 per year — GDP per capita would actually rise by roughly 5 percent over a decade. Because the same number of people would produce more per hour. Luna: Wait — so working less could make the country richer? That sounds counterintuitive. Lucas: It does, but the logic is straightforward. Productivity improvements come from better tools, processes, and human capital. When you work fewer hours, you have more time for rest, training, and innovation. Germany's manufacturing sector is a perfect example — they have one of the shortest workweeks in Europe, yet their factories are among the most productive in the world. Luna: And the Netherlands is another one. The Dutch work about 1,400 hours per year on average — one of the lowest in the OECD. But their GDP per hour is among the highest. They also have a huge part-time culture, especially among men, which is unusual. Lucas: Right. About half of Dutch workers are part-time. And that doesn't hurt productivity — it actually helps, because people are fresher and more focused. The Netherlands has one of the highest labor productivity levels in Europe. Luna: So why don't more countries copy that model? Political constraints? Cultural norms? Both? Lucas: Both, but I'd add a third factor: measurement bias. CEOs and policymakers look at GDP, not GDP per hour. If you just look at total output, the US is huge, so they think 'why fix what isn't broken?' But on a per-hour basis, the US has been slipping relative to peers since the 1990s. Luna: And of course there's the cultural narrative that overwork equals dedication. In Japan, that's been a huge problem. They had to pass a law in 2019 capping overtime at 45 hours per month, and even then it's been unevenly enforced. Lucas: Japan is actually a really useful case. Before the cap, many companies expected 80 to 100 hours of overtime a month. Since the cap, productivity per hour has started to rise — slowly. It's not a silver bullet, but it shows policy can shift the incentive. Luna: And there's the Swedish six-hour-day experiments — like the one at a Toyota service center in Gothenburg in the early 2000s. They cut shifts to six hours, kept pay the same, and productivity actually increased. Profits went up. Lucas: That experiment is famous, but it's also controversial. Critics say it was a small sample and the results haven't been replicated at scale. But there's newer evidence — a 2023 study from Iceland on a four-day workweek trial found similar gains in well-being and no loss in output. Luna: So the data is mounting. But in practice, most companies still default to 'more hours = more output.' How do you break that mindset? Lucas: One way is better measurement. If firms tracked output per hour instead of just total hours billed, they'd see the diminishing returns. Some consulting firms and tech companies are starting to do that — measuring deliverables, not face time. Luna: But for a lot of workers, especially in service or retail, the hours are set by managers who don't have that data. They just schedule based on tradition. Lucas: Right. And that's where regulation can help — not just overtime caps, but things like the EU's Working Time Directive, which mandates a maximum 48-hour week including overtime. The UK originally opted out, but even there, support for the opt-out is fading. Luna: I think another angle is that unpaid overtime hits women and lower-income workers harder. If you're hourly and you work extra, you at least get time and a half. But salaried professionals in their late twenties and thirties? They're often working 50 hours for 40 hours of pay. Lucas: And that's a drag on potential GDP because those workers are exactly the people who could be innovating or starting new businesses if they had the time. Instead, they're burned out. Luna: Yeah. And this actually connects to something we've talked about before — the 1990s productivity boom. That boom was driven by technology adoption, but also by a cultural shift toward efficiency. People used tools to do more in less time, not more time. Lucas: That's a great point. The 1990s saw IT investment skyrocket, and hours worked actually stayed flat or declined slightly. So the productivity gains were real — they came from working smarter, not longer. The 2000s and 2010s? Hours crept back up, and productivity growth slowed. Luna: Correlation isn't causation, but it's a pretty suggestive pattern. Lucas: And if you look at the countries that have managed to sustain high productivity growth — Germany, Netherlands, Switzerland, the Nordics — they all have relatively low annual hours. It's not a coincidence. Luna: So what's the policy takeaway? Should countries mandate a 35-hour workweek? Lucas: I don't think a blanket mandate makes sense across all industries. But I think raising the overtime threshold — like the US Department of Labor tried to do in 2024 — so that more salaried workers qualify for overtime pay, would create a powerful incentive for employers to either hire more people or invest in productivity-enhancing technology. Luna: And that would reduce unpaid overtime without dictating hours directly. Market forces would do the work. Lucas: Exactly. And the OECD data suggests that countries with stronger overtime protections actually have higher GDP per capita in the long run. It's one of those rare policy areas where what's good for workers also seems to be good for the economy. Luna: Speaking of things that are good for the economy, I want to take a quick beat here. You know, it's listeners like you who keep this show going — no ads, no sponsors. If you've ever gotten something out of these episodes, a couple of dollars a month genuinely helps. You can go to buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. Lucas: Yeah, honestly, it makes a real difference. A few bucks from people who value the show keeps us independent and focused on the data. So if you're able, thank you. Luna: Alright, back to it. So we've talked about national-level policy, but what about the individual? If you're a manager listening, what can you do tomorrow to reduce unpaid overtime and maybe boost your team's productivity? Lucas: One specific thing: stop measuring hours. Measure output. Set clear goals for the week — three deliverables, not 40 hours of busywork. And then trust your team to manage their time. Companies that do this, like Basecamp or Buffer, report higher satisfaction and no drop in productivity. Luna: And for individual contributors? If you're salaried and working unpaid overtime, what's your move? Lucas: Track your own hours for a month. Document when you're productive and when you're just tired. Then have a conversation with your manager about priorities. Most managers would rather you work 40 focused hours than 50 half-focused ones, but they don't realize the gap until you show them. Luna: That's solid advice. And it ties back to the macro data: the economy as a whole is losing output because millions of individuals are working in the red zone. If even a fraction of them shifted to a more sustainable pace, the productivity numbers would move. Lucas: And that's the real story here — unpaid overtime isn't just a fairness issue. It's a growth issue. We're leaving GDP on the table because we're too tired to be efficient. Luna: That's a strong closing line. Let's see if any policymakers are listening. Lucas: Fingers crossed. For now, maybe just try working one fewer hour this week and see what happens to your output. I'll be doing the same.