Does Daylight Saving Time Affect the Economy?

In March, clocks across the majority of the United States spring forward ushering in an extra hour of evening light and the latest debate on the merits of Daylight Saving Time.

Opinions on Daylight Saving Time are as varied as its perceived benefits and detriments. Proponents claim that the extra hour of sunlight reduces crime, reduces energy use and allows people to enjoy more evening leisure time. Detractors point to the inconclusive studies on those claims, as well as research claiming negative health and safety effects and sleep deprivation brought on by the time shift. But what effect does Daylight Saving Time have on the economy?

PNC economist Kurt Rankin says that’s inconclusive as well.

“It’s not something I have ever considered as an economic factor,” he said. “It would be hard to attribute any gains or losses economically to Daylight Saving Time because there are so many other potential variables.”

One of the most commonly cited benefits of Daylight Saving Time is its purported effect on energy usage. More hours of daylight in the evening should – in theory-- reduce the demand for electric lighting, leading to lower energy costs for consumers. It was the reason for the United States’ original implementation of the practice in 1918 – in hopes of reducing fuel consumption during World War I.

Evidence on its actual effect, however, is mixed. A 2008 report from the U.S. Department of Energy showed a reduction in overall electricity consumption following the implementation of extended Daylight Saving Time in 2005 - with the most reduction occurring during the evening hours^[1]. Conversely, Yale University researchers found that residential energy consumption in Indiana actually increased by as much as four percent following the state’s implementation of Daylight Saving Time in 2006. The researchers found that decreased need for electrical lighting was offset by higher demand for heating and cooling power^[2].

“In theory, reducing energy consumption is the most compelling argument for an economic benefit to Daylight Saving Time,” Rankin says. “But it has not proven to achieve that.”

In addition to the energy consumption theory, some Daylight Saving Time proponents argue that increased daylight in evening hours provides more time for consumers to shop. Rankin says there is no current evidence to support that claim – but businesses most likely to benefit from an extra hour of daylight in the evening would be those offering products or experiences for outside recreation. Outside of those select retailers, Rankin hypothesizes that the effect of Daylight Saving Time on businesses is unnoticeable.

“In most cases, impact to business would be minimal because operational hours are set by the clock, not the amount of light. It would be fairly uniform year-round,” he says.

Kurt Rankin, PNC economist