Wikipedia describes three ways of modeling GDP: production, income, and expenditure. A traffic jam means more production of fuel (and vehicles, accounting for wear and tear), more income for fuel producers and mechanics, and higher expenditures (fuel, wear and tear, and radio ads); GDP rises on all three measures. Free time does not contribute to GDP; neither does use of accumulated capital.
Less free time means less demand for services catering to people's free time, and consequently less production of, income from, and expenditures on such services.
