The Battle Between CEOs And WFH: American Worker Productivity Declines At Fastest Rate in 75 Years
In the wake of the COVID-19 pandemic, the world has gone through numerous ups and downs, both in terms of public health and business. Workers became more productive than ever during the pandemic's early stages when the world shut down. However, as the world tries to return to normalcy, the productivity of workers seems to have dwindled, reaching new lows.
According to research from EY-Parthenon, the US has had five consecutive quarters of year-over-year declines in productivity, which is unprecedented in data dating back to 1948. So what's contributing to this sudden drop in productivity?
Fortune recently interviewed Gregory Daco, the Chief Economist at EY-Parthenon, to find out. Daco attributes the decline in productivity to several factors, most notably, the current environment characterized by high inflation. Remote work, the shift to which was necessitated by the pandemic, also plays a part. However, it is not the only factor.
To exacerbate compensation pressures and push up unit labor costs, the drop in productivity is driving them up. According to Daco, there is no easy solution to this problem as layoffs and reducing wage growth seems like faster and easier ways to manage costs.
Productivity is an essential aspect of business, and this difficulty in maintaining productivity could mean organizations may be forced to consider other cost-cutting measures. While it is essential to take prompt actions to address this issue and get people back to their pre-pandemic productivity levels, we cannot overlook the underlying and long-lasting impacts that the pandemic has had on the workforce.
Understanding the Impact of Remote Work on U.S. Productivity and How to Overcome It
The pandemic has upended the traditional work environment with more employees working remotely than ever before. But this shift has hurt the overall productivity of the economy. According to a study by EY, U.S. productivity dropped steeply by 2.7% in the first quarter of 2021, and economists and industry experts are struggling to grasp the reasons behind this decline.
Some experts argue that remote work is leading to a lack of productive output. CEO's like JPMorgan's Jamie Dimon and Salesforce's Marc Benioff have long maintained that in-person workers perform better than their remote colleagues. They argue that employees working from home are more easily distracted with household chores, errands, and care-taking responsibilities, which negatively impact their focus and productivity.
However, others say remote work could just be one factor in the productivity plunge. In a recent interview, Gregory Daco, the chief U.S. economist at Oxford Economics, pointed out that the unprecedented "The Great Resignation" that saw people quitting their jobs en masse, coupled with an early retirement trend, has set a record high for job-switching. In turn, the frequent job turnovers have made it tough for companies to train new employees, which has led to a lack of productivity.
Daco predicts that productivity will return to normal levels soon, and that remote work could actually improve productivity if companies manage to strike an ideal balance between in-person and remote working. "The whole idea of remote work and flexible work is to allow people to be more productive," Daco said.
While it's still not entirely clear what's behind the decline in productivity, Daco remains optimistic that workers and bosses are moving toward an equilibrium, where all sides are trying to maximize efficiency and get work done in a shorter amount of time. Increased productivity would help curb supply-chain issues, reduce inflation, and ease labor and capital constraints that are currently impacting the economy.
Trust: The Key to Unlocking the Benefits of Flexible Work
Flexible work has been a widely adopted trend in the modern workplace. The ability to work remotely and on your own terms is an attractive proposition for both employees and employers. However, there is one major concern that has been plaguing the adoption of flexible work: trust.
Trust is a significant factor that plays a role in the overall success of flexible work arrangements. According to Gregory Daco, chief economist at Oxford Economics, the lack of trust in employees to work remotely and produce results is what's keeping some leaders from adopting these arrangements.
Daco suggests that whether working from the office is more efficient than working remotely depends on various factors, including the nature of your industry and the population you employ. However, in the case of white-collar jobs, it is undeniable that employees can work remotely and still deliver results. The key here is whether employers trust that their employees are being productive while working remotely.
The significance of this trust factor can't be overstated. As the labor market cools and employment growth shrinks, the power dynamic between employee and employer will shift towards the latter. So, if employers are not confident that their employees are working remotely, they'll likely insist on in-office arrangements.
Daco predicts that a hybrid arrangement, with employees working three to four days in the office, is likely to remain as labor markets cool. However, with the absence of productivity growth, the Fed will likely act more "hawkish" than "dovish," leading to high levels of inflation.
Overall, the key to unlocking the benefits of flexible work lies in building trust and confidence between employers and their employees. Only by doing so will we be able to fully embrace this modern workplace concept and optimize its potential.