The fall in productivity is disconcerting, as productivity soared to levels not seen in decades when the coronavirus pandemic forced an overnight shift to remote working, leading some economists to suggest that the pandemic could trigger longer-term growth. It also raises new questions about the shift to hybrid schedules and remote working, as employees have argued that the flexibility helps them work more efficiently. And it comes at a time when “quit quietly” – doing only what is expected and nothing more – resonates, especially among younger workers.
Productivity is strong in manufacturing, but is down elsewhere in the private sector, according to Diego Comin, an economics professor at Dartmouth College. He noted that productivity is particularly difficult to assess for knowledge workers, whose contributions are not as easy to measure.
“It’s strange,” Comin said. “The data is very strange in the last two quarters in many ways. It’s even difficult to tell a coherent story.
Tech CEOs such as Google’s Sundar Pichai and Meta’s Mark Zuckerberg have pledged to increase productivity, calling out underperformers and asking their employees to do more. Meanwhile, Microsoft chief executive Satya Nadella said his company coined the term “productivity paranoia” to describe employers’ worries about whether their employees were working hard enough.
Leaders are under increased pressure to improve employee performance as companies try to establish post-pandemic normality, said Kathy Kacher, founder of Career/Life Alliance Services, which advises business leaders.
“Leaders don’t see what they want and they start to worry,” Kacher said.
Many employers have started using software to track employee activity. But Nadella argued that technology can have a deleterious effect on employee trust and engagement.
“At the end of the day, for the company, these tools are really about helping their people thrive,” Nadella told Bloomberg in September. “The only way for a company to be successful and productive is for employees to feel that sense of empowerment, that sense of energy and connection to the company’s mission, and to do meaningful work.”
Today, managers “might feel especially pressured” to show that employees are doing their part, said Elaine Richards, chief operating officer of software company Basecamp. But they have to trust their employees to do the job in a way that fits their life.
“I promise you, no CEO ever said they would prefer activity over results,” Richards said. “The only thing productivity paranoia offers is a lot of activity.”
Essential to a well-oiled economy, productivity is also the ultimate driver of living standards: higher productivity ultimately translates into more goods and services available at lower cost and higher wages for workers, which means higher productivity also fights inflation.
When productivity slows, economic growth declines. Stall is particularly worrying for economists and employers like the United States the economy is flirting with recession. It is taking place as employers struggle to find workers, amid a national tussle over the future of offices. Burnout is high. Commitment is low. People are working more hours, but doing less.
‘No one knows or will know’ what’s causing productivity to plummet for a while, economist says Lawrence H. Summers, President Emeritus of Harvard University and former Secretary of the Treasury. But that could have something to do with many employees “working unsustainably hard” in 2020 and 2021, Summers said.
Some workers reduce their efforts.
“There is a highly self-reliant workforce that has engaged in a certain amount of silent quitting,” Summers said. This creates “a certain amount of absenteeism on and off the job” which likely leads to lower productivity, he said.
There are many theories as to why productivity has plunged. We have to do with the tight laboratory market.
Employees have gained considerable influence amid the labor shortage, with many exercising their power by participating in the “big quit” or setting more limits on the job by quitting quietly.
Companies are often losing high-performing employees who find jobs with higher salaries and more flexibility, said Sinem Buber, chief economist at ZipRecruiter. Replacing them is difficult and training new recruits is costly and time-consuming.
Another theory is that all workers are just into a productivity funk.
Since the start of the pandemic, “the link between hard work and reward has been severed” for many workers, Buber said, leading to “curbed ambition.” Workers are probably more forgiving in producing fewer goods and services because it is too difficult for employers to replace them.
“People are missing their hours, they’re coming in late for their shifts, but there’s nothing companies can do about it because they know it’s so hard to replace those workers right now,” Buber said. “In 2019 politics was a strike and you’re out, I’m going to find a better person to do the job. Right now it’s 10 strikes, maybe you’ll get knocked out.
Mentions of burnout rose 42% in employee reviews on career site Glassdoor, compared to 2019 data, chief economist Aaron Terrazas said. Mentions of overwork are up 12%.
“You have to expect that to hurt people’s productivity,” Terrazas said.
This year’s productivity decline comes after a strong 2021. In the first quarter of last year, worker productivity rose 4.3%, one of the highest rates in years, according to the department. work. This growth rate slowed the following quarter to 2.3%, which was still nearly double the small increase in productivity rate the country experienced in the decade following the 2007-2008 financial crisis. .
Much of that increase was likely the effect of the coronavirus recession, said Gerald Cohen, chief economist at the Kenan Institute of Private Enterprise, a trade policy think tank.
With underperforming employees usually being the first to be laid off, the output of the remaining employees increased as they took over work previously done by their former colleagues, Cohen said. Technological innovations in the shift to remote working have also helped.
Increasing productivity is a key lever against inflation, because workers who produce more with less protect themselves against rising prices. Another factor in the fall in productivity could be a combination of inflation and the fallout from Federal Reserve interest rate hikes, Cohen said.
“The question is how much inflation impacts the existing production mix and business decisions around hiring, training and investing, which impact productivity,” he said. Cohen. “Generally, inflation has a negative impact on productivity in the short term, although the long term is more ambiguous.”
Productivity tends to move in cycles of 10 to 20 years, Cohen said. Before the pandemic, the economy had just begun to shake off a lull in productivity that had dragged on since the Great Recession. It now looks likely that the weak trend will continue into the first half of 2023.
There are There is no shortage of issues that could weigh on productivity: labor dynamics are still weighing on businesses, as are the continued supply chain hiccups and the war in Ukraine. Then there is “the very open question” of the impact of remote work on worker productivity, Cohen said.
“There’s a lot of productivity that comes from people interacting with each other, not just in a formal meeting but in the hallway around the water cooler,” Cohen said. “It’s extremely difficult to measure, but it’s a very important factor.
Outside of the United States, other countries, such as France, Germany and Canada, have also seen their productivity slow, said Klaas de Vries, senior economist at The Conference Board. In a sense, the world is seeing a return to pre-pandemic levels, but it expects productivity to fall further in the coming months, with many economists predicting a recession in 2023.
A recession next year might not have the “cleansing” effect on productivity that typically accompanies a slowdown, de Vries said, because companies might be reluctant to resort to mass layoffs in such a tight labor market. This time, there is a risk that a recession will further slow productivity.
Andrew Van Dam contributed to this report.
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