Productivity down as Remote Work up?
It's an easy story to tell--too easy
Many economists have noticed that so far in 2023, while the monthly increases in employment as reported by the Department of Labor are consistent with an economic boom, the GDP numbers reported by the Department of Commerce are “meh.” What is going on?
People whose entire world is tech or people who cannot stand Mr. Biden and insist that he must be presiding over the Worst Economy Ever are willing to question the validity of the jobs numbers. I give such people close to zero chance of being right.
Most economists take the numbers at face value, and they process them through the framework that I term the GDP factory. If you calculate GDP per worker, and call that productivity, then productivity is declining.
Currently, a popular story is that remote work, also known as WFH (work from home) is bad for productivity. I think that the intuitive appeal of this story is much stronger than the evidence to support it. I think you are better off treating 2023 “productivity” behavior as a blip, based on my view that the GDP factory framework conveys a false sense of precision.
Many employees loved not having to put on presentable clothes, get in a car or on a train, and deal with coworkers all day. And without their co-workers distracting them, they not only got their work done but also felt more productive. In one survey, 77 percent of workers said that they were more productive out of the office. Early research in 2020 indicates that working at home resulted in productivity gains of about 13 percent.
So nobody was talking about the dire effects on productivity of WFH when the pandemic began. Now, as Schrager points out, there is a consensus that WFH does not W.
Even if we have the technology to work from home, we don’t have the culture for it, and many jobs still have tasks and functions that can’t be done remotely. In theory, hybrid work—coming into the office two or three days a week—offers the best of both worlds, but in practice it often brings the worst of both. Eventually, most of us will be back in the office most days of the week. If you crave flexibility, you will pay for it or opt for less traditional work.
I think that WFH is a huge increase in well-being, regardless of what the GDP factory is reporting. Whatever the drawbacks are, business executives should be trying to overcome them, rather than go back to the bad old days. If you need to get employees together, do so at short offsite retreats.
Keep upgrading the technology for interpersonal interaction on line. Evaluate what you have and keep tweaking. Emphasize quality of communication rather than quantity (I am very dubious of Slack on those grounds).
As far as aggregate productivity is concerned, I would advocate strongly for we do not know what is happening. As you know, I deplore the framework that treats the economy like one big GDP factory. It is an especially fraught approach when we are looking at relatively short stretches of time during which major sectoral shifts are taking place.
Our thinking about macroeconomic concepts like “recession” and “productivity” is based on anachronisms. One way to think about “productivity” is that it measures revenue per worker for the economy as a whole. That can change as the mix of demand changes.
In 1953, GM’s Charles Wilson famously said that “what’s good for General Motors is good for the country, and vice-versa.” And at the time, a huge chunk of the economy revolved around GM. I would guess that the automobile industry employed, either directly or indirectly (via suppliers), at least 10 percent of the nonfarm labor force around 1953. In those days, layoffs and recessions were phenomena of the auto industry, the steel industry, and construction. When GM laid off 10 percent of its work force, that was enough to move aggregate employment data. If GDP was going to go up by 5 percent in a year, some of that was bound to consist of GM cars.
The 21st century economy is characterized by wide disparities in revenue per worker. It took a lot of workers to assemble automobiles in 1953. It takes relatively few employees to keep Facebook going in 2023. A layoff of 10,000 at Facebook is a big deal at Facebook, but it is a pebble in the ocean of an American work force of 150 million.
The June 12 WSJ had an article about the hot job market for teenagers, illustrated by a photo of a teen working for $14 an hour at a Rita’s Italian ice outlet. Rita’s and comparable employers can send total employment rising at a monthly rate of 300,000 even after you account for job losses in tech. But the revenue of those businesses is a pebble in the ocean of aggregate GDP.
My point is that a shift in demand away from Facebook and its ilk and toward Rita’s and its ilk is going to reduce revenue per worker in the economy, on average. Productivity, the way we measure it, will go down, but not because anyone is being less productive.
We should not convict WFH. It has not been proven guilty.
There is an underlying attitude on work from home that I've noticed seems to dominate peoples opinions on it.
1) Work is for work and the goal of work is to earn money to have more time at home.
2) Work is an integral part of my human person.
Either because of how I was raised or temperament I'm in the #1 bucket. I enjoy being good at my job and think about it and occasionally talk about it with my wife, but at the end of the day its just some stuff I do for money to spend time with my family.
By contrast a lot of other people talk about their "work family" and "bring their whole self to work".
This extends to many spheres. I don't think romantic relationships should be allowed at work at all (not consensual ones, not any ones, its work!). I see no conflict with "don't say gay" bills because I don't think teachers should be talking about their personal lives at work (gay or straight). But I've seen other people have a vehement position in the other direction, and I think a lot of it has to do with peoples opinions of what the relation between work and personal life should be.
In general WFH benefits those with rich family lives the most. Work in the office benefits those that either don't have a family life (young singles) or have prize positions at work they find enjoyable (executives).
I'm a huge booster of WFH as well. I don't buy the productivity decrease from it, but even if true I think the well being increase is vast. It's also one of the few "eugenic" experiments we've seen (professionals have more kids when they can work from home).
I also think the fact that WFH was imposed rather then planned is part of why some people dislike it (and obviously they must be right in some contexts).
What I have noticed is that high paying jobs are getting laid off while low paying jobs are in high demand. This is probably easy to brush off if you think of it as "Facebook", but my best friend is also a robotic engineer and his entire sector is in decline (he got laid off by amazon). If my friend reaches the point where he's hawking Rita's then something is definitely happening in the economy.
Maybe there is something else going on. People had a lot of paper wealth. They felt they could use that paper wealth to buy goods and services way into the future (I'm especially thinking of retiring baby boomers). However, now we are finding out that those goods and services are going to be a lot more expensive then we thought (inflation) and the paper wealth isn't worth what we thought. So it turns out "assets" are worth less relative to "hard labor". And in many cases the worth ratio of "high end labor" vs "concrete labor" isn't as favorable for high end labor (a lot of high end labor is tied up in the value of assets).
This would tell a story of how the Fed and government created a lot of money during the pandemic, made everyone feel richer, and then when the lockdown ended it turned out that the money couldn't actually buy the goods and services we wanted which all got bid up. It would also indicate that a lot of the jobs created during the pandemic, just like other assets, weren't worth as much as people thought at first.