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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.