Could more working from home solve the UK’s productivity problem?

Since the financial crisis a decade ago, the UK economy has been in the grip of a well-publicised productivity crisis. The economy has grown over the past 10 years, meaning we’re producing more goods and services as a country, but the size of the workforce has also increased – and so, most importantly, has the total number of hours we’re collectively working.

Indeed, the number of hours the workforce as a whole has been putting in has risen more or less in step with the growth in the economy, meaning our national productivity – our output per hour worked – has pretty much flatlined for the past decade.

This is such a serious economic malady because rising productivity is the central main means by which we increase our prosperity. Flat productivity means flat wages after inflation, as the past decade attests. In every decade since the Second World War productivity rose steadily, making the past decade an aberration.

And now we have the coronavirus shock and the possibility of a permanent mass shift to homeworking by white collar workers.

So what impact could a decline of the traditional office have on our national productivity and its deficiencies?

As with all economic forecasting we simply can’t know for sure. But we do have some evidence about the impact of the lockdown so far on productivity.

In the UK around half of all workers did some work from home in April, according to the Office for National Statistics, and for professional workers the share was seven in ten.

A recent survey of UK employers by that Chartered Institute of Personnel and Development (CIPD) found that 28 per cent believed the increase in homeworking had increased their firm’s productivity, although a similar proportion felt the opposite. Around 37 per cent felt there had been no difference.

Peter Cheese, the chief executive of the CIPD, thinks a considerably higher rate of homeworking is likely to persist, despite ministers’ attempts to encourage people back to their offices.

And he thinks the impact on productivity is likely to be positive in the long term, with the shift a “catalyst for change”.

“So many businesses are saying we have had to adapt, we’ve had to use technology within our organisations in a way we didn’t imagine we could, we’ve had to connect people in ways that we didn’t imagine we could, we’ve had to reposition our products and services in much more digital ways – those have to be positive long-term drivers of positive change and innovation.”

Another reason why Mr Cheese is optimistic about the implications of the shift is that he thinks more homeworking will increase many workers’ personal productivity by eroding a debilitating “culture of presenteeism”.

“If you look after people, they’ve got a voice [at work], they’ve got the resources they need – those are the big drivers of productivity,” he says.

“There’s no reason you can’t create those parameters and enhance them by creating this kind of flexibility which we’ve learned from the pandemic is not only possible but beneficial.”

There will be a challenge for managers, dealing with a more dispersed workforce.

“If we’re honest, managing people who all turn up in the office and sit at their desks is a lot easier,” says Mr Cheese.

“We’ve got to do better job of training managers to manage people in different ways. You’ve got to check in with your people more, you’ve got to engage with them in different ways. You’ve got to make sure you’re asking about their wellbeing. How do you measure their output and not just how many hours you think they’ve been working?”.

And what about the innovation that comes, particularly in creative and knowledge-based industries, from people sparking off each other in an office environment? Some argue that the best ideas come outside formal meetings and worry that this is something that will be lost if people no longer congregate in offices.

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Mr Cheese says the challenge is to find ways to recreate those “serendipitous moments” through technology.

“When we’re having wider group meetings on Zoom or [Microsoft] Teams watch for the chat that’s going on alongside the meeting. That’s where some of these little ideas spark up.”

What though about the macroeconomic impact of shift to homeworking? Could it actually help solve the UK’s productivity crisis?

It’s worth noting, at this point, that there are actually two productivity problems in the UK. There’s the last decade’s stagnation and also the fact that for many decades before that the UK economy has been less productive than our main continental peers.

In 2019 the average British worker produced around 15 per cent less per hour worked than the average worker in France and Germany, according to OECD calculations.

Some ascribe that to the shorter hours and superior work/life balance of workers in those countries.

From that perspective the kind of individual productivity improvements, resulting from better worker wellbeing, identified by Mr Cheese could, in theory, help close that longstanding gap in the level of UK productivity relative to others.

Yet the slowdown of the UK productivity growth rate since 2010 is a different matter.

Jagjit Chadha, the director of the National Institute of Economic and Social Research (NIESR), cautions against expecting too much benefit in this area from a shift to working from home, not least because of evidence that one of the factors holding back national productivity growth has been the likely depressed state of the global economy.

“To the extent to which global demand continues to be subdued because investment is delayed or consumers are much more uncertain about their futures, that’s not going to provide sufficient impetus for productivity to increase,” he says.

Mr Chadha also points to work by NIESR suggesting that a large amount of the UK’s productivity slowdown in the past decade is accounted for by a very small number of already relatively highly productive industries, such as financial services and pharmaceutical firms.

“It’s not clear to me on the same basis how they would improve their productivity by not being able to get back together and discuss processes and innovation,” he says, taking a less optimistic view than Mr Cheese about the impact of a shift away from the office on innovation.

Nicholas Bloom, an economist at Stanford University in the US, shares that view, pointing to his research suggesting face-to-face meetings are vital for developing new ideas.

“I fear this collapse in office face time will lead to a slump in innovation,” he says.

“The new ideas we are losing today could show up as fewer new products in 2021 and beyond, lowering long-run growth.”

This is a bleak prognosis. Yet there may be a middle way, which both Mr Bloom and Mr Chadha broadly endorse, between total work from home and a total return to the office.

A partial return – perhaps a few days a week in the office – mutually agreed by managers and employees, could protect innovation while also giving workers that extra flexibility and freedom from working from home that many clearly crave.

If firms and managers are able to allow their employees to do their more routine duties from home and get them face to face in offices periodically for more collaborative and innovative sessions, we might get the best of both worlds when it comes to our personal and national productivity.