The US Bureau of Labor Statistics reported reported a 7.5% decline in labor productivity during the first quarter of 2022. The steepest decline since 1947. I was not surprised. But apparently a whole lot of people excited by high US job growth in June were.
People saw the economy coming back. Strong hiring plus high consumer demand and means labor productivity ought to be rising as well. Just to be clear, labor productivity measures the output per worker. What gets made or billed during a work hour on average. Thing is, we were comparing against the wrong thing.
Many people figured they would see improved productivity levels because they were comparing this year to last year. Or the year before. In their mind, Covid meant many people were not working. People not working equals zero productivity in labor measurements. So if people went back to work, productivity should naturally rise as well.
That is the kind of conclusion you make when you look at the numbers. Macro economics.
Slower Decision Making
Get under the numbers and you can see productivity leaks every where. Here is a major one that I see in retail everyday. Decisions are made more slowly. While that may seem minor – let me explain what that means. In the past, a retailer reviewed a category (a line review) and evaluated all the items in the market. Then they would select the ones to go into their stores and website. Within weeks, vendors would get orders for new items, place orders with their suppliers for raw materials, make packaging and begin production. Within a couple of months, new items hit the stores with ads and promotions. Shoppers bought and the cycle resumed.
Now however, there is a lag of 1-4 weeks between each of those steps. Vendor reviews are not on time because vendors are cannot commit to which new items they can bring to market. Retailers take more time to make their decision because they want to afford each supplier a chance. The decision to select new items is slower because “getting the right people in the room” means getting the right people on Zoom. Distributed decision making (like multi-million dollar inventory purchases) happens over email and slack. Both of which have a natural time lapse. Once the vendor has a PO, getting raw materials, staffing the production line and distributing takes much longer than before. So the same output is happening (perhaps) but over many more weeks. Thus, a significant reduction in labor productivity in this end-to-end environment.
Reclaiming My Time
You will never hear me say “people don’t want to work anymore” because that is just not true. I see too many waitresses, nurses, accountants and roofers to ever say that. But, people gave up a lot during covid. Sacrifices were asked. Sacrifices were made. And now that things are getting back on track, many people are reclaiming their time in ways that reprioritize their families and personal lives over their work lives.
Employers seem taken aback that people are not willing to bank PTO days like before. Now they take their vacation time. Workers do not want to “stay a little later” to finish something that could be finished tomorrow. America has always had a skewed work ethic. The idea was to get in earlier than the boss and stay later to get rewarded. We always ran hotter than the rest of the world. And its human nature to push against self-sacrifice when there are other options. For a lot of people, it didn’t feel like there were other options until Covid. Covid gave them permission to take care of themselves, their families and relationships. Now that we live in a post-Covid world, not everyone is willing to go back to working as they did before.
How to Reverse Labor Productivity Declines?
If, like me, you are tired of delays, we only have a few choices:
- Learn to accept this new level of productivity as standard and change your expectations accordingly.
- Hire more people to do the same amount of work. (A direct route to inflation, BTW)
- Mercilessly cut all non-value-add things out of your company. Processes. Meetings. Systems.
My recommendation? Take the next 3 weeks to do active listening sessions focused on one topic: wasted time in your company. Ask everyone you meet to tell you 2 things that they think is a waste of time or effort. Then be prepared to hear that you need to slaughter your sacred cow. Maybe it is cultural norms – like birthday parties or team building. Maybe it is routine reporting that never gets read. It could be college recruiting, routine vendor reviews or contract negotiations that never change terms. In any case, find it. Root it out. And help get back the productivity you once had.