For this vision to become reality, we must find a way to build and maintain social capital remotely. For this pandemic year, we've been coasting on the existing social capital in our organizations as it slowly decays. Ask anyone who joined a new organization this year, and they will tell you it is really tough to build relationships through zoom. I have three employees who I've never met face to face. I suspect a lot of that "unproductive time" in the office was actually invested in building and maintaining social capital.
Wow, Noah, way to bury the lede on that OECD productivity survey. According to the authors, agriculture accounted for 2.34% of employment, 1.24% of R&D spending and—pause for effect—32.91% of total productivity growth over 2000-2014. That's way more disproportionate than industry.
Imagine how much *more* productivity growth you'd get in that sector if it received a fair share of research and development funding. I admit to being biased since my job involves raising farm output in Ethiopia, but let's give agriculture its due.
Ending the trade off between high income and high cost of living (and then within a given metro cost of rent and length of commute) will be amazing for the happiness and health of Americans.
Great piece. Two additional thoughts: (1) you may have understated the impact of ‘task outsourcing’ a bit. The boom in SaaS efficiency software has been revolutionary: think Salesforce.com, Fishbowl, Zenkraft, Gusto (or Rippling), Carta, Ansarada, ZoomInfo. For relatively low monthly subscriptions, each of these services replaces a bunch of low-productivity FTEs. Net productivity goes up massively. (2) There may be a significant second-order effect (greater than additive) from the accelerated combination of so many positive-directional factors simultaneously. The supply side of the big economic recovery of 2021/22 will be fueled in part by this in-process boom in service productivity. Noah called it early and well.
Working higher education administration is interesting right now. Practical courses on campus, lectures online, and we take turns working from home and working on campus.
I can see how transformative it could be, but our current plan is just to go back to fully on campus after COVID. The issue for us is government regulation is pretty strict about online learning in Ontario, and we had to get special permission just to keep courses running during COVID. We've already received an order with a deadline (late July) for when online learning must end.
And now with the horror stories of online learning and the general burnout everyone is feeling from it I'm not confident the education industry is going to adopt it and we could stagnate pretty hard. And if the economy is booming? Even worse for our industry. People don't care much about higher education and getting diplomas and degrees when jobs are plentiful.
Maybe the new angle will be companies pay the education sector to train their employees remotely?
I'd push back on "Distance education hadn't really caught on before COVID" -- pre-COVID, a third of all college students were taking at least one distance course and the percentage in fully-online was nudging up toward 20 percent. Best guess is that in the graduate school sector the percentage of students in online programs passed 50% pre-COVID. Online master's programs are an enormous business.
From 2004-2010, I worked for a global organization that had videoconference units in 64 offices around the world. From 2011- March 2020, it felt like a struggle to organize a group videoconference. Since March 2020, everyone in the world has been trained in the use of video conference technology and its now forever with us.
Things happened this past year that forced businesses and people to adopt new habits. Many will stick, some won't.
I'd also say my business was forced to make choices it otherwise wouldn't have and gained from it. As vaccines get rolled out, it would be great if we could remember that we don't need a pandemic to make better business choices, we can simply make them. If we could hold onto that, I bet productivity would keep increasing.
One of the under appreciated reasons why services is so resistant to productivity is it has to be local. For example I ordered a new bed and it was missing a small cheap washer, no problem we’ll post it to you. While they could ship the parts from China they still needed someone local, licensed and trained to install it.
Which brings up the second point local licensing. Governments can and do restrict who gets licensed and under what conditions. Aa an example a few years back in my hometown, city council realized they had never licensed piano teachers. So they set up a committee to look into this. The message they got was too many Uni students are teaching kids impacting the income of the adults who do this. So new licensing requirements suddenly limited the number of teachers allowed. Licensing is a very effective way to limit competition.
I think the location arbitrage may be the single biggest factor, and have effects on our housing markets. However, the "hybrid team" thing is a mirage. People *hate* working with outsourced international teams.
Great article, but I have some issues with two of your points.
Section 3 (task outsourcing): Isn't this just freelancing? It's long been common in my industry (design & advertising), though not having to have everyone in one office certainly helps. Maybe a lot more projects will be run like a film shoot or construction project, but remote, where a producer / contractor brings in a bunch of freelancers / subcontractors just for the duration of the project.
Section 3 (efficient time management): I don't think people on twitter at work are necessarily a sign of low productivity. Sure sometimes they (OK, we) are goofing off, but a lot of it is waiting for feedback, input or next steps. They're on call, ready to pounce on a task when they need to. It's only twitter; you can drop it. The company keeps them around so they have people familiar with the project (on-boarding can take months), ready to go when things get busy. Only difference with working from home is that no one sees your screen. Some paranoid mangers managers worry about this and monitor their employees to see if they're "goofing off". Better managers just evaluate the work delivered.
I get the impression (maybe wrongly) that a lot of economics research on the productivity paradox is starting with national-level data, when it should be doing more informational interviews and narratives, along the lines of Radford's "The Economic Organisation of a POW Camp." I know that's an almost archaic thing to advocate for, but it seems appropriate given how much wild speculation there is on the topic. You'd think you might want to like, talk to people who saw some of these changes in their industries and take notes, instead of just starting from giant macro trends and hoping to deduce the changes in human-level interactions that those numbers are designed entirely to simplify out for ease of handling.
It was interesting talking with my parents and their friends, anyway, who mostly worked in sales during the transition, about what the workflow was like and how it changed. They talked about building customer relationships, so you could be more comfortable, because you'd often just say, "eh, send the paperwork in the mail, we'll file it next month, it's not important."
Maybe it was more a shifting of the allocation of risk at first? Like the sales are the same, but the disputes are easier to resolve, because all the records are instantaneous. But then the records are more complex, to hedge against smaller and smaller possible disputes. Maybe that tradeoff between the risk of a dispute and the necessary amount of paperwork is vague enough that even though computers and the internet let you err more on the side of preventing disputes, it does not make it clear when the extra details in the paperwork are not worth the effort. So some productivity is lost again in the easy ability to edit the purchase order every time you send one out.
Also, because of the importance of those personal relationships as a form of "delayed communication insurance," sales built up very regional structures, where you don't compete outside your territory. Maybe there are a bunch of subtle legacy structures like that hanging around, influenced by risks that aren't really as prominent anymore, that nobody realizes are important to break. (Some of these limits are definitely breaking, but maybe it looks like lower productivity because it manifests primarily in enabling greater price competition?)
To be clear, I like the delayed impact explanation, I'd just love a book (or paper!) containing more anecdotes of how people feel like they saw these transitions playing out first hand.
If remote working is so great, why did it require a once-in-a-century pandemic to go mainstream?
I've worked in IT departments since the early 2010s. Pre-COVID, every job I had, I was given a laptop, installed software to connect to the company intranet, and then I was told that my bosses would expect me to work from home only if I got sick or some other thing came up that prevented me from coming into the office. Clearly, it was possible to have all of the IT workers routinely work remotely, and yet they all chose not to do that.
The analogy to factory electrification doesn't hold water to me, first because the necessary infrastructure for this was in fact in place by the late 2000s or earlier. Skype was founded in 2003. A majority of highly paid professionals had broadband internet by 2004 or so. Second, how many startups are founded in Silicon Valley every year? And we're supposed to believe that not one of them came up with the bright idea of having everyone work remotely so that the company wouldn't have to rent ludicrously expensive Bay Area office space and the employees wouldn't have to pay ludicrously expensive Bay Area rents, if it was really that easy?
Are we really supposed to believe that there was the equivalent of an open briefcase full of money lying on a sidewalk for 17 years, and yet not a single person metaphorically picked it up?
It makes far more sense to me that, when there isn't a pandemic raging, in-person office work just has advantages that outweigh the disadvantages compared to remote work. And if that's the case, then you shouldn't expect the current remote work situation to stick around much longer than COVID does.
I really enjoy thinking about what might change, but I'm a bit pessimistic and I think the endgame might be a lot worse than what we envision.
Also, in regards to homeworking: the more time spent in the pandemic, the more I see some people say that it's not work from home, but actually living at work. More working hours than before. Maybe that's because leisure activities are not back to normal, but, once again, I'm pessimistic about it.
Just finished reading this and was wondering if you'd be interested in learning about a real-world example of "task outsourcing": We Are Rosie is a flexible talent network that's serving the ad industry (and could be a model for others). Would love to put you in touch with their founder and CEO, Stephanie Nadi Olson, to discuss how marketing teams are outsourcing tasks and staffing accounts with hybrid/flex teams.
I think you buried your lead. The moment you don't have to come into the office is the moment you don't have to come into the country. No CFO will be able to keep their job paying bloated American salaries for the work.
While the USA is distracted over whether Miami or Austin will be the next Silicon Valley, many jobs will leave the country.
The problem with service cost compared to goods cost is better known as "Baumol's disease" and is why we will have to keep paying more (as a fraction of the overall economy) for nurses and teachers, compared to TVs and cars, and in turn is why, just to "stay even," we will see slowly increasing relative costs (taxes or premiums) for services.
It's also the case that "location arbitrage" can work for knowledge workers, especially those who are more about expertise than about communication and assessment, but personal services (nursing, teaching, food, etc) have no such possibility -- they need to be provided in close proximity to where the service consumer lives. When it comes to number of people employed, more people are in these "high touch" areas than in the mobile areas like knowledge workers.
Maybe what we really need is fast, flying cars to make every hospital/school/restaurant "just a few minutes away?"
For this vision to become reality, we must find a way to build and maintain social capital remotely. For this pandemic year, we've been coasting on the existing social capital in our organizations as it slowly decays. Ask anyone who joined a new organization this year, and they will tell you it is really tough to build relationships through zoom. I have three employees who I've never met face to face. I suspect a lot of that "unproductive time" in the office was actually invested in building and maintaining social capital.
Wow, Noah, way to bury the lede on that OECD productivity survey. According to the authors, agriculture accounted for 2.34% of employment, 1.24% of R&D spending and—pause for effect—32.91% of total productivity growth over 2000-2014. That's way more disproportionate than industry.
Imagine how much *more* productivity growth you'd get in that sector if it received a fair share of research and development funding. I admit to being biased since my job involves raising farm output in Ethiopia, but let's give agriculture its due.
Ending the trade off between high income and high cost of living (and then within a given metro cost of rent and length of commute) will be amazing for the happiness and health of Americans.
Great piece. Two additional thoughts: (1) you may have understated the impact of ‘task outsourcing’ a bit. The boom in SaaS efficiency software has been revolutionary: think Salesforce.com, Fishbowl, Zenkraft, Gusto (or Rippling), Carta, Ansarada, ZoomInfo. For relatively low monthly subscriptions, each of these services replaces a bunch of low-productivity FTEs. Net productivity goes up massively. (2) There may be a significant second-order effect (greater than additive) from the accelerated combination of so many positive-directional factors simultaneously. The supply side of the big economic recovery of 2021/22 will be fueled in part by this in-process boom in service productivity. Noah called it early and well.
Working higher education administration is interesting right now. Practical courses on campus, lectures online, and we take turns working from home and working on campus.
I can see how transformative it could be, but our current plan is just to go back to fully on campus after COVID. The issue for us is government regulation is pretty strict about online learning in Ontario, and we had to get special permission just to keep courses running during COVID. We've already received an order with a deadline (late July) for when online learning must end.
And now with the horror stories of online learning and the general burnout everyone is feeling from it I'm not confident the education industry is going to adopt it and we could stagnate pretty hard. And if the economy is booming? Even worse for our industry. People don't care much about higher education and getting diplomas and degrees when jobs are plentiful.
Maybe the new angle will be companies pay the education sector to train their employees remotely?
Who knows what disruption will bring.
I'd push back on "Distance education hadn't really caught on before COVID" -- pre-COVID, a third of all college students were taking at least one distance course and the percentage in fully-online was nudging up toward 20 percent. Best guess is that in the graduate school sector the percentage of students in online programs passed 50% pre-COVID. Online master's programs are an enormous business.
From 2004-2010, I worked for a global organization that had videoconference units in 64 offices around the world. From 2011- March 2020, it felt like a struggle to organize a group videoconference. Since March 2020, everyone in the world has been trained in the use of video conference technology and its now forever with us.
Things happened this past year that forced businesses and people to adopt new habits. Many will stick, some won't.
I'd also say my business was forced to make choices it otherwise wouldn't have and gained from it. As vaccines get rolled out, it would be great if we could remember that we don't need a pandemic to make better business choices, we can simply make them. If we could hold onto that, I bet productivity would keep increasing.
One of the under appreciated reasons why services is so resistant to productivity is it has to be local. For example I ordered a new bed and it was missing a small cheap washer, no problem we’ll post it to you. While they could ship the parts from China they still needed someone local, licensed and trained to install it.
Which brings up the second point local licensing. Governments can and do restrict who gets licensed and under what conditions. Aa an example a few years back in my hometown, city council realized they had never licensed piano teachers. So they set up a committee to look into this. The message they got was too many Uni students are teaching kids impacting the income of the adults who do this. So new licensing requirements suddenly limited the number of teachers allowed. Licensing is a very effective way to limit competition.
I think the location arbitrage may be the single biggest factor, and have effects on our housing markets. However, the "hybrid team" thing is a mirage. People *hate* working with outsourced international teams.
Great article, but I have some issues with two of your points.
Section 3 (task outsourcing): Isn't this just freelancing? It's long been common in my industry (design & advertising), though not having to have everyone in one office certainly helps. Maybe a lot more projects will be run like a film shoot or construction project, but remote, where a producer / contractor brings in a bunch of freelancers / subcontractors just for the duration of the project.
Section 3 (efficient time management): I don't think people on twitter at work are necessarily a sign of low productivity. Sure sometimes they (OK, we) are goofing off, but a lot of it is waiting for feedback, input or next steps. They're on call, ready to pounce on a task when they need to. It's only twitter; you can drop it. The company keeps them around so they have people familiar with the project (on-boarding can take months), ready to go when things get busy. Only difference with working from home is that no one sees your screen. Some paranoid mangers managers worry about this and monitor their employees to see if they're "goofing off". Better managers just evaluate the work delivered.
I get the impression (maybe wrongly) that a lot of economics research on the productivity paradox is starting with national-level data, when it should be doing more informational interviews and narratives, along the lines of Radford's "The Economic Organisation of a POW Camp." I know that's an almost archaic thing to advocate for, but it seems appropriate given how much wild speculation there is on the topic. You'd think you might want to like, talk to people who saw some of these changes in their industries and take notes, instead of just starting from giant macro trends and hoping to deduce the changes in human-level interactions that those numbers are designed entirely to simplify out for ease of handling.
It was interesting talking with my parents and their friends, anyway, who mostly worked in sales during the transition, about what the workflow was like and how it changed. They talked about building customer relationships, so you could be more comfortable, because you'd often just say, "eh, send the paperwork in the mail, we'll file it next month, it's not important."
Maybe it was more a shifting of the allocation of risk at first? Like the sales are the same, but the disputes are easier to resolve, because all the records are instantaneous. But then the records are more complex, to hedge against smaller and smaller possible disputes. Maybe that tradeoff between the risk of a dispute and the necessary amount of paperwork is vague enough that even though computers and the internet let you err more on the side of preventing disputes, it does not make it clear when the extra details in the paperwork are not worth the effort. So some productivity is lost again in the easy ability to edit the purchase order every time you send one out.
Also, because of the importance of those personal relationships as a form of "delayed communication insurance," sales built up very regional structures, where you don't compete outside your territory. Maybe there are a bunch of subtle legacy structures like that hanging around, influenced by risks that aren't really as prominent anymore, that nobody realizes are important to break. (Some of these limits are definitely breaking, but maybe it looks like lower productivity because it manifests primarily in enabling greater price competition?)
To be clear, I like the delayed impact explanation, I'd just love a book (or paper!) containing more anecdotes of how people feel like they saw these transitions playing out first hand.
If remote working is so great, why did it require a once-in-a-century pandemic to go mainstream?
I've worked in IT departments since the early 2010s. Pre-COVID, every job I had, I was given a laptop, installed software to connect to the company intranet, and then I was told that my bosses would expect me to work from home only if I got sick or some other thing came up that prevented me from coming into the office. Clearly, it was possible to have all of the IT workers routinely work remotely, and yet they all chose not to do that.
The analogy to factory electrification doesn't hold water to me, first because the necessary infrastructure for this was in fact in place by the late 2000s or earlier. Skype was founded in 2003. A majority of highly paid professionals had broadband internet by 2004 or so. Second, how many startups are founded in Silicon Valley every year? And we're supposed to believe that not one of them came up with the bright idea of having everyone work remotely so that the company wouldn't have to rent ludicrously expensive Bay Area office space and the employees wouldn't have to pay ludicrously expensive Bay Area rents, if it was really that easy?
Are we really supposed to believe that there was the equivalent of an open briefcase full of money lying on a sidewalk for 17 years, and yet not a single person metaphorically picked it up?
It makes far more sense to me that, when there isn't a pandemic raging, in-person office work just has advantages that outweigh the disadvantages compared to remote work. And if that's the case, then you shouldn't expect the current remote work situation to stick around much longer than COVID does.
I really enjoy thinking about what might change, but I'm a bit pessimistic and I think the endgame might be a lot worse than what we envision.
Also, in regards to homeworking: the more time spent in the pandemic, the more I see some people say that it's not work from home, but actually living at work. More working hours than before. Maybe that's because leisure activities are not back to normal, but, once again, I'm pessimistic about it.
Just finished reading this and was wondering if you'd be interested in learning about a real-world example of "task outsourcing": We Are Rosie is a flexible talent network that's serving the ad industry (and could be a model for others). Would love to put you in touch with their founder and CEO, Stephanie Nadi Olson, to discuss how marketing teams are outsourcing tasks and staffing accounts with hybrid/flex teams.
I think you buried your lead. The moment you don't have to come into the office is the moment you don't have to come into the country. No CFO will be able to keep their job paying bloated American salaries for the work.
While the USA is distracted over whether Miami or Austin will be the next Silicon Valley, many jobs will leave the country.
The problem with service cost compared to goods cost is better known as "Baumol's disease" and is why we will have to keep paying more (as a fraction of the overall economy) for nurses and teachers, compared to TVs and cars, and in turn is why, just to "stay even," we will see slowly increasing relative costs (taxes or premiums) for services.
It's also the case that "location arbitrage" can work for knowledge workers, especially those who are more about expertise than about communication and assessment, but personal services (nursing, teaching, food, etc) have no such possibility -- they need to be provided in close proximity to where the service consumer lives. When it comes to number of people employed, more people are in these "high touch" areas than in the mobile areas like knowledge workers.
Maybe what we really need is fast, flying cars to make every hospital/school/restaurant "just a few minutes away?"