Sunday, April 18, 2021
Pluses and minuses of the return to business as usual
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt. Not to be reproduced without permission.

Things are changing, and not so imperceptibly. If you have ventured out to the shops in recent days you will have noticed that there are people around. Not necessarily madding crowds, at least in the ones I have visited, but certainly what retailers would call decent footfall.

There is also another change underway. The talk is of a return to the office, even for people for whom over the past 12 months, a daily commute, sitting at a desk and face-to-face meetings have seemed about as likely as a trip down the Amazon.

Indeed, there are hard facts to back this up, The Office for National Statistics (ONS), in its latest weekly assessment of coronavirus and its impact on the economy and society, found that the proportion of the workforce at their normal place of work rose to 49 per cent in the two weeks to April 4 and is clearly on a rising trend.

All of which is rather interesting. Both of these examples of a degree of normality returning have pluses and minuses. The opening up of non-essential retailing is an undoubted plus for the retailers concerned, particularly those which have eschewed an online presence. It is great news for high streets and shopping malls, which have taken on an eerie feel over the past year.

Similarly, the return of people to offices will transform city centres, particularly the centre of London, restore the viability of public transport and allow the tens of thousands of businesses dependent on legions of office workers, and busy offices, to get back on their feet.

All these are undoubted economic and social benefits, along with restoring all the other things missing from our lives during three lockdowns and other restrictions over the past year, including pubs, restaurants, cinemas, theatres, travel and, perhaps most of all, freedom to do more or less what we want.

But, and there has to be a but, it is also important to recognise that there are minuses in the return to business as usual. One of these could be in the most important driver of prosperity, productivity; the amount we produce per worker, or – a better measure – per hour worked.

A few days ago the ONS published data for productivity in last year. They showed that it was a volatile year, with sharp movements from quarter to quarter and a different picture depending on which measure is used. But output per hour across the whole economy rose by 0.4 per cent last year, during the deepest recession for more than 300 years. This was in sharp contrast to the experience of the last recession, when output per hour fell in both 2008 and 2009.

The simple reason for this was that hours worked fell even more sharply than gross domestic product. Behind this, however, something else important was happening. Productivity held up because of what statisticians call the allocation effect. It means that if you take out the least productive parts of the economy, average productivity improves. You can explain this by reference to batting averages. If you don’t play the three weakest members of the team, or they never get to bat, the average of the team as a whole improves.

This is what happened last year, fairly spectacularly. What is known as the food and beverages services industry – pubs, cafes, coffee shops, restaurants – is a low productivity sector, a dramatic 54 per cent below the average. Lockdowns and restrictions took these players out of the economy for much of last year. In contrast, the share in hours worked rose of high productivity service industries, including legal services, accounting and computer services.

A lot of non-economists have difficulty with the idea that service sector productivity exists and can be measured. But it does, and can be improved – or lese management consultants would be out of a job – and has been important in recent years. The service sector has been the driver of the productivity improvements we have had in recent years, excluding financial services, which has been weak in contrast to the period before the 2008-9 crisis.

One of the elements of improved service sector productivity, which was supercharged last year, has bene the shift to online retailing. Online retailing is more productive than face-to-face. Getting the shop to come to you is more productive than getting you into the shop. Anybody who has worked in a shop during the long, lonely hours when there is nobody in knows this. There are only so many times you can refold a jumper. I make no judgment here on the quality of the shopping experience.

The other big question, which is not yet captured explicitly in official statistics, is the productivity effect of working from home. A study last month by Shivani Taneja and Paul Mizen of Nottingham University, and Nicholas Bloom of Stanford University, based on interviews with some 5,000 full-time UK workers, found a strong preference for continued home-working after the pandemic, for at least two days a week.

Asked about the impact on their own productivity, the most popular answer, from 49 per cent, was that it had made no difference. But some, 29 per cent in all, though their productivity had improved, in some cases substantially so. This exceeded the 21 per cent who thought their productivity had gone down. Controlling these results for the special circumstances of lockdowns is not easy – some will have had to combine home-working with home-schooling – and the results could also reflect people’s preference for working from home.

Another way of looking at it is from the perspective of employers. The Chartered Institute of Personnel and Development (CIPD) did this in a report earlier this month. It found, in a survey of 2,000 employers, that 33 per cent thought working from home had boosted productivity. This was an increase compared with a June 2020 CIPD survey, in which 28 per cent of organisations reported improved productivity. In the most recent survey, 23 per cent reported a productivity decrease from home-working, pointing to a net benefit. In June last year 28 per cent thought productivity had decreased, so the two balanced out.

This tells us, or tells me, that there were potential productivity improvements that were discovered, almost by accident, during the pandemic. They include, as above, a likely future model of hybrid working, partly at home and partly at work. They should not mean that the share of online shopping goes back to where it was.

Many pubs, restaurants, cafes and coffee shops will not re-open and neither will some retail outlets, as we have seen from John Lewis, and countless others on a smaller scale. This is the creative destruction that results from serious economic shocks. We will see whether it helps lift us out of our long productivity malaise.