Two years on, hybrid working assessed

Two years on, hybrid working assessed

Life has largely normalised since the pandemic. Far from proving permanent, many of the changes caused by the pandemic have proved transient. Air travel has lost none of its allure, with flight volumes bouncing back strongly. The boom in online retail sales has gone into reverse. In the UK car travel has returned to levels seen before the pandemic.

• In one area the change has been significant and, two years on from the end of lockdowns in England, it looks increasingly permanent. In the UK hybrid working is running at roughly three times the levels seen before the pandemic, with about 40% of adults working partly or wholly from home. There are few signs in the data of fatigue setting in with hybrid working. The proportion of people working fully or partly from home has been broadly constant over the last year.

• This represents a major, very rapid change in the organisation of work. There has been nothing like it since the demobilisation of the armed forces and the dismantling of the wartime economy after the second world war.

• Enormous though this shift is, we need to see it in perspective. For most people work remains unchanged. In the US roughly 60% of jobs – everything from driving a bus to building and nursing – are site specific. Working from home is concentrated among higher-skilled, higher-paid jobs, particularly in technology, finance and business and professional services.

• Nor can we simply extrapolate to the rest of the world from the experience of the US or UK. Along with Canada, Australia and the Netherlands these countries have high levels of hybrid working (one survey showed university-educated workers in these countries working an average of about 2.5 days per week from home after the end of lockdowns, in late 2001 and early 2022).  Rates of home working are lower in most European countries and lower still in China, India and Japan.   

• In general employees seem to be keener on working from home than employers are. A large-scale survey run by Professor Nick Bloom at Stanford University has found that US employees would like to work an average of 2.75 days per week at home while employers would prefer their staff to spend half a day less, so 2.25 days, working from home.

• In the last two years low unemployment and competition for staff have tilted the balance of power towards employees, obliging some employers to offer home working to attract and retain staff. A weaker labour market would doubtless cause some employers to revisit their policies on hybrid working. We cannot be sure that current levels of home working represent a new equilibrium until they have been tested through an economic cycle and a period of elevated unemployment.

• Professor Bloom has found that hybrid working raises employee happiness and that, for the US, the ability to work from home 2 to 3 days a week is equivalent to an 8.0% pay increase. A randomised control trial of 1,600 staff in the US in 2021-22 found that hybrid working reduced quit rates, or resignations, by 35%.

• Hybrid working seems to work for employees, but what about employers?

• Here Professor Bloom concludes that fully remote tends to reduce productivity, but also brings compensating cost reductions. Organised hybrid work, for perhaps 2 to 3 days a week, tends to raise productivity slightly, by 1.0 percentage points to 3.0%. Productivity gains came from the ability to focus and concentrate and from reduced commuting time, roughly 40% of which according to Professor Bloom’s research, goes into working longer hours. However, such gains in productivity only occur when hybrid working is well managed.

• Getting the most out of hybrid working takes time, planning and effort. It involves the coordination of days in the office for in-person meetings, events, training and social events. ‘Anchor’ days need to be treated like days in the office before the pandemic, with attendance mandatory. Offices should promote collaboration, with cubicles making way for meeting spaces, but this needs to be handled carefully. Coming into the office only to find oneself exposed to neighbours’ conference calls is not a happy experience and offices also need quiet areas. Performance management tends to be more difficult in a hybrid environment. Informal, face-to-face interactions are reduced and input-based evaluations, based on observed hours and activities, happen less. That makes output-based evaluation, drawing on data and discussion, more important. For relatively new joiners Professor Bloom recommends an extra day in the office for mentoring and to build networks.

• All of this requires management commitment and time. Some aspects can be particularly tricky. Businesses report difficulties in encouraging people back into the office. People appear especially reluctant to return on Mondays and Fridays when offices are often at their quietest.

• Hybrid working is here to stay, but it is, nonetheless, a still developing experiment in the organisation of work. How work happens will evolve over time and with the economic cycle. The prize is enormous. We now know that, done well, hybrid working can make workers happier and businesses more productive.

OUR REVIEW OF LAST WEEK’S NEWS
The UK FTSE 100 equity index ended the week up 0.5% at 7,607. 

Economics

• The FT reported that Saudi Arabia will reduce its oil production by a further 1m barrels a day in an attempt to prop up oil prices
• The US economy added 339,000 jobs in May, suggesting continued strength in the world’s largest economy
• Bond yields rose on the news, suggesting markets see a greater likelihood of further rate rises from the US Fed
• The US Congress passed a deal to raise the country’s debt ceiling. This avoids the risk of a US default and an ensuing financial and economic crisis. The news helped lift equity markets
• The Wall Street Journal reported that hedge funds and other speculative investors are more bearish about prospects for the S&P 500 than at any time since 2007
• UK annual house price inflation fell at the fastest rate since the global financial crisis, down 3.4% in the 12 months to May, according to figures from Nationwide
• UK mortgage lending and mortgage approvals fell in April as home buyers face higher interest rates
• Surveys from Lloyds Banks and the Institute of Directors showed a fall in UK business confidence in May, in part due to concerns over inflation
• The euro area unemployment rate fell from 6.6% in March to 6.5% in April
• In a sign of easing inflationary pressures, euro area inflation fell to 6.1% in the 12 months to May, down from 7.0% in April. Core inflation also declined
• ECB president Christine Lagarde said that more interest rate tightening was “still in the pipeline”
• Research published in Nature suggested that the impact of past human activity on climate, biodiversity and water already risks significant human harm
• Turkish president Recep Tayyip Erdogan is set to appoint economist Mehmet Simsek as treasury minister, a possible sign of a shift towards more orthodox economic policy, the FT reports

Business

• The UK government offered civil servants a one-off payment of £1,500 in a bid to resolve a long-running pay dispute
• UK railway workers from the Aslef and RMT rail unions undertook further strike action last week in a long-running dispute over pay
• Mergers and acquisition activity reached a seven-year low in the first five months of the year in the UK
• UK business lobby group the CBI announced that it would cut one-third of its staff following recent scandals
• A significant volume of US corporate loans still reference the US Libor benchmark, which is set to be discontinued at the end of the month. Companies potentially risk falling back onto more costly lending terms if lending agreements are not revised in time
• JPMorgan chief executive Jamie Dimon said that US-China tensions were making business more complex than during the Cold War
• Roughly 90% of shareholders in oil majors ExxonMobil and Chevron rejected proposals to tighten emissions targets
• Over 350 AI experts published an open letter saying that: “Mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war.”

Global and political developments

• Australian prime minister Anthony Albanese warned that tensions between the US and China over Taiwan and elsewhere risked devastating consequences
• Officials in Brussels said that the UK should join a pan-European trade deal rather than seek a delay to planned tariffs that would hit trade in electric vehicles, the FT reports
• A cross-party group of UK MPs called for the government to align with EU regulations to boost trade between the UK and the EU

And finally… the Wikipedia page for the Vatican City has been displaying the incorrect flag for many years. The error in the papal coat of arms is subtle but has been widely copied by flag manufacturers around the world, meaning there are numerous erroneous copies in circulation – flagging standards