Maybe workers really are doing less, Cowen wrote. That accounts for the unprecedented mix of economic data weve been seeing. In other words, it wasnt just Elon Musks imagination: Everyones quiet-quitting at the same time.
This past spring, year-over-year productivity growth has been negative for the past five quarters for the first time since World War II, and while it cant be established scientifically that its because of morale, Cowen thinks that is the main culprit. And if its really true that workers are simply doing less than they did pre-pandemic, Cowen wrote, businesses, in turn, have to hire more of them just to keep pace.
After all, he says, one of the strange pieces of data confirms that demand in this economy is still hot: With inflation still in the range of 5%, slow economic growth cannot be due to insufficient aggregate demand, Cowen wrote. Rather, the disconnect stems from supply-side and productivity considerations.
The pandemicand its manifold impactsis the biggest national disaster of the last half decade, Cowen wrote. But it hasnt damaged capital; its damaged labor, above and beyond the millions who remain sidelined with Long Covid. Cowen thinks that remote work is hurting, not helping. Could part of the explanation be the broader adoption of the work-from-home option? he posited. Thats hardly an unpopular opinion among Fortune 500 CEOseveryone from Goldman Sachs David Solomon to Salesforces Marc Benioff to Teslas Elon Musk have bemoaned the remote work revolution and made plain their goals of a full office return.
Gregory Daco, chief economist at EY-Parthenon, previously told Fortune that the hybrid environment cant be discounted as a factor in plummeting productivity. We hear similar stories from our clients across sectors of reduced productivity because of the new work environment.. Daco isnt ruling it out.
Numerous studies have argued that remote work increases productivity (and most workers simply prefer the flexibility it affords), but Cowen wrote that he needs more data. His bottom line is that productivity (and by extension, the economy) will improve when people get back to their desks, at least some of the time.
Cowen then admitted this was puzzling when viewed through an economic lens, as the current moment of seeming worker malaise and plummeting productivityset against stagnating or even falling wages in many sectorsshows that the labor market is not observing the model of how free trade is supposed to work.
If workers put in more effort, Cowen points out, then employers should agree to pay them more. Instead, pay is being cut and so is effort. Thats just not how economics is supposed to work. He predicted that the economy will be stuck with the current productivity slowdown until something changesmaybe artificial intelligence will kick in at some point, and the workers who are not pulling their weight may be in for a comeuppance.
Its not always so simple, though, as Daco pointed out: Whether being in the office is more efficient depends on a number of thingsyour sector, the population you employ.
Its possible that, in the near-term, America has entered a new, topsy-turvy world in which the old correlations no longer apply, Cowen concluded. The natural follow-up question to that might be: which correlations should we seek to make now?
Perhaps return-to-office rates could be the missing piece. Well probably see more weight towards three to four days in the office, rather than one or two, if the labor market slows, Daco said last month. That could bring big changes to the Fed and monetary policy. All else being equal, well have high inflationary pressures, so the Fed will likely be more hawkish.
Renewed worker productivitywherever theyre working fromwill cool inflation, Daco went on. In the absence of that productivity growth, well see the Fed act more hawkish than doveish.
Cowen did not respond to Fortunes request for comment.
