You are currently viewing What happens in the economy when it’s always someone’s first day on the job?

What happens in the economy when it’s always someone’s first day on the job?

No one’s first day on the job is easy. Whether you’re working in an office, at home, in a restaurant, or on a construction site, you don’t know where anything is, you don’t know who to ask for help, and tasks start piling up. . I don’t know how to finish. And it’s not easy for your colleagues either: when you have to ask where something is, who you need to talk to to get permission to do something or even where the coffee is, you take up time on the your colleague’s work.

This is not normally a major problem: the rates of leaving and creating new jobs often remain quite stable or, in the case of seasonal types of work, can be quite predictable. But these are not normal times. Overall employment has fluctuated by tens of millions of jobs over the past two and a half years, and rates of departure and new job creation are historically high.

Meanwhile, productivity – which has been rising steadily for decades – began to decline. The Bureau of Labor Statistics found that productivity fell 7.4% in the first quarter of this year and 4.6% in the second.

A new economic theory emerges by bringing these two data points together: what if the whole economy had its first day of work?

What the data tells us about productivity

“Despite the strength of the labor market, economic activity has slowed; it’s all about labor productivity,” Fatih Karahan, a former Federal Reserve economist, told Grid.

Yet overall productivity is slightly higher than it was before covid.

Karahan, while trying to figure out why productivity is dropping, looked at two things. First, it looked at which sectors had the highest quit rates – the proportion of workers leaving their jobs – compared to before covid. Second, he examined which sectors had seen the largest increase in quit rates and which sectors saw the biggest declines in productivity in the first quarter of this year.

He found that leisure and hospitality, retail and manufacturing of non-durable goods – i.e. industries like restaurants, hotels, clothing stores and food processing – were experiencing both more turbulence in employment and sharp declines in productivity. Transportation and warehousing, which includes travel, also experienced a substantial decline in productivity relative to other sectors. “The sectors that have seen the largest declines in labor productivity are those that have seen larger increases in the quit rate,” Karahan said, “A lot of the jobs in the economy right now are new jobs. is historically unprecedented.

CEOs are starting to cite turnover as a reason for poor customer experiences

When it comes to explaining disappointing or low productivity to analysts, business leaders agree: laying off and hiring workers en masse can hurt productivity.

In a call with analysts in July, Delta Air Lines chief executive Ed Bastian noted that the company had hired 18,000 new workers in the past year and a half, putting the airline at 5% of its pre-covid employment levels, but, he noted, is 15% below its 2019 capacity. The reason? Not that they can’t find workers, but rather “training and experience” issues, as well as covid issues affecting crew availability and having to pay more hours additional. “You don’t get into these jobs and learn it overnight,” he said. “There is an important learning factor.”

Bastian said in July that the airline had 1,500 pilots in training at any one time and some awaiting training: “There is also a relief in the process. So it has a real impact on your overall productivity and efficiency.

These training and operations issues aren’t limited to airlines, but seem to be popping up across the economy, especially in jobs that require in-person service and have seen some of the biggest layoffs. during covid and the biggest increases last year.

The chief executive of foodservice giant Sysco said on an earnings call last week: “About half of our supply chain associates have been with the company for less than a year. And it is this point, this single point, which translates into a lower productivity rate, therefore, than our historical average. These are demanding jobs. These are skilled labor positions, and it takes time for a person to move up the productivity curve.

Starbucks and Shake Shack executives lamented the high level of turnover in their stores, noting that locations with lower levels of turnover tend to have better sales. This is especially important at Starbucks. While Shake Shack has a reputedly minimalist – albeit delicious – menu, Starbucks has touted its ability to sell infinitely customizable drinks (in fact, 170,000) as a point of differentiation from competitors. These drinks, as any Starbucks employee will tell you, are not easy to make and can be time consuming. “Customers are increasingly customizing their cold beverages by adding modifiers that allow the creation of a virtually unlimited range of taste, flavor and color profiles, then sharing their unique cold beverage creations with the world via social media,” said Howard, Starbucks founder and interim chief executive. Schultz said during an earnings call earlier this month.

But finding and keeping employees to make these personalized drinks — especially in the midst of a labor campaign — may hurt Starbucks’ profitability, which declined in North America in its most recent quarter, “primarily due to headwinds.” continued inflationary, investments in the workforce, including improved store partners salaries and new partner training support costs, partially offset by pricing,” said Chief Financial Officer Rachel Ruggeri. .

“We’ve also increased barista training, essentially doubling the hours for new baristas to 40 hours, as well as our new supervisors,” said John Culver, the company’s chief operating officer.

Shake Shack suffers from similar productivity issues. “Personnel pressures and high turnover continue to be a headwind for our sales and margins as new team members take time to train and to optimize throughput and high-volume shacks at peak times,” Chief Financial Officer Katie Fogerty said during an earnings call earlier this month. .

Turnover seems like a plausible explanation, but may not be the whole story

It is not entirely clear that difficulties in recruiting new workers are entirely responsible for the decline in productivity so far this year, although there have been real productivity declines within companies that have had to hire a lot.

Nicholas Bloom, a Stanford University economist who has studied productivity extensively, especially during the pandemic, told Grid in an email that “high-frequency BLS numbers aren’t that reliable. If you look at the overall numbers since the start of the pandemic, that looks like about a 1% increase in labor productivity, which is the same as the 1% growth rates before the pandemic. . The pandemic has therefore left productivity growth almost unchanged. »

However, he noted that companies that had to hire a lot experienced a drop in productivity: “If you hire a lot of employees very quickly, it’s difficult to onboard them all quickly,” Bloom said.

Jed Koko, a Commerce Department economist, suggested on Twitter that “during the pandemic, productivity initially rose as output rebounded faster than employment, but employment caught up in the last two quarters”, and as the economy recovered unevenly, “measures like productivity have been particularly volatile.”

“The pace of hiring has been so high over the past six months and even before that, and the turnover rate is so fast,” said Adam Ozimek, chief economist at the Economic Innovation Group. “Employers are dealing with an extraordinarily high percentage of new workers. The onboarding process takes time and weighs on productivity. If you have a new worker on something a bit complex, it takes time for workers to create value on the net.

Thanks to Lillian Barkley for writing this article.

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