Worker Productivity is Falling Sharply and CEOs Don’t Know Why

Worker Productivity is Falling Sharply and CEOs Don’t Know Why

(Disclaimer: This article is examining the general trend of falling worker productivity and may or may not apply to your company in particular. Cogcentric does not claim that this article is comprehensive or complete in its analysis.)

All across the globe, companies are facing an unprecedented challenge at every level. For the first time in 40 years, worker productivity is decreasing.

On top of record-high inflation and stagnating growth, this worker productivity slump is yet another economic headwind hitting companies just when the COVID-19 economic recovery had reached full swing. During a CNBC Town Hall, Nela Richardson, Chief Economist at ADP, told attendees that 2022 is the first year to see three consecutive quarters of falling productivity since 1983. Workers are less engaged and less productive, and their job performance has suffered.

Complicating matters is that business leaders can’t figure out why their organizations aren’t more productive. Marc Benioff, co-CEO of Salesforce, recently said in a company Slack message that newer hires aren’t as productive as he wants them to be, and he doesn’t know why. Benioff invited team leaders and employees to account for their reduced productivity and explain what isn’t working within the company.

This productivity slump isn’t just specific to North America. Companies in  Japan, Germany, and the United Kingdom are also seeing productivity fall.

What’s behind this trend? Why are workers suddenly less productive than they were just a few short years ago? And is there a solution to this productivity slump? Here’s what we know.

What Might Be Behind the Worker Productivity Slump?

Different companies may define worker productivity in different ways, but generally, worker productivity is defined as a worker’s hourly output.

While CEOs have said they don’t know why worker productivity has fallen, there are some other coincidental workforce trends that might explain reduced productivity. Real wage growth stagnated in 2021 and shrank in 2022, indicating that across the globe and in North America in particular, wages have not kept up with inflation. 

The International Labour Organization’s 2022 Global Wage Report states that in North America, real wage growth was zero in 2021. In 2022, meanwhile, most North American workers saw a real wage loss of 3.2 percent.

This real wage loss occurred as a result of not decreasing wages, but historically high inflation. In Canada, the annualized inflation rate was 6.8% in November 2022; this stands in contrast with the Bank of Canada’s target inflation range of 1% to 3%. 

In other words, inflation has taken such a large bite out of wage increases that most employees are taking home less money in 2022 than they were two years prior, despite earning higher salaries.

According to the Kellogg School of Management at Northwestern University, higher wages are associated with higher productivity. So when employees’ inflation-adjusted wages fall, they’re less motivated and therefore less productive.

Better Engagement, More Training Can Mitigate Worker Productivity Losses

With higher wages being associated with higher productivity, it only makes sense to dole out cost-of-living raises. But in addition to cost-of-living raises, employers can advertise financial incentives for employees who complete additional training, achieve certain targets, or show some sort of initiative. When employees can see that their contributions are valued, they become more engaged and more productive as a result.

But increasing employee compensation is just one of several ways that companies can boost productivity; other measures can help to increase output without adding to payroll costs. For instance, there are several types of training that can increase employee productivity.

Time Management Training and Skill Cross-Training Can Help

One of the simplest kinds of training to give your team is time management training. If productivity is poor because your team isn’t managing their time well, teaching them how to better manage their time while at work can be an effective means of boosting productivity. For instance, you may want to teach your employees the Pomodoro Technique or various energy management strategies. Teach your team to tackle easier tasks when they’re low on energy and harder tasks when they’re alert and motivated.

You’ll also want to ensure your employees aren’t overworking. Burnout is a key cause of low productivity; if your team is spending more time than needed on non-critical tasks or taking on too much work, they could be burning themselves out. Check in with your employees regarding their workloads to get a sense of whether they’re taking on too much.

Or maybe your team isn’t as productive as you want them to be because they lack certain competencies. If your team is composed of specialists who are experts in their roles, that means they probably aren’t well-equipped to cover for each other when needed – for instance, when someone is out sick or on vacation. Cross-training can help your employees to learn each other’s roles, so they can step in and perform each other’s work as needed.

When cross-training your team, you’ll want to ensure you’re optimizing the division of labour and knowledge management – make sure you understand who needs to know what and who needs to take on which tasks. 
You can also use dataanalytics tools to track worker productivity and identify patterns. For instance, if productivity seems to slump immediately after lunch, you can ask your employees to prioritize important work in the morning and focus on non-critical tasks in the first hour or so after their lunch break.

Ask your team why they think productivity isn’t where it should be. Ask your team what challenges they’re facing and how you can give them the tools they need to perform. Then give them the personalized training they need to solve those challenges.

Emerging Technologies Can Boost Worker Productivity

Investing in new technology can be an effective method of increasing your team’s productivity. Emerging tools and strategies like artificial intelligence and gamification are making it easier to help teams boost output. 

For example, you might consider switching to a corporate LMS that uses content personalization and a gamified progress tracker to motivate your employees to finish their training.  An LMS can also help with knowledge management, so you can ensure all of your employees have the knowledge and training needed to get the job done. Or, you could use any number of AI-enabled corporate tools that can help your employees file paperwork faster or better organize their workdays.

It’s also important to use technology that can monitor goal progress. When you have instant insight into your team’s progress, it’s easier to spot problems and remind employees of incomplete tasks. Your team can also manage their time better when they have a clear view of their goals.

Worker productivity has started falling for the first time in 40 years. In contrast to the previous productivity slump, today, managers have access to a wide array of tech tools. These tools can help them to keep a closer eye on productivity and better manage and motivate their teams. 

The employee productivity slump is at least partially tied to high inflation and real wage loss. However, doling out raises is only one of many solutions that team managers can use to boost productivity. New technology, better employee engagement, and investments in corporate training initiatives can all increase productivity. These initiatives can help to justify cost-of-living raises and further motivate your team.

What are you doing to boost your company’s productivity? How are you keeping your team engaged and motivated?

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