Much has been made during the COVID-19 disruptions about the impact of remote working on productivity.
A lot has been said that was anecdotal or based on opinion and not research. But now, a leading Government organization has come out and sounded the alarm.
Last week, Australia’s Productivity Commission released a report warning that the surge in people working from home could hinder innovation and creativity, which are vital for business breakthroughs.
The report describes a sustained reliance on remote work as a “double-edged sword.”
“On the one hand, there may be an increase in leisure time (or at least flexibility for those with caring responsibilities) due to reduced commute times, and improved human capital as workers and firms adopt the technology required to work from home,” it says.
“Additionally, weakening the link between geography and employment could lead to better matching of employees and employers. On the other hand, remote work has risks — both to the productivity of businesses and the divide between work and leisure.”
While it may give parents more flexibility and cut down on commuting time and costs, the report warns about the downsides and says they could have longer-term impacts on the Australian economy.
“Innovation is elusive and often occurs through serendipitous person to person exchange,” the report says. “While new ideas can foster through the virtual exchange, it is perhaps less likely. A prolonged period of remote work may reduce the organic development of ideas, dampening potential productivity gains had these ideas come to fruition.”
The report notes two structural changes in the economy, acting in opposition to either dampen or strengthen swift recovery prospects.
First, many employees can work remotely, and many consumers shop online, creating new jobs, and allowing existing employees to work through the pandemic.
Second, and opposing this, about 90% of employment is in services, and many aspects of service delivery require face‑to‑face interaction.
“If the pandemic persists, this may limit the employment prospects of individuals that operate in industries that require face-to-face interaction,” the report says.
“How the greater ability to work from home will ultimately balance out the greater proportion of service sector employment remains to be seen.”
Over a long period, the report says, Australia’s prosperity has been built on working “smarter, not harder.”
This makes creativity a vital ingredient in driving the economy forward, and for this reason, the trend towards remote working has the potential to undermine prosperity in the long term.
“Australia’s material living standards depend upon our ability to produce goods and services, and the price of our export products compared to the price of our imports,” the report says.
“Since the Federation (in 1901), almost all of Australia’s GDP per capita increases are attributable to labor productivity growth.”
Australian creativity matters
Australia’s prosperity, the report says, has fluctuated over the last two centuries and is in no way guaranteed. It is why innovation and creativity are crucial in an economy where 90% of employment is in the services sector.
“In the 21st century, to be a high productivity economy requires having a highly productive services sector,” it says.
“Knowledge-based services — such as professional services and finance — have experienced high productivity growth, technology adoption, and significant knowledge spillovers. On the other hand, personal service industries are often characterized by low productivity growth and high labor intensity.”
There is considerable scope for future innovation and productivity growth in services, mainly through technology. Artificial intelligence, increased data use, and new digital platforms offer the prospect of cutting transaction costs and increasing competition, including through international trade.
“Innovation in some services industries could involve less emphasis on traditional research and development and greater reliance on new business models and new business formation as a vehicle for experimentation,” it says.
“Human capital (including the health and skills of the workforce) could become increasingly important to these labor-intensive industries, as could the mobility and flexibility of labor between locations, firms, and sectors.”
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