Productivity Shoots Up—Are RTO Mandates Why?

The latest productivity figures from the US Labor Department are certainly impressive. The only question is what they mean.

The new data show productivity grew at its fastest pace in three years in the third quarter, increasing 4.7% year-over-year. This marks the second consecutive quarter of strong growth, following a 3.6% gain in the second quarter. These new numbers, along with the third quarter’s roughly 5% increase in GDP, suggest that the US economy is back in growth mode, even amid inflation, high interest rates, and a tight labor market.

For leaders, the growth in productivity without a corresponding increase in hours worked—the two measures usually move in tandem—suggests that return-to-office mandates are, to be blunt, working. But other experts say other factors—such as investments in artificial intelligence and other technology to improve efficiency—may be playing important roles, along with certain decisions firms are making.

“The figures may be a false flag,” says Christian Hasenoehrl, a senior client partner in the Consumer and Industrial practices at Korn Ferry. He believes the spurt is largely driven by consumer spending, and notes that manufacturing productivity declined in the third quarter because of the auto-industry strike and continuing supply-chain constraints. And like many analysts, he is skeptical that the growth—once consumers run out of excess cash due to depleted savings, ballooning credit-card debt, or the resumption of student-loan payments—will last. According to Bloomberg data, more than 40 companies have already pulled their guidance for the fourth quarter or revised it downward, for instance, and leaders across industries repeatedly warned of "weakening demand" when reporting results. 

To be sure, most top corporate leaders have been arguing for two years that workers can collaborate better in person; workers, meanwhile, say the flexibility of operating out of their homes, as well as reduced computer time, make for a more robust environment. Several academics have come to different conclusions.

In the months ahead, Torrey Foster, vice chairman in the Consumer Markets and Board and CEO Services practices at Korn Ferry, expects leaders to push measures aimed at increasing productivity even more. He says the productivity surge could embolden bosses to require workers to be in the office more days per week, for instance. On the financial side, the surge validates firms’ investments in automation, artificial intelligence, and other technologies.

Labor market dynamics are also “swinging the pendulum back in employers’ favor,” says Foster. The tightening job market—US employers added just 150,000 jobs in October, nearly 50% fewer than September—is one factor. But experts also say omnipresent headlines about layoffs and AI replacing workers are putting pressure, at least subtly, on employees to perform. And certainly some of the latest government data suggests workers are stepping up: their hours increased 1.1%, while total output grew 5.9%. Recent data also shows that workers are quitting less and planning, at higher rates than in past years, to stay in their roles rather than look for other jobs.

Foster doesn’t expect workers to return to the office five days a week anytime soon. Nor does he believe organizations will start replacing them with AI. But concerns over consumer spending and top-line growth are likely to keep the pressure on workers to maintain productivity. “Employees still hold a lot of power, but the normalizing environment is catching up with them,” he says.

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