How Does a Recession Affect Productivity?

An online survey of more than 250 companies of different sizes and sectors by Challenger, Gray & Christmas[1] indicated that close to 50% of them were likely to conduct layoffs over the next three months due to the Coronavirus COVID-19 pandemic. Reductions in workforce most probably happen at the Skilled and Knowledge Worker levels, (a term used by Peter Drucker), impacting productivity across the whole organization.

During the late 2000’s recession, between 2006 and 2010, Edward Lazear, Kathryn Shaw and Christopher Stanton studied daily productivity data from 23,000 workers at a large technology services company[2]. They concluded that the increase in productivity in that recession period came because “employees worked harder, not because organizations kept good workers and got rid of laggards.” They concluded that productivity rose 5.4% with at least 85% of the increase attributable to employees working harder and that the higher the increase on the rate of unemployment in the region, the higher the improvement in productivity generated by worker effort. They also found that the productivity of workers whose initial productivity was below the company’s median increased their productivity by 5.65% meanwhile workers above the median initial productivity showed minimal to no change.

The study claims that a driver for the worker’s increased effort comes as the result of the worker’s perception of the reduced likelihood of obtaining another job. While many managers are following the lead of Leazar, Shaw, and Stanton, my experience and other analyses arrive at a different conclusion, especially during the first few months of the recession when news about the falling markets and layoffs are most intense and stress levels are high. It has been repeatedly demonstrated that stress reduces the effectiveness of employees and more importantly on the Knowledge Worker.  I understand and agree that there is a healthy level of tension required to bring the organization to perform better, but if a person is concerned about their future, they are not going to perform at their best. Could you be at your best if you start thinking about being laid off and worrying about how are you going to pay the rent, feed your family and meet other financial commitments? I find it hard to believe that increased stress caused by a recession equals better results[3] .

Picture for a moment that you were not part of the layoff and that you continue to be employed (at least for now). On top of the stress that you may feel because additional layoffs may still happen, now you must perform work from people who are no longer with the company in addition to your daily work from before. Obviously, your stress level is not going down so, how could you maintain and hopefully improve your performance? And, what could you do if you are a manager with a smaller team compared to last week and higher amounts of work?

When you are a manager you can only do so much to reduce the stress generated by the layoff on your team, but you still could do some things to focus and reduce the stress generated by the additional work to be absorbed.

First, analyze what activities are necessary to serve your customers, (maybe the use of a Value Stream Map can help). Organizations grow and tend to add activities and processes required for a larger organization, like scope creep in a project. Now that the organization is smaller, and probably serving a fewer number of customers, you may be able to eliminate some of those activities and simplify the processes. Work with other managers, (internal suppliers or customers of your team), and work with them to simplify the process as much as possible.

Second, review roles and responsibilities for your team as well as their interactions with other areas, (I suggest the use of the SIPOC model). I have seen organizations find out that something important was missed because a person who was part of the layoff used to do that task and no one else had the job to pick it up.

Third, evaluate the effectiveness of your and your team’s meetings. This is a something that is rarely resisted by the team as organizations grow numb to poorly run meetings.

Lastly, show your support. It is a time of crisis and people want to see that you are there to support them and answer their immediate questions.  

Organizational changes generated by recessions like the one we are living, have increased their frequency. Black Swans, like the COVID-19 pandemic, and Gray Rhinos, like the sudden drop in oil prices, challenge organization’s structure and competitive strategies to their core. We have helped organizations review and simplify process to increase effectiveness meanwhile the rest of the company focus on the day to day activities of the business.  Our expertise has helped reduce the adaptation period to the new market allowing the new structure to adapt faster to the new demands.

 

[1] https://www.cnbc.com/2020/03/30/coronavirus-jobs-survey-49percent-of-companies-considering-layoffs.html

[2] https://www.nber.org/papers/w19328

[3] https://www.researchgate.net/publication/337112210_Work_Effort_and_the_Cycle_Evidence_from_Survey_Data