The changing labor market, the popularity of remote work, and the rise of AI will continue to shape the workplace this year, says Wharton’s Matthew Bidwell.
In an interview with Wharton Business Daily on SiriusXM, Wharton’s Matthew Bidwell talks about the changes we saw in the workplace in 2023 and what we’re likely to see in 2024, including the impact of AI.
Return to the Office?
Dan Loney: The workplace is in flux at the moment. We’ve seen people switching jobs at record levels over the last couple of years, and remote work remains a component. What should we expect as we head into 2024? Before we talk about 2024, let’s just look at 2023.
Matthew Bidwell: Glad you’re asking me about 2023 first, mainly because we know the experts do no better at predicting the future than anybody else. I think I can give you a good rundown of what happened.
I think of 2023 as being the year where one interesting thing happened, and two interesting things didn’t. The interesting thing that happened: The labor market cooled down. We saw 2021 and 2022 with genuinely historic levels of attrition, genuinely historic levels of job openings. There was a huge hiring binge. It was very hard for employers to find people. They poached anybody that they could get. Huge amounts of mobility, particularly for hourly workers.
If you were an employer, this was a nightmare. If you were the Fed, this was a problem because you’re worrying about wage inflation. If you’re an employee, and particularly one with, say, a high school education — these employees who’ve been overlooked in the labor market— it was a fantastic couple of years.
In 2023, things cooled down. When you look at the aggregate statistics, we’re back to 2019. And I remember being in here chatting to you in 2019, and we were saying, “Well, since it’s an overheating, hot labor market, things are very tight and employees have to think more.” We’re not in recession by any stretch. But we’re back to something that people recognize as a little more normal. And in certain sectors, perhaps some of the ones that were crazier – so, tech particularly outside AI — there has been a very marked slowdown. I think that’s the interesting thing that’s happened. Some reversion to something that looks like normal.
The two interesting things that didn’t happen — one is around remote work. There was a huge amount of noise about return to office. You saw at some high-profile companies, particularly Amazon, some of the big banks, this real, “We’re putting our foot down. From now on, you’re going to be back in the office.” It gives the impression that we’ve seen a decline in remote work. There were a couple of series of statistics that I look at to understand this. There’s a wonderful survey that’s done monthly by a team based in Stanford. Also, Kastle Systems, that does badge swipe data. They release their back-to-work barometer weekly showing what’s happening with office occupancy. They show basically a static picture all year. So, while all the noise has been about return to office, you haven’t seen an increase in office occupancy. It’s stayed flat at around 50%. You know, it wibbles up and down a little bit. Down a bit in the summer, back up a bit afterwards. When you look at the surveys, it’s the same.
So, we’ve stayed where we were. I think we’re still trying to negotiate what the future is going to look like, but increasingly, I think companies have settled into a variety of modes. Pre-pandemic, we basically had a one-size-fits-all, every company. They might have a couple of people remote. But basically, the normal was you’re in the office five days a week.
I remember talking about this with people last year, and I was saying, “I could see three scenarios for remote work. One is, there’s a recession, everyone gets dragged back to the office. A second one is kind of a new normal where it’s like three days a week in the office for everybody. And a third is horses for courses, where different companies have completely different policies depending on what works for them.” I think we’re moving towards that third scenario. The aggregate statistics haven’t changed, but I think there’s been some clarification. And I think we’re moving towards a world where different companies are settling into completely different policies and practices.
The Impact of AI
The third thing is AI. It has seriously impacted a few jobs. Graphic design has had a really rough year. People who run these paper mills, where they sell essays to desperate college students, I think ChatGPT has devastated their business. I’m not so unhappy about that. But if you look at the average employee, it hasn’t yet bitten. There were some clearly ludicrous takes this time last year that within six months, various kinds of work will be dead. That was obviously wrong.
Like I said, all predictions are wrong. What’s happening is reasonably predictable, which is, it’s happening slowly. I think it could well have a big impact on many jobs. But this year has been a year of people starting to figure out what’s happening with it, rather than wholesale implementation.
Loney: Do you think the impact will be complementary to workers? The leadership of companies sees the benefits of AI. They know it can save on the bottom line by not having employees. Or is there a combination?
Bidwell: I would have thought it’s going to be both. Everybody’s saying it’s not people or AI, it’s people with AI. And I’m sure that’s true. But if people with AI is a good solution, ultimately you probably need fewer people. The question is, when we have people with AI, does it drive down the cost so much we can expand the market and hire more people? Or once we have people with AI, do we just need fewer people? And probably across different occupations, it’s going to be different things.
Loney: Let me go back to talking about remote work. We obviously had to have remote work because of the pandemic. As the return to office was playing out, I had the sense that we were eventually going to get back to pretty much everybody being back in the office. But it doesn’t seem like that’s the case. Companies have adjusted, and they understand what the new normal is. The voice of the employee maybe has a little bit more bite to it than it did back in 2019. Where do you think remote work is headed?
Bidwell: Remote work was unimaginable, right? Pre-Covid, this idea that we could do most of our work staying home just didn’t even occur to us. Then we do it, and we can do most of our work. And I think what it made salient was the costs of coming into the office. A lot of people have a commute that’s half an hour or an hour each way. That’s an hour or two hours of their day just to get into the office. The question is, when are those costs worthwhile?
I think the previous answer was, “Every day, you should be here.” Not really. There’s a lot of work I get done as well, and in some cases most people find that the focused work, the deep work, they do better at home. So, if most things I can do just as well, and I don’t have to incur an hour or two hour’s cost — and by the way, that cost is not just mine, right? To some extent, that is coming out of my budget for time that I can spend on work things. I’m going to do less work because I have to do that commute. If I can take that and turn it into productive time, why would I be coming into the office?
Now, there are some benefits to being in person. It’s good for building trust. It’s good for managing difficult conversations and tricky conflicts. It’s good for getting to know a broader range of people than those who we just kind of encounter directly through our work. It’s good for mentoring. There are definitely some things that we do better in the office. So, there are benefits of being in the office, and there are costs to going into the office. I think where we have tended to come out is that ratio looks completely different for different companies and different kinds of work. If I’m a financial services company where most of my employees are under the age of 30, a huge amount of what I’m doing is mentoring and training. They’re all in New York, so you’ll have pretty short commutes. Then, the idea that the benefits of being there in person outweigh the costs? That’s plausible.
But in most cases, given there are benefits and there are costs, we want to bring in people for some purposes. At the beginning of a project, we should all come together. When we hire new employees, they should be on staff. We want to have some all-hands meetings from time to time where everybody’s here. You want to do that to get those benefits of being in person. But we can get probably 80%, 90% of those benefits while incurring 10% of the costs by only bringing people in once a week, once every two weeks. You’re seeing, depending on the kind of work people are doing, different ways of balancing those costs and benefits. And I think to most people it just seems silly now that you have to be there every day and keep incurring those costs with seriously declining marginal benefits.
Loney: Where do you think companies’ mindsets are right now about their employees, about retaining them, about losing them? Go back to 2021 and early 2022, it was a massive concern because you saw such a high level of turnover.
Bidwell: The quit rate is still reasonable. I think when I first started coming in here, tail end of the Great Recession, you didn’t have to worry too much about attrition because it was going to be really hard for your people to get another job. We’re nowhere near that. If you upset your employees, they’re going to leave. And the problem is, the people who are most at risk of leaving are the ones who are going to find it easiest to find another job. I don’t think we’re in a situation where most employers can say, “Attrition be damned, we’ll just go ahead and do it.” You want to be the most attractive employer. You want people to be excited to come to work for you, and you want them to be excited to remain working for you.
For most people, the flexibility of remote work is something that’s important to them. You are handicapping yourself in competing for talent these days if you have a five-days-in-the-office policy.
Loney: How has the mindset of the manager or the C-suite had to change because of some of these dynamics?
Bidwell: I think it’s really tricky. I spend a bunch of time talking to CHROs. And on this topic, it’s funny. The first thing that everybody says when they explain their policies, “Well, my CEO believes that.” And part of the challenge is there’s not yet a lot of great data on this topic. A huge amount is being driven by CEO beliefs. They miss the buzz of a full office. There’s an excitement there. Again, I’m not saying that remote work is costless. But it’s about balancing the costs and benefits. It varies hugely from organization to organization. There are some CEOs that have really got on board with this and said, “This is what we need to do for our talent. It’s a new way of working. We can make it work.” I think there are a bunch of other CEOs that kind of still vaguely believe, “If I can’t see them working, I’m not sure they actually are.” And it’s a big mindset shift.
Wellness at Work
Loney: There’s been lot of discussion about mental health and stress, especially in the workplace. How do you think companies have adjusted to that, and where is that potentially going?
Bidwell: That’s a great question. It’s something that we didn’t really talk about in a corporate context four or five years ago. I think Covid really brought it to the fore. Wherever you get two or three HR professionals gathered together these days, they’ll start talking about mental health. It’s a huge priority. I think companies are starting to take it very seriously. Sadly, I think the issues are more serious, particularly when you look at kind of the incoming generations. There are these terrifying statistics about how mental health among young people has declined over the last 10 years or so. And obviously, they’re starting to show up in the workplace.
I’m not sure anybody quite knows what to do about it. It’s kind of another dimension of inclusion, another thing you want to be thinking about. How do we manage stress? How do we manage burnout? It is clearly a part of the conversation now. I’m not sure yet to what extent it’s really starting to inform how people manage.
Loney: As we turn the calendar to 2024, what are you watching?
Bidwell: I think these remain the big trends. Are we going to see big impacts of AI? Again, the evangelists think it’s just around the corner. I’m thinking it’s in the years, until it really starts to show up in the labor figures. But I’ve been proved wrong many times in the past, so I’ll look forward to being proved wrong here. I think that’s the one everybody wants to talk about.
We’ve seen a cooling off in the labor market. What’s going on in the economy is, we’ve been, again, serially wrong. This time last year, it was clear we were going to have a recession in 2023. And we never did. Now, everybody’s convinced there’s a soft landing, we should probably start worrying. Multiple scenarios. It’s just because I’m a dyed-in-the-wool pessimist, which happens if you grow up supporting England. If you ask me, is the labor market going to be tighter or looser this time next year? I will probably bet looser, but I think it’s just my pessimism. I think there are downside risks, particularly concerning the interest rates that will bite over time. But that will have a big effect.
On the other hand, I guess you will see the infrastructure bill, the Inflation Reduction Act, all of those really starting to kick in as money goes out the door. I think the most encouraging thing about the last three years has been that the big growth has been at the lower end of the wage distribution. I think we should continue to see growth, particularly in manufacturing and other blue-collar roles. I think that is definitely a positive thing that I hope we’ll continue to see over the next year or so.