Covid Lockdown Productivity is an Illusion

A study by economists Robert J. Gordon and Hassan Sayed argues “the pandemic appears to have created a resurgence in productivity growth with a 4.1 percent rate achieved in the four quarters of 2020.”

In other words, while many office and retail workers were working from home, productivity accelerated, the study says. Some will take that as confirmation that work from home actually does raise productivity. 

Maybe not. “We use the data to show how severely the quarterly pattern of aggregate productivity growth is distorted in 2020 by the change of the industry mix in which low-productivity industries suffered disproportionate losses of output,” say the National Bureau of Economic Research researchers. 

To be sure, the 2020-22 average productivity growth rates of 17 industries are highly heterogeneous, ranging from +10 percent to -9 percent at an annual rate.

“To provide insight, we divide the 17 industries into three groups: goods, work-from-home (WFH) services, and contact services,” the researchers say. “We show that WFH industries account for more than all of the positive productivity growth during 2020-22.”

What must be explained is productivity growth as output plummeted. The answer appears to be that “the apparent countercyclical behavior of productivity in 2020:Q2 reflected not a sudden outburst of creative innovation, but rather in large part a shift in the mix of output and employment toward higher productivity sectors of the economy,” the authors say. 

“While output and employment dropped everywhere, they declined at a much faster rate in the sectors where labor productivity and wages are relatively low,” say Gordon and Saved. 

“This shift in the industry mix reflects a relatively large decline in the employment of workers in low-paid industries where work involves close contact among employees, customers, or both, such as bricks-and-mortar retail trade and leisure/hospitality, and a relative increase in the employment of workers who could continue to work at home in relatively high-paid industries such as finance and information technology,” they note. 

In other words, we simply subtracted low-productivity workers from the sample, leaving a higher preponderance of “high-productivity” workers in the sample. 

Leave aside for the moment the question of whether knowledge worker productivity actually can be measured. The boost in productivity documented here actually results from removing substantial portions of the low-productivity workforce from the statistics. 

So average productivity rose, even if much of the real economy was shuttered. 

The point is that we need to be careful about claims that work from home actually increased productivity. This study only confirms that lots of low-productivity employees were out of work. We actually know very little about WFH productivity effects.

What is a "Problem" and What is a "Success?" Sometimes They Get Confused

Can you name a single government program that achieves 99 percent of its goals? And if any such program achieves 99 percent of its actual numeric goal, does it make any sense to say such an outcome is not worth cheering? 

Where it comes to home broadband, if you pay attention to the actual numbers, the “unconnected” problem is a “last two percent of locations” issue, and always is. The actual size of the “cannot buy broadband” problem also is definitional. There are almost no continental U.S. home locations where internet access at “broadband” speeds is unavailable, if one includes satellite access among the relevant platforms. 

That is why home broadband availability suffers in areas with lots of rural households and also tends to be best in urban areas. 

In fact, one often sees descriptions of home broadband that are examples of innumeracy, such as the claim that 0.2 percent represents “so many” locations when it actually represents “so few.”

On the other hand, customer choice also is disregarded, though it is a huge factor in choices made about whether to buy home broadband services. 13 percent of households say they do not want to use the internet. 

In addition to that, at least 15 percent of U.S. residents report they are mobile-only for their internet access. Assume that equates to about seven percent of households. 

So add up those two categories--do not want to use the internet and use mobile for internet access--and you have as much as  20 percent of U.S. households that have good reasons for not buying home broadband services. 

“Availability” is far less an issue. 

The key issue is the oft-repeated insistence that something is a “big problem” when perhaps that is not the case. Problems can exist, and still not tell the story. One percent and two percent issues remain issues. But that should not obscure the main story, which is that 98 percent to 99 percent of instances are perhaps not problems at all.

Orange, Masmovil in Spain to Merge Their Assets

A merger of Orange and Masmovil in Spain will create a new entity with about 25 percent share of the access business revenue in Spain (both mobility and fixed network services). 

At least some observers believe the proposed deal with provide clues about regulator willingness to allow more consolidation in EU markets that reduce the number of main competitors from four to three. 

The deal would create a telecom market with three leaders: Movistar (Telefonica), the new firm and Vodafone.

source: CNMC 

The firms are likely to make the argument to regulators that the deal should be approved to allow the new firm, jointly owned by Orange and Masmovil, to speed up investments in 5G and next-generation platforms.

Home Broadband Resisters: Mobile and "Not Interested in the Internet" are the Big Issues Now

Can you name a single government program that achieves 99 percent of its goals? And if any such program achieves 99 percent of its actual numeric goal, does it make any sense to say such an outcome is not worth cheering? 

Where it comes to home broadband, if you pay attention to the actual numbers, the “unconnected” problem is a “last two percent of locations” issue, and always is. The actual size of the “cannot buy broadband” problem also is definitional. There are almost no continental U.S. home locations where internet access at “broadband” speeds is unavailable, if one includes satellite access among the relevant platforms. 

That is why home broadband availability suffers in areas with lots of rural households and also tends to be best in urban areas. 

In fact, one often sees descriptions of home broadband that are examples of innumeracy, such as the claim that 0.2 percent represents “so many” locations when it actually represents “so few.”

On the other hand, customer choice also is disregarded, though it is a huge factor in choices made about whether to buy home broadband services. 13 percent of households say they do not want to use the internet. 

In addition to that, at least 15 percent of U.S. residents report they are mobile-only for their internet access. Assume that equates to about seven percent of households. 

So add up those two categories--do not want to use the internet and use mobile for internet access--and you have as much as  20 percent of U.S. households that have good reasons for not buying home broadband services. 

“Availability” is far less an issue.

Garbage In, Garbage Out

Not every job can be done remotely, and perhaps we should also recognize that though employees like it, productivity is not necessarily improved or maintained when workers are full-time remote. What is true “in the office” is likely also true “out of the office:” 80 percent of total worker value is created by 20 percent of the activities at work, and perhaps also by 20 percent of the workers. 

It is too easy to blame insecure bosses for resistance to remote work. Even younger CEOs are expressing concern about the productivity impact of remote work, though some claim there is evidence of enhanced productivity. 

We can say with some certainty that people prefer working remotely. But that is a different issue than whether productivity is better, the same or worse. Employee satisfaction often is higher with remote work, but that also is not the same as asking whether workers are more productive. All we know is that they report being happier. But they also might be distracted. 

Also, we cannot be sure that team productivity is positively or negatively affected, even if we think we have some sense of individual productivity.    

In truth, since knowledge worker productivity is exceedingly hard to measure, all we often have are opinions of workers who claim they are more productive. Some cite email activity or meetings as evidence that productivity has not dropped. Some of us will question whether measuring email volume or number of meetings attended as useful measures of business outcomes, though.

In fact, it might be fair to say we do not really know what has happened to productivity as lots of office workers went remote. Productivity might be higher for some; the same for others and lower for some significant number of people. 

Much will hinge on the type of work done, the personalities of the actual people, the phase in career, and the amount of value random collaboration actually creates. 

 Remote work is not  going to go away, but it might not grow as much as much expect, either. The bigger issue is what we think we are measuring when trying to assess productivity. The adage “garbage in, garbage out” applies.

Congratulations Denmark

Congratulations (coming Sunday) to Denmark. Jonas Vingegaard is one step closer to winning the 2022 Tour de France after he extended his overall lead with a stunning stage 18 victory. A Danish rider last won the Tour de France in 1996. 

In a head-to-head battle with defending champion Tadej Pogacar, Vingegaard waited for his rival after Pogacar crashed. Sportsmanship! 

How Do You Compete with "Free?"

Why, over the past couple of decades, have connectivity service providers been so concerned about over-the-top application providers? In large part, because the change from a closed telco value stack to an open internet value stack both devalues traditional telco products and enables new competition. 

Put simply, “it is hard to compete with firms that give away what you sell.”  It also is hard to compete with providers who are willing to sell “at cost.” Consider the way “triple-play bundling” has worked in the fixed networks business. 

While it is true that both incumbents and attackers have used the bundling strategy, they have done so for different reasons. In nearly all cases, some services have been the equivalent of retailer  “loss leaders.” 

Telcos have been much more concerned with “merchandizing” video services to protect voice service revenues and profit margins, while cable TV operators have been more willing to merchandise voice services or mobile services to protect legacy video revenues. 

These days, most fixed network service providers hope to merchandize almost anything to protect home broadband market share, revenue and profits. 

Mobile service providers, on the other hand, want to protect broadband data access revenues and merchandize voice, text messaging, phones and video or content. 

In other words, can you compete with "free?" That complaint lies at the heart of issues connectivity service providers have had with over the top edge providers or app providers. 

For communications service providers, the issue has arisen mostly in conjunction with low cost or “free” services such as Skype or WhatsApp that supply voice or messaging services “at no incremental cost,” once a user has suitable devices and Internet access.

That has led many to say the economics of abundance makes new revenue models possible. Some would say “abundance,” a relative term, makes new models essential, in at least some cases. But the implications are startling.

The basic idea is that transistors, storage, computation and bandwidth are so abundant  the cost of their use--and digital products built on them-- is a price very close to zero. 

The corollary is that businesses based on the use of such resources can be viewed differently from businesses where physical  inputs are necessary and relatively expensive.

In other words, businesses based on abundant inputs can "waste" those resources. In a pre-broadband, pre-Internet-Protocol era, unicasting (content on demand) would have been nearly impossible. That is why video entertainment was broadcast or multicast. 

The same sorts of economics apply to digital products whose cost of replication is quite low, in comparison to physical goods. 

Or consider Facebook Messenger, or Skype or WhatsApp. It is the same general business problem: competitors who can afford to give away valuable apps and features, or price them very low, because their business models are built on some other revenue driver. 

Incumbents in the New Zealand home broadband market lost about  three percent account market share over the last year ending in March 2022, says IDC. 

Notable share gainers include Trustpower, Contact Energy, Electric Kiwi and Nova Energy,  energy retailers who now are bundling home broadband with their energy services. 

“The energy retailers have a distinct advantage over the telcos; energy retailers don't need to make a profit on their broadband services,” says Monica Collier, IDC New Zealand researcher. 

How to ”compete with free" is a major question in the Internet era, where many goods--especially of the non-tangible sort-- can be replicated and produced with low marginal cost.