ADP's Chief Economist: How 'seismic' changes are transforming work, economies

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Meet the Leader / Linda Lacina: What’s an economic metric we might be overlooking?

Nela Richardson: A trend that we should be very aware of is professions people are aging out of. I would group into this bus drivers and accountants, positions in sectors where there had been a lot of workers at a period of time. Those workers are now retiring from the labor market and there's not young people going into those professions. I’d add to that specialty trades. It's key to watch because it's key not only to wage growth, but it points back to supply chain issues, especially if they're in goods-producing places. It also hits hard on inflation. It's what I call gaps in the labor market that are demographic-driven as opposed to competition- or pandemic-driven that we and the world really needs to keep an eye on.

Meet the Leader / Linda Lacina: And in keeping an eye on these metrics, what should we be looking for?

Nela Richardson: The opportunity to re-skill a younger workforce. The fact that people are aging out of this profession is not bad in and of itself if it's replenished with a younger workforce. People are just not aware of them but it could also be a skills gap that we have lacked in our educational system: apprenticeship programs, vocational programs, and other programs that provide these skills.

And then finally it could be a chance to change business as usual. Just because a business, for example, during tax season requires a 70-hour-work week for the same pay and it's historically always been that way doesn’t mean that a new generation of workers is going to play along. So looking for opportunities to modernize professions, to make them attractive to younger generations is I think an opportunity that could close those gaps.

Meet the Leader / Linda Lacina: There's a lot going on with the economy. What numbers are you interested in now?

Nela Richardson: I am part of the Great Resignation. Hello. My name is Nela and part of the Great Resignation. And the reason I left my previous firm and joined ADP is because I was attracted by data. I recognized that something seismic was going on in the world of work, and I thought a lot of attention is going to be paid to the here and now in the short-term recovery. It should be. But the really interesting moment is when we stop thinking short-term and we start thinking about what are the long-term implications in the world of work. And I thought that data could tell that story and predict where the future was going better than anything else I could think of. And I really embraced the chance to dive deep into millions of records on the employee and really look for those shifting trends, which I think will lead to permanent changes in the workforce.

Nela Richardson: Not anymore. But traditionally I think labour was taken for granted both the field as an academic discipline, but also the makeup of the labour force. You know, I am in a trained economist, and I will note that labour economists typically make less than other specialized professions within economics like finance or international industrial organizations tech.

I find that ironic. You would think that the people who specialized in wages and promotion would actually benefit from that and gain from that, but that's not the case. And it shows you what companies value in terms of the benefits that labour economists provide overall.

And I think that's changing. It's changing because of that second reason, the workforce. Too often the workforce was taken for granted. There was this common perception coming out of the Great Recession that -- probably even before -- that it was the company's prerogative to shrink and grow their workforce at will. And that in fact it made good business sense to do so. It helped with margins. Just like we had an on demand supply chain, we had an on-demand labour market.

What the pandemic taught companies in the US but around the world as well, is that sometimes when you let go of your workers, they're hesitant to come back and they may not come back to you. And if they do, they're going to ask for more money. And so, I think for the next recession (which is inevitable. We know they happen typically every four years. And if it's longer than that, between recessions, it's an aberration, not a norm) I think companies will be more hesitant to wholesale let go and lay off, because there may be a lesson learned here that in the new economy, it's not going to be as easy to get those workers to come back.

Meet the Leader / Linda Lacina: People are saying there might be a recession in the US. or we might be veering into a global recession. Do you think that some of this tight labour market, will continue, even with an economic downturn?

Nela Richardson: Do I think it will at least be tight in pockets of the labour market? When I try to think about what the economy looks like in the middle-term or in the long-term, I look for trends that existed before the pandemic and that were persistent before the pandemic, were exacerbated during the pandemic and are likely to continue after. One of those trends, especially in advanced economies, is an aging workforce. Demographics are destiny and they're playing a big role in the labour market. And we've seen the had actually exacerbated, especially in the United States, during the pandemic where it's estimated more than 2 million people retired because of different options (maybe an increase in wealth in home equity, maybe a sense of wealth from the stock market). But we've seen that aging of the boomer generation play a role in markets that has been exacerbated and so as they leave the workforce, those labour shortages are likely to continue, particularly in advanced countries.

Meet the Leader / Linda Lacina: Do you think there's an opportunity for workers to retain some of these advantages they've seen recently, like the uptick in wages? Will they retain this maybe in the medium-term?

Nela Richardson: What I like to say to that question -- because I'm asked a lot ‘are workers in the driver's seat’ or are ‘workers now calling the shots’ -- they never will. That's not true.

Workers will never be in the driver's seat, but they can be a very vocal backseat driver and make their demands known and help companies navigate the road ahead. And I think that's what we're seeing. A lot of the sectors where we've seen the most acute labour shortages are the sectors that don't pay that well. They are in customer-facing industries like leisure and hospitality or retail. A lot of these sectors have a lot of small companies that can't compete with large retailers or large wholesalers. And they've had to adjust during this pandemic. What that means is there is a limit to wage acceleration and wage growth that companies can offer.

And we might be closely closing in on that limit as we speak. But what it also means is that in a time where workers are re-evaluating the role of work in their lives and they can ask for other things, not just wages. Flexibility of time increased in importance during the pandemic. The line between home and work has been blurred. And to a certain extent, that blurring of the lines has helped achieve more balance. Yes, I may like to go into the office and shut the door at work, but at least let me choose the time periods when I can do so. And if I want to leave work and take an elderly parent to the doctor's office for a couple of hours, I shouldn't be penalized for that or if I want to go to a soccer game, I should be able to make up that time on the weekends so I can be there for my child. So, I think there are things that companies can offer workers that they value. Flexibility of time is one, more autonomy. But also career development, career progression, skills training, making coming to work more of an experience that is worthwhile instead of a place to sit for eight hours, I think is another attractive element. Workers do have the ability to get some of their needs and wants coming out of the pandemic met and this is the time to ask for it.

Meet the Leader / Linda Lacina: Is there a statistic that's been a 'eureka' moment for you? Is there something that kind of encapsulates the economic climate that we're in?

Nela Richardson: Yes. And it has nothing to do with economics. We at the ADP Research Institute, did a People at Work survey where we surveyed 33,000 workers in 17 countries to really get the feel of what the workers are going through, and the mindset and sentiment around work.

And we've done that at this scale for three years in a row, both before the pandemic, during the heart of the pandemic, and now hopefully as the pandemic is waning, not everywhere, but around parts of the world. And the results are surprisingly consistent. I can go into a lot of them. but the one that really surprised me is mental health challenges. The fact that so many of the global workforce, not only reported that they were struggling with stress at work at least once a week, but that their work was actually impacted by that stress in a negative way.

First of all, people don't talk negatively about themselves in surveys. Generally, they just don't. They'll talk about their bosses, their jobs, their kids, maybe even their spouses, but they won't say things that look bad. But the fact that this was a globally consistent result was surprising to me. It was also surprising because before the pandemic, I don't think there would have been an open conversation about this.

And now it has to be part of the conversation. And the good news is companies are stepping up. They're taking that conversation seriously. They're offering some stress breaks and meditation classes and a little more flexibility to help with the stressors of life. And we know that the pandemic amplified the stressors, but they were always present for working families.

So, I actually regard this as a sad reality of the moment we're in, in terms of all the challenges that people are facing globally, but even in our own local neighbourhoods, but also pointing to the possibilities and opportunities to make the workplace better by allowing people to bring their whole selves to work and giving them the tools to cope with these challenges in order to make the workplace better.

Meet the Leader / Linda Lacina: I think many people aren't making this connection at all. What's something people are overlooking that will impact the economy?

Nela Richardson: In a separate study that was conducted by the ADP Research Institute, it was found that people who had the right amount of stress (because stress can be good -- ask any person who has to perform for a living) a little bit of stress is not a bad thing. But stress that’s routine, that's chronic, that drains you, actually leads to lower engagement, less of a feeling of resilience. And this is what should get every company executive’s ears open in a time of labour shortages: it could lead to people leaving the workplace, either because of physical conditions tied to stress or because of mental stress that leads them to look for other work. And that's why it's such a pressing issue. So as a company, there are many balls in the air that you have to keep your eye on, but the health of your worker -- the pandemic has taught us that that should be central.

Meet the Leader / Linda Lacina: The gender gap is another chronic, thorny problem. Are we getting closer or are we stalling? What's your take?

Nela Richardson: We're stalling. It’s interesting. Looking at the US data, women were 46% of the workforce before the pandemic, but using ADP data, we show that they took 53% of the losses. And the reason why is because women were over-indexed in those very sectors and industries that took the hardest hit during the pandemic: retail, healthcare, education, and the list goes on.

We actually found the narrowing of the gap between men and women, but it was a false conclusion. Sometimes data is concealing rather than revealing. And so, you have to turn that screw another time to make sure your result is robust. And here we found that the reason why that gap narrowed is because so many low income women lost their jobs. Fast forward that to around the world, that's not just a US Specific problem. We see wage gaps everywhere. We've seen women bear the burden of the pandemic in multiple countries and their careers have maybe had a negative impact because of that.

So really, it's about supporting workers and individuals. But key is supporting women, to make those gains, to make household living standards even better and more equitable.

Meet the Leader / Linda Lacina: Is there a book that you recommend?

Nela Richardson: I've recently picked up, Ben Bernanke’s new book [21st Century Monetary Policy: The Federal Reserve from the Great Inflation to COVID-19] on central banks. And I think that that in this moment is really important. With so many global central banks around the world really redefining themselves in the presence of inflation, which the world hasn't seen for decades, this is an important book to look at the history of central banks, particularly in the United States, arguably the most important, given the prominence of the dollar in the world market. But look at not just the success stories, but the missteps and how monetary policy plays a role in the vitality of not only financial markets but in the labour market as well.

So, I'd pick up that book. I’d thumb through it at least to really get a perspective on all the decisions that central banks are going to have to make over the course of the next two to three years to get inflation reigned in.

Meet the Leader / Linda Lacina: Aside from getting more schooled on the mechanics of things, how can leaders prepare for this environment where there's likely going to be a global recession. What should they be doing now to prepare for the next two to three years?

Nela Richardson: Invest in humans. we often hear about blockchain, and we hear about technology and automation and all of these really cool things that my 14-year-old is very geeked about and they're important, but we can't lose sight of the reason why economies grow. And this reason never changes. It’s because the workforce grows in size and that workforce gets more productive.

Technology can give you part of that answer, but skills and how to use that technology will lead to a more productive workforce. So, if you really want to stay ahead of the game, you want wages to grow because profits are growing because you've invested in your people, you've made them more productive, which means you sell more stuff and make more money.

Nela Richardson: The key is to invest, invest in people

Meet the Leader / Linda Lacina: If leaders fall short of that, if they side-line it for some other goal, saying ‘I'll do that next quarter. I'll do that next year’ - what will happen?

Nela Richardson: You know, maybe this is the best advice I've ever gotten: Do not lose sight of the urgent at the expense of the important. There are a lot of urgent issues right now that will take an executive’s time. In terms of important, it's about really growing your business over the long-term and that means growing your people as well.

I think those distractions could really limit the capacity of a company. And it's really important to make important things like investment in people centre in your strategies.