Hybrid working is the new norm

“Working from home” is here to stay, but the balance of power in these situations is now shifting from employees to employers.

| 7 min read

The pandemic has changed many things. One major shift was a blow to the model of office working, based around five days a week and commuting to a city centre or office district far from home.

Companies needed to allow working from home when only the most essential visits to the office were legal. They had to spend on improved technology and links from homes to company systems. Many office workers enjoyed the end of the five-day-a-week battle with commuter trains, peak-time traffic jams and buses. They could save the fares, mind the dog themselves and be at home to receive the online parcel deliveries. Whilst many missed the daily exchanges with colleagues around the tea station or in meetings, those that had a good home and family commitments came to value the flexibility home working offered. The young and the single were more likely to miss the daily in-person social side of office life.

When the pandemic was tamed sufficiently to allow a return to the office, employers and employees agreed in the main to try to have the best of both worlds. The hybrid model has become the new standard on both sides of the Atlantic.

A benefit for many

Many employers and senior managers like it for themselves, so they cannot easily deny it to others on the payroll. In a world of labour shortages and skills scarcity, offering a good deal on flexible working is a crucial part of attracting and retaining talent. Some employers see the opportunity to reduce their floor space and offer hot desks to tourist employees, who only visit the office occasionally.

Some see it as a chance to move their office from expensive centre-city locations to lower-cost places, possibly with several smaller offices spread regionally. In practice, most have so far incurred greater costs with the need to spend on technology to ensure hybrid meetings and events work well, whilst honouring their lease commitments. Parts of offices need to be repurposed with more meeting and collaboration space, as people are understandably coming into the office do so to work directly with others. There is less point in coming in if you sit and communicate only with your desktop as if at home. The meeting rooms need high-performance technology to allow a successful hybrid meeting, without the technical issues diverting the energies of the participants.

As a result, there has been no collapse in demand for office space, though there has been a sharp fall in demand for transport into centres, as well as issues for the smaller businesses that cluster around an office hub. They especially lose business on Fridays when fewer people are likely to come in. Many office-based businesses maintained their revenues during lockdowns because they still supplied the service, though had to deliver it remotely. They could afford the rents on near-empty buildings.

Reports on productivity are mixed.

There are employees who are clearly more productive at home. There are fewer distractions from colleagues who need to email or ring to get your attention. Quite often an individual will give some of the time saved on commuting to the job and be willing to do things for work out of normal hours. It is also possible for an employee to be more distracted by domestic pressures, with looking after children, shopping, tackling home maintenance and cleaning making more incursions into what used to be the office hours of the day. Managing a hybrid workforce requires insight, knowledge and sensitivity. The manager needs to know who has the work culture he can rely on and who needs legitimate supervision to ensure the tasks are well done in a timely manner.

Have we now reached the new normal?

The decision to allow flexible hybrid in most workplaces is not only the result of covid and past lockdowns but also a feature of labour markets in Europe and North America that have more vacancies than people seeking jobs. In the scramble for talent, flexible working ranks high in the offers needed.

In the US, unemployment is down to 3.6%. There has been a rush to hire people in areas such as hospitality, retail, business services and warehousing – as lockdowns end and the economy expands quickly. Average hourly earnings have risen 5.6%, with strong rises for jobs that have been lower paid in the past. The more the job requires a five-day commitment away from home, the larger the push for increased pay. People need tempting into hospitality, and into warehousing and driving - areas that a company such as Amazon has come to dominate. Accommodation, food services and transport have seen faster rises than the general rate. The statement from Amazon that it may now have overexpanded its capacity implies some reduction in its demands on the labour market.

In total, 25% of German employers in services see a lack of people to do jobs as a restriction on their output.

In Europe, particularly in Germany, there are production constraints owing to a shortage of labour in some sectors with a high level of vacancies. Eurozone unemployment is still near 7%, but this is a new low since the Euro was created at the beginning of the century. There are signs of stress in the labour market with employers in the hotter parts of the zone having to try many things to recruit. In total, 25% of German employers in services see a lack of people to do jobs as a restriction on their output. It is perhaps no coincidence that Germany, with the most stretched labour market of the major EU countries, is allowing substantial homeworking.

An ease in the labour-market squeeze

Now the Fed is talking of slowing the economy with a series of interest-rate rises we should anticipate some easing of labour shortages. There is likely to be some easing of demand for more employees in Europe as consumer confidence is falling, as well as the impact of Russia’s war in Ukraine.

Our base case assumes inflation will fall later this year, and that it will not embed through ever-higher wages leading to a wage/price spiral. There is now evidence in poor consumer confidence numbers on both sides of the Atlantic that economies will be slowed by the hit to real incomes, avoiding a general wage-fuelled inflationary explosion. This will also mean we have probably seen peak homeworking.

The hybrid model is the new norm, with many senior managers wanting it for themselves and seeing its value for many of their employees. It is likely, however, that the employer/employee balance will now tilt back slightly towards the employer. As labour markets cool, there will be more meetings and essential collaborations for staff to do in the office – and more staff turning up to be at them.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Hybrid working is the new norm

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