Chief Economist Nela Richardson Talks Labor Trends and the New Workforce

ELISE HU: That’s Nela Richardson, chief economist at ADP and co-head of ADP’s Research Institute, dedicated to labor market and employee performance research. In today’s episode, I talk with her about the state of the economy, her predictions for the future, and how employers and employees can best position themselves for success. Here’s my conversation with Nela.

ELISE HU: Nela, thanks for doing this. I want to start with the question on everyone’s mind, which is, are we headed into a recession?

NELA RICHARDSON: No. There’s no evidence that we are heading into a recession right now. Now, is the risk of recession increased with higher inflation and with the Federal Reserve, whose task is to bring it down by slowing the economy? Absolutely. But when you look at the economy and things you typically look for for a recession, we’re actually not seeing a lot of evidence. In fact, where you do see the biggest slowdown is in the housing market. But that slowdown is not because of lack of demand or because of a slowing economy. It’s because of higher home prices coupled with now higher mortgage rates. So even that market is not really characteristic of a recession. What’s motivating recession talk is more sentiment and downbeat consumer feelings about the economy.

ELISE HU: Yeah, how are consumers feeling?

NELA RICHARDSON: Consumer sentiment has been fairly downbeat in recent months, and a lot of the reason for that is inflation. Prices are up almost everywhere you look in the economy. Fuel prices have been a bit volatile. But those core things that consumers spend their money on, like rents, have gone up, and the cost of borrowing has gone up. And so that means for Main Street, their consumer bill, what they see every month in terms of their statement has gone up. And so consumers are responding to price increases. And that doesn’t make anybody feel really good about the economy right now.

ELISE HU: Sure. But how worried should we be about recessionary fear?

NELA RICHARDSON: Recession is always part of the economy. It’s part of the boom and bust of the natural economy. And I think most people got lulled to sleep with the last expansion because it lasted 10 years. That’s never happened before. It was the longest expansion on record, and in reality, you expect to see a recession every four to six years. And so we’ve forgotten what a recession looks like. The last recession prompted a global downturn. So the last recession in 2008 was pretty bad. So our most recent memory was bad. In actuality, not all recessions are the same. People should be concerned about inflation first and foremost, because that’s what they see every day. That’s what is draining real incomes. The average hourly worker is seeing 3.6 percent less per hour than they did a year ago. That’s a concern. But recession without significant job losses probably won’t be felt by most people. It’s when job losses come. That’s when people really start feeling recessions.

ELISE HU: So what is your message to folks who are feeling not only maybe burned out at work but also like their dollar doesn’t go as far in this economy?

NELA RICHARDSON: I think acknowledging the fact that inflation has this corrosive effect on the workforce in companies is really important. And, you know, we can conflate a downbeat sentiment on inflation with a downbeat sentiment on the economy, and eventually they will become related. Your expectations for how inflation is doing is going to have this feedback loop into the economy and may actually trigger the very thing that you’re worried about. So it’s really important that you manage expectations about the business and about the household. Every one of us wants to position against avoiding risk. I would encourage people to position for enhancing opportunities. What opportunities have been revealed by the pandemic? What are things that you are doing now that you can actually scale, either at home or at work? What are the things that you learned during the pandemic that you can institutionalize to make it better for your workplace or the people you work with? We’ve all learned so much during the pandemic. Let’s share those learnings, accelerate those learnings, accelerate them into adoption, into institutions, because that’s how real change happens. So, yeah, we can’t avoid every recession. We just don’t have those kind of defenses. It’s not that recessions are inevitable, but they happen with somewhat regularity. But what we can do is position for the upside of a downturn by really investing in people and in technology to all become more productive.

ELISE HU: So that leads me to the next question, which is what are the trends you’re seeing in the labor market right now?

NELA RICHARDSON: For the most part, we are seeing a tremendous recovery from the job losses that were experienced over the last two years. But there are two things to keep in mind. One, it doesn’t account for all the jobs that would have been created if there’d been no pandemic at all. And we’re talking about millions and millions of jobs over the last two years. And two, there’s a lot of people still sitting on the sidelines. Some people just aren’t coming back. And when you think about the drivers of the economy, longer term, it’s more workers getting more productive. So we need that ‘more workers’ part back for long-term growth.

ELISE HU: Yeah. What can business leaders do to help there?

NELA RICHARDSON: I think this is a great opportunity for public-private sector partnerships. This is an economy that’s been transformed by the pandemic. It’s become more digital, more data-driven, and more in line with e-commerce. So how do you get a workforce prepared to embrace that, to thrive from it, to benefit from it? Well, one way you do that is to skill the new workforce for the new work world. And I think this is a place where the corporate sector can play a big role. They know what their trajectory looks like. Businesses know how they’re using AI, how they’re using new labor saving technologies, and how to transform them from labor-saving to labor-enhancing. So pairing that with the public sector, whether it’s community colleges or local workforce groups, could really help drive profitability for the companies themselves—build a more skilled workforce for tomorrow.

ELISE HU: Yeah, I know that Microsoft, for example, launched a massive initiative to help 25 million people worldwide acquire the digital skills they would need in the COVID-19 economy. What are other examples of that that you’ve seen or have been inspired by during the pandemic?

NELA RICHARDSON: There are companies who’ve actually opened their pipelines to train workers that have not typically been candidates for the jobs. One of the actually good outcomes of the really tight labor market, where jobs outnumber unemployed people 2 to 1, approximately, is that companies have gotten creative. They’ve reached out to underserved communities, they’ve reached out to women who weren’t considered for certain roles that had typically been male in manufacturing or in aerospace. We’ve seen at ADP, there’s been this trend of reduced tenure requirements for jobs, so that the years of employment required for a job posting have gone down a lot over the pandemic. So younger workers, less tenured workers are being considered for roles. It’s much easier to switch industries now than it was before the pandemic. So in terms of the hiring need, companies have reached out to the workforce in ways that they hadn’t before.

ELISE HU: So that certainly helped on the pipeline side. You’ve also talked about how investing in people is your top advice for business leaders. What are the best ways for leaders to do that?

NELA RICHARDSON: I think what the pandemic taught us is how important a healthy workforce is—not just physical health, but mental health. In the same way that you talk about supply shocks, it’s important to talk about people shocks because that’s what the pandemic was. It was a people shock. People lost loved ones. That’s the reality of these past two years. Their health was impaired. Their feeling of safety was impaired. A lot of people, especially people in vulnerable jobs, lost those jobs. So when you think about what can companies do, there’s a lot. But it starts with a healthy worker who feels productive.

ELISE HU: Yeah, this idea of a people shock is a great way to frame it.

NELA RICHARDSON: That’s what it was. But out of that came some new trends for the workforce, new priorities, a rethinking of the relationship with companies. And that rethinking not only includes what workers typically want from their employer—salaries, we all want to get paid, that actually didn’t change at all. Job security has changed. The notion of job security has been reshaped by the need for flexibility. A secure job is not just a job that you go to from 9 to 5. A secure job might be a job that allows for you to blur the lines a little bit more between work and home, to take off when you need to to take care of a sick relative or be there for a child’s soccer game. A secure job helps you be whole at work. And so job security has been tempered by this growing need for flexibility.

ELISE HU: Yeah, and the pandemic obviously gave employees more leverage than they had before, partly because of the job market trends. You’ve said, though, that employees will never be quite in the driver’s seat. How do you see the employee-employer relationship evolving during this period?

NELA RICHARDSON: Well, first of all, it is evolving. I like to call it the great realignment. I have said that the employee is never in the driver’s seat, it’s the company who decides for most of us in the private sector, whether or not you work. But I also think that the employee can be that noisy backseat driver, the one that is very vocal about the direction of where the company needs to go, particularly for the workforce. And smart companies will listen. They will work with now an engaged and animated workforce on how to set policies that work for people, not such rigid one-size-fits-all structures, but allowing more flexibility, allowing more training, allowing more development, and treating the office place as a place of development and skill setting and learning, and not just a place we go for our 9 to 5.

ELISE HU: And to that end, what are the key changes or trends in the way companies operate that you think every leader needs to know right now?

NELA RICHARDSON: You know, it really depends on the company. Most jobs can’t be done remotely. And so there’s been a lot of discussion about remote work and the trend for remote work for a small segment. It’s not the majority of the workers. So it’s really interesting to think about jobs that can’t be done remotely. The remote workers, they’re pretty much good. I’m sure there’s many other things they’d like, but people want more control over their time. They want to set their own schedules, and that’s not always possible, but to the degree that companies can be much more transparent about work schedules and listen, a little bit more flexibility in the day pays off in terms of employee retention. So we’re seeing companies take notice of that. And then to that point of mental health, we’re seeing companies be much more receptive to even having the discussion. I know that even a few years ago, companies were hesitant to talk about mental health issues in the office. And I think it’s much more acceptable now. And companies are doing a lot more to really engage people, you know, give them the counseling they need, give them the health breaks that they need to really stay productive and thrive.

ELISE HU: So Nela, there’s one disconnect that I’d love for you to unpack for us. It’s that employees in our latest Microsoft Work Trends Index report indicate that they are feeling more productive than ever under flexible work scenarios, while employers are worried about productivity and how work is getting prioritized or how company goals are getting prioritized. Can you explain that kind of contradiction?

NELA RICHARDSON: Yeah, that’s a great question. I’ve thought a lot about it because I’ve noted the contradiction as well. I think it starts with a difference in perspective. So when the employee says, ‘I’m more productive than ever,’ they mean it. They’re getting more of their work done. When the company says, ‘I’m concerned about productivity,’ they mean it too. They’re concerned about people working together for a corporate goal. It’s the same desire. It’s a different perspective. The worker is thinking about their individual work or maybe their individual team. They’re not thinking across the company about the synergies between individuals and between teams. Now, it’s also the case that workers in remote jobs were more positive overall about their career prospects. They felt like they were paid more fairly, paid for their skill set, that they were able to discuss training requirements, career progression, notice for their contributions—all way more than people who are actually on-site. So it’s almost as if, yes, companies are concerned about productivity, but they’ve also over-indexed to remote workers, where the workers in plain sight are not getting the same kind of nurturing and attention.

ELISE HU: And what could be done for the on-site workers.

NELA RICHARDSON: Well, it’s first to have these conversations. There may be a sense because of the jobs that can be done remotely, they tend to be more skilled jobs, more tied to the digital economy and jobs that you can do in front of a computer. Jobs in the office or at the worksite tend to be either consumer-facing or in manufacturing and construction. So what can you do to support people who have to show up and interface with your clients? First of all, aren’t they as important? So they should feel that way. And then what can be done to give them that kind of sense of a career ladder of career progression? But have that conversation. Recognizing people for their contributions in the office that they are making that extra effort to really show up for your company and paying them fairly. And providing training is a way to make all workers feel included no matter where their location is.

ELISE HU: How might this evolving discussion on matters like these, whether it’s schedules, whether it’s the whole employee being taken care of better holistically, and where employees work, what accommodations they’re getting? How might this discussion change or be affected by this lower consumer sentiment, the higher inflation, and just the overall recessionary fears that we talked about at the outset of the conversation?

NELA RICHARDSON: This competition for talent is not really paying off for the average worker right now because inflation is so high. So even though we’ve heard about wage growth and a really tight labor market, in actuality, real wages are not keeping up with inflation. Inflation is overshadowing everything. And so it makes it really hard for companies to focus on the long term when shorter term, they’re having to make cost-of-living adjustments to keep their workers employed and with their company. What really disturbed me during the pandemic is a lot of commentators, especially early on, pointed to the idea of a flexible workforce as an advantage in today’s economy, that companies could just grow and shrink their employee base at will and improve the bottom line of the company. That meant layoffs whenever needed, furloughs when convenient. But the company, bottom line, would stay intact because of this ability to grow and shrink the workforce at will. I think what we’ve all learned during the pandemic is that just because you ask workers back doesn’t mean they’ll come. So I think heading into a weaker economy this time around, whether it’s a full-blown recession or just a slowdown, you might see companies a little more reluctant to grow and shrink, or at least shrink at will. They might hold on to the people that they fought so hard to get back, that they’ve competed for in the talent wars. They might hold on to those new hires and those tenured workers and keep hold of the people who could possibly retire next year. Keep that knowledge set in the company because they know what could happen, which means people walk out the door and their talent and their skills go with them, and it’s really hard to recruit and replace those people.

ELISE HU: Are there long-tail effects of that when it comes to innovation, for example? Because if you are keeping around employees that maybe you would otherwise shed, what kind of effects might we anticipate?

NELA RICHARDSON: I think this is a fertile ground for innovation because so many things are changing at once, and people are coming at change from all kinds of different directions. We’ve done surveys early in the pandemic that said remote workers actually feel more creative. They feel more innovative. They feel like their teams are supportive, less cliquish, for example. I guess the water cooler talk can sometimes turn a little mean-spirited in the office, but they felt like they were given the bandwidth and the autonomy to work. But there’s also ways to engage clients and consumers and customers a little differently. Digital sales, for example. There are ways that companies can meet a growing customer demand that has become more digital for it. And I’m going to keep tapping into this because that’s where I see a lot of innovation happening, especially in small businesses. Some businesses, even small, like mom-and-pop businesses, became very technologically driven, totally rearranging their business models, selling online, changing the scope of how they do benefits within their company to retain workers—doing a lot of new stuff because it was required, and that stuff is sticking. So, you know, they say necessity breeds invention. I think that’s always been true, and it’s true now.

ELISE HU: And regardless of technology, people obviously are always at the center of companies. And so I have to ask you, especially in this time of another realignment or a Great Reshuffle, as we’ve been calling it, what actions can business leaders take to help ward off burnout? Because that is such a huge factor in retention.

NELA RICHARDSON: People may be working more remotely, but they’re also working longer hours. So being aware of that, that leads to burnout. Some of it is because it was easy to add more hours when you’re loading the dishwasher, but also some of it is because they receive new responsibilities. Maybe their colleagues quit or retired early or lost their jobs involuntarily, and so they had to take on new responsibilities, which meant more hours. Companies should pay a lot of attention to that part of their workforce, that they’re not overtaxing the current employee.

ELISE HU: Okay. So if leaders want to ward off burnout, they need to keep tabs on how many hours their employees are actually working. Just to bring it all together, obviously, there are so many macro factors going on and then that affects the micro economy as well. What do you want people to know? What do you want our listeners, many of whom are hiring managers, many of whom are business leaders, what do you want them to know?

NELA RICHARDSON: Well, I think there are three things that really deserve some attention. One, now more than ever, it’s important to look where the puck is going. There’s been so much change, but that change is not going to lead us back to where we started. And so it’s going to look different for every company. But to be aware of what the workforce needs are now, what the sentiment in your workplace is now, is really critically important. The second thing is, compensation and wage, is something we haven’t talked a lot about, but it is front and center for every employee. What does compensation look like in a world where people demand more flexibility? So how do you structure compensation in a way that encompasses everything that workers really want right now? Most businesses can’t just keep raising wages and salary, and in doing so, there is a concern when every company does this that the macro level that leads to a wage price inflation, where wages chase prices chase wages, wages that grow because workers are becoming more productive actually helps everybody, helps the company, makes them more profitable, helps the worker. And over the long term, it increases standards of living. Wages that grow because companies are just competing with each other for talent actually doesn’t help people because you’re basically paying more for the same output. And then two is balancing compensation with the need of the worker for more flexibility. So offering that non-monetary compensation in terms of flexibility, autonomy, upskilling, development—those are other needs that the workers want. And then, finally, making your workforce more productive because that’s what grows your company. That’s what makes your company more competitive. That’s what improves profits. But also, that’s what grows the economy: when more people are more productive.

ELISE HU: All right. This is great insight and advice from economist Nela Richardson. Nela, thank you so much.

NELA RICHARDSON: It was my pleasure to join you. Thanks for having me.

ELISE HU: That was Nela Richardson, chief economist at ADP. And that’s it for this episode of the WorkLab podcast from Microsoft. Please subscribe and check back for the next episode of WorkLab , where my co-host, Tonya Mosley, will be speaking with Sarah Bond, corporate vice president of Xbox at Microsoft. And they’ll talk about what the gaming industry has to teach us about the future of work. And please rate, review, and follow us wherever you listen. That helps us out a lot. If you have a question you would like us to pose to leaders, please drop us an email at worklab@microsoft.com, and be sure to check out the WorkLab digital publication too, where you can find, among many other things, a transcript of this episode. You can find it all at microsoft.com/worklab. The WorkLab podcast is a place for experts to share their insights and opinions. As students of the future of work, Microsoft values inputs from a diverse set of voices. That said, the opinions and findings of our guests are their own, and they may not necessarily reflect Microsoft’s own research or opinions. WorkLab is produced by Microsoft with Godfrey Dadich Partners and Reasonable Volume. I’m your host, Elise Hu. Our correspondents are Mary Melton and Desmond Dickerson. Sharon Kallander and Matthew Duncan produce this podcast. Jessica Voelker is the WorkLab editor. All right, until next time.