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Londoners have been slower to return to the office after the pandemic than workers in many major cities around the world. This really matters, and not just for London.
Almost all of Britain’s economic problems can be traced back to sluggish productivity growth. Productivity, which measures output per hour, is the engine of economic growth.
As Paul Krugman once said, “Productivity isn’t everything, but in the long run it is almost everything.”
London has seen a sharp decline in productivity since the financial crisis, lagging international competitors and even falling behind the national average.
Since the pandemic, this trend has only gotten worse. According to official figures, output per hour in London was 2.7 per cent lower in 2022 than it was in 2019. This makes it the only part of England to have seen negative productivity growth over this period.
A new report from the Center for Cities, released today, suggests that working from home may be part of the explanation for the recent decline in productivity.
The report found that Londoners work an average of 2.7 days per week in the office, just ahead of Toronto but behind the four other cities surveyed. Paris came out on top, with 3.5 days at the office.
And while office work has picked up over the past year, with Londoners spending 2.2 days in the office, it still lags significantly behind the pre-Covid average.
Rob Johnson, analyst at the Center for Cities said City AM that the direct impact of homeworking on productivity was a “big unknown”, but argued that there was good reason to believe it had made a difference.
London’s economy is dominated by the knowledge-intensive service sector where face-to-face interaction is particularly valuable in enabling the transfer of information and knowledge.
“We know that knowledge spreads and innovation happens through face-to-face interactions,” Johnson said.
These so-called “spillover effects” have a major impact on an economy. As the report notes, “less frequent face-to-face interaction between employees in central London would put the city at a productivity disadvantage compared to other global cities.”
“We just need to know what the impact is because London’s productivity decline is Britain’s productivity decline,” Johnson argued.
The concern is that London’s performance could suffer in the long term. Indeed, it is a problem that workers are aware of despite their short-term preferences for hybrid work.
One-third of workers believe they are more productive at home on a daily basis, and two-thirds feel more productive at home for at least some of their tasks, the report found.
Meanwhile, over two-thirds of workers believed that workers spending more time at home over the next five years would be negatively impacted. At the top of the list of concerns for employees was the potential impact on learning new skills.
So what should employers do about it? The report suggests that one of the most effective ways to attract employees back to the office is to subsidize the commute.
“London workers are far more likely to cite travel costs as a barrier to returning to work than workers elsewhere,” Johnson said.
For example, 42 percent of Londoners cited lower travel costs as a benefit of hybrid working compared to just 25 percent of Parisians, the city where most workers have returned to the office.
A big difference is that employers in Paris are required to cover at least 50 percent of what employees spend commuting on public transport. Many cover the entire cost of commuting.
Perhaps London companies can learn something from their Parisian counterparts.
