| -- | April 17, 2018 A Productivity Paradox By Patrick Watson Economics is the study of people’s rational choices when they’re faced with scarcity and uncertainty. The problem: people aren’t rational. They often act against their own economic interests—or appear to. So we have behavioral economics to figure out why. Now, you might think businesses are different since they focus on the bottom line, not vague feelings. Yet companies can act irrationally just like individuals do… and they may be even less likely to realize it, much less admit it. That’s a shame because everyone might be better off if they did. 
Photo: Getty Images Regular Hours Not so long ago, work was a daytime, Monday-through-Friday thing for most people. Now much of the US economy runs 24/7. As a result, millions of workers have unpredictable schedules. This is especially common in retailing. Chain stores use algorithms to match staffing with store traffic. On the surface, that makes sense. Why pay workers to stand around and do nothing? The shareholders expect management to maximize profits. If it’s hard on the workers, well, they can get another job. But what if this hyper-precise scheduling is bad for the business too? One recent study says steady schedules can bring in more revenue. University of California researchers worked with Gap stores in the Chicago and San Francisco areas to measure the impact of stable work schedules. Here’s how it worked, as reported in The New York Times: The study randomly assigned about two-thirds of the stores to a so-called treatment group, in which managers were encouraged to provide workers with more consistent start and stop times from day to day, and more consistent schedules from week to week. Many managers were also authorized to slightly increase the total number of payroll hours that they could allocate to their workers. Scheduling at the remaining one-third of the stores continued largely as usual. The result: The change in average sales during the experiment was 7 percent higher at the stores subject to the new policies than at the stores in the control group. So, when managers let people work regular hours, sales rose 7%. Across a sizable company like Gap, that’s millions of dollars a month. The study found much of the improvement came from reduced employee turnover. Stores with stabilized schedules had more experienced workers, who sold more products. While it’s hard to measure every factor in a study like this, the results suggest something important: treating people as valuable members of the company, instead of as interchangeable parts, can bring better results. 
Photo: Getty Images Six Days a Week For restaurants, then, there’s a direct connection between the hours they are open and the revenue they receive. Or so you might think. Consider Chick-fil-A, whose stores are closed on Sundays due to the founder’s religious beliefs. That turns out to be good business as well. According to trade publication QSR, in 2016 the average Chick-fil-A brought in 73% more revenue in six days than the average McDonald’s did in seven days. Nor is it just McDonald’s. Chick-fil-A sales were triple the average Wendy’s sales, again with one less day per week to do it. Against vigorous competition, Chick-fil-A easily wins the revenue fight with one hand tied behind its back, so to speak. One reason: Chick-fil-A seems to treat its staff well—not so much with higher wages, but opportunities for education and advancement. But there’s something else, too: Chick-fil-A workers know they’ll always have Sundays off. I suspect it gives Chick-fil-A lower turnover and better-trained workers. They return the favor by going the extra mile to please customers. Revenue follows. Could other chains do the same? Sure. Strong evidence says it would help productivity and sales. The rational move would be to copy Chick-fil-A’s practice. But they don’t, and some have even gone the other direction, expanding hours to stay open all night. 
Photo: Getty Images Paying Attention You can probably guess my point. Treating workers as valuable assets instead of disposable tools isn’t just the right moral choice—it’s often the smart financial choice as well. Yet many employers irrationally choose not to. This isn’t new information. In a now-famous 1920s experiment, Western Electric changed the lighting at its plant in Hawthorne, Illinois. It found making the room brighter improved productivity. That makes sense, but then it got weird. They turned the lights down again, and productivity improved even more. Western Electric also varied other employee benefits like break times. In each case, changes increased output. The effect faded with time, but something had obviously happened. The conclusion: it wasn’t so much the changes, but that workers saw management paying attention to them. They worked more efficiently when they thought the company cared about their comfort. Imagine that. 
Photo: Getty Images Double Down on People Today’s economists and central bankers know productivity is a problem, but they can’t seem to find a solution. Employers responded with measures like algorithmic scheduling in retail stores or all-night hours in fast food. Maybe these changes raise productivity sometimes, but the aggregate economic data suggests they usually don’t—at least not anymore. The next idea: robots and AI. Reduce or even eliminate those pesky humans. But if the Gap experiment and Chick-fil-A’s success mean anything, doubling down on humans might cost less and work even better. It’s something to consider if you own a business. And you don’t need the Fed’s help to do it. See you at the top,  Patrick Watson P.S. If you’re reading this because someone shared it with you, click here to get your own free Connecting the Dots subscription. You can also follow me on Twitter: @PatrickW.  | Subscribe to Connecting the Dots—and Get a Glimpse of the Future
We live in an era of rapid change… and only those who see and understand the shifting market, economic, and political trends can make wise investment decisions. Macroeconomic forecaster Patrick Watson spots the trends and spells what they mean every week in the free e-letter, Connecting the Dots. Subscribe now for his seasoned insight into the surprising forces driving global markets. |
 Senior Economic Analyst Patrick Watson is a master in connecting the dots and finding out where budding trends are leading. Patrick is the editor of Mauldin Economics’ high-yield income letter, Yield Shark, and co-editor of the premium alert service, Macro Growth & Income Alert. You can also follow him on Twitter (@PatrickW) to see his commentary on current events.
Share Your Thoughts on This Article
Use of this content, the Mauldin Economics website, and related sites and applications is provided under the Mauldin Economics Terms & Conditions of Use. Unauthorized Disclosure Prohibited The information provided in this publication is private, privileged, and confidential information, licensed for your sole individual use as a subscriber. Mauldin Economics reserves all rights to the content of this publication and related materials. Forwarding, copying, disseminating, or distributing this report in whole or in part, including substantial quotation of any portion the publication or any release of specific investment recommendations, is strictly prohibited.
Participation in such activity is grounds for immediate termination of all subscriptions of registered subscribers deemed to be involved at Mauldin Economics’ sole discretion, may violate the copyright laws of the United States, and may subject the violator to legal prosecution. Mauldin Economics reserves the right to monitor the use of this publication without disclosure by any electronic means it deems necessary and may change those means without notice at any time. If you have received this publication and are not the intended subscriber, please contact service@mauldineconomics.com. Disclaimers The Mauldin Economics website, Yield Shark, Thoughts from the Frontline, Patrick Cox’s Tech Digest, Outside the Box, Over My Shoulder, World Money Analyst, Street Freak, ETF 20/20, Just One Trade, Transformational Technology Alert, Rational Bear, The 10th Man, Connecting the Dots, This Week in Geopolitics, Stray Reflections, and Conversations are published by Mauldin Economics, LLC. Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated and there is no obligation to update any such information. You are advised to discuss with your financial advisers your investment options and whether any investment is suitable for your specific needs prior to making any investments.
John Mauldin, Mauldin Economics, LLC and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. Corporate policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely fashion.
Mauldin Economics, LLC reserves the right to cancel any subscription at any time, and if it does so it will promptly refund to the subscriber the amount of the subscription payment previously received relating to the remaining subscription period. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Mauldin Economics publication or website, any infringement or misappropriation of Mauldin Economics, LLC’s proprietary rights, or any other reason determined in the sole discretion of Mauldin Economics, LLC. Affiliate Notice Mauldin Economics has affiliate agreements in place that may include fee sharing. If you have a website or newsletter and would like to be considered for inclusion in the Mauldin Economics affiliate program, please go to http://affiliates.ggcpublishing.com/. Likewise, from time to time Mauldin Economics may engage in affiliate programs offered by other companies, though corporate policy firmly dictates that such agreements will have no influence on any product or service recommendations, nor alter the pricing that would otherwise be available in absence of such an agreement. As always, it is important that you do your own due diligence before transacting any business with any firm, for any product or service. © Copyright 2018 Mauldin Economics | -- |
