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Dan Loney: Well, the world of work
certainly has seen some unique changes in the last few years.
Remote work obviously being one
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of the bigger ones. But you also
have technology like AI becoming a more important component in
our jobs as well. So where do we
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stand right now as we're coming
towards the end of 2024, and what would we consider as we head
into 2025? Pleasure to be joined
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here in studio by Peter Cappelli,
Management Professor here at the Wharton School, and also
Director of the Center for Human
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Resources. Great to see you
again. How are you? Peter Cappelli: Thank you.
I'm hanging in there.
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How are you viewing, then,
work and the workplace right now? You know, I— I don't know who
first said this. So let's just,
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if we can't think of it, it'll just
credit it to me— that the future looks like the past, only more
so. And what that means is,
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don't expect, you know, enormous
changes overnight in anything. And that if you want to bet
where things are going to be in
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a few years, you look at the
trends which are already underway. And they're likely to
continue. So if you go out a few
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years, it could look like a big
change. If you're in the middle of it, it doesn't feel like
quite so much, you know? I think,
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you know, the biggest change for
people has actually been the tight job market. So, post-
pandemic. And more than
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technology or— maybe remote work
is up there. But you know, having gone through generations,
from 1973 through to 2017, the
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unemployment rate in the US fell
below 4% only once in more than 40 years. And so we grew up in
that period. It was a lousy job
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market. - Yeah.
- For 40 years. And since 2018 it's been 4%—
below 4% effectively every year.
- Yeah.
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And that is a real sea change, right? That there— you have more
choices. People can quit and go
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someplace else. And that has,
you know, sort of shaken up a lot of things. So I'd say that
on the ground for people has been
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the biggest change. Remote work,
if you've got it, is an enormous change. But it's always stunning
to tell people that only 26% of
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US employers have any kind of
remote or hybrid work. - Yeah. Because it feels like it's a lot
more. - It feels like it's a lot,
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and the reason it does is
because that's what the press talks about. - Right.
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And something we discovered, one of my former students and I,
Shoshana Schwartz, we just
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totaled up the size of the
industry that supports human resources now in the US.
- Right.
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And that industry is
$1.9 trillion. So it's the same size
as the official GNP of Italy. So
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it's enormous, and they spend
10% of their budget on marketing. And what they're
telling you is almost never,
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"Don't worry about it. Nothing to
see here," right? - Right. They're constantly telling you things
are wrong and different and
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everything is going to change,
etc. And the reality is probably not nearly so much.
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But it even feels like remote
work is— is even changing, to a degree. - It is. - As we're seeing,
incrementally, companies calling
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back workers into the office,
whether that be five days a week, three, four days a week,
whatever that combination is.
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And it always felt to me, even
as we went through the pandemic— and this is just my— you know,
my experience is— just feels like
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we were going to get to a higher
level of back in office at some point. It was just when, you
know, companies were going to
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make that move.
- Yeah, it's a great point, because it also
explains the problem that
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companies had. I think it worked
way better than anybody expected. But that did not mean
it was great, right? And a lot
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of the problems are ones that
accumulate over time. The most obvious of those is, once you
start hiring new people in they
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don't know, in a remote
organization what the place is like. They don't know what's
going on. They don't know the
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culture. You know, you do that
for a year, it's not such a big deal. You do it for four years
of people, which is what we've
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done now— four years of new
hires who never knew the old organization, the office and the
culture of the place. You get a
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different kind of organization
after a few years. So the problem and the problems
associated with remote work
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accumulate and started to get
worse. And now you are seeing companies also start thinking,
"You know, yeah, it did work
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better than we thought, but it's
not perfect, and let's see whether we can start getting
people back." The downside is
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exactly what you pointed out, is
they said nothing for four years or the last three. And so people
understandably thought, "Okay,
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this is the way it's going to be."
- Right. - And now they're really
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angry if you bring them back.
- Well, and I was gonna say, the expectation
now, it feels like, by younger
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generations is that there is a
component of remote work that they should expect as part of
their job moving forward.
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Yeah. And you know, some of that
came out of their experience in school. - Yeah. - High school. - Yeah.
- That's actually a problem that
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we have seen here with students,
and my colleagues elsewhere see the same thing. And with— the
experience in high school was
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not just teaching remote so you
didn't have to come to class, but also a sense that,
frankly, we lifted this— we
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lowered the standards, right?
Because we didn't want to fail anybody in that time of crisis
for the country. And so their
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perceptions of what is required,
you know, just got awfully sloppy. - Right. - And so that's
something we're dealing with
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now, and it's not always fun. How do you think companies have adapted to that
dynamic of
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the workforce and having so many
people available, and the ability to— for somebody to just
pick up and leave, which really
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wasn't the case if you go back,
you know, 30, 40, years? It's a dynamic that obviously— or I
should say it's an adjustment
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that companies really have to
make. Yeah. No, it is a great point. And I
think the problem is they have
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not adapted to it. They've just
been bearing the costs and not paying much attention to it. And
the reason for that is something
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we've talked about with you
before, and this is this strange issue of accounting, financial
accounting. So there's no
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ability, if you're an investor,
say, to look at a company and see is turnover costing them
money or not? Because there's no
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evidence on it. Companies don't—
won't tell you their turnover numbers. And if you're a CEO of
a company, you're not managing
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to your turnover numbers, because
nobody sees them. But you are managing to your compensation
numbers. So if you're
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underpaying people for a while
and it's causing you to lose people, yeah, you're not doing
as much about it as you should
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if you were trying to worry
about the overall effectiveness of the company. If you're just
playing to the numbers, you
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know, you're willing to tolerate
higher levels of turnover that don't make business sense, but
they might make accounting
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sense, right? So I'd say,
unfortunately, they're not doing as much about that as they
should. You know, we're seeing,
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for example, employee life-
related issues, health issues, perceived well being, all that
stuff, mental health problems,
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really getting worse and worse
and worse. I confess, I'm not sure exactly why, but the
numbers are going up over time.
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So it's not just, you know, some
weird one shot thing. And you know, companies aren't doing
much of anything about it. They—
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they're giving you more chair
yoga programs, but they're not dealing with the things that are
causing the stress in the first
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place, like constant
restructuring and downsizing. So is the focus on
culture in the office, you know,
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having that kind of framework,
is it a little bit overrated then, in terms of what it's
going on— what is going on, and
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how it's going on? You know, I think the story on
almost everything these days is,
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what do people at the very top
of the company think? Because it's so top down. You know, the
need for everybody underneath to
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make sure that the very top
folks are on board with everything you're doing right
now. And I think they all
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believe and understand that
culture kind of matters. They don't have much of an idea of
what their culture actually is,
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and it's often not nearly as
great as they think it is. And I think they are aware that remote
work in particular is just
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eroding your culture. You know,
people don't see each other. You learn culture by observation, by
seeing what's rewarded and
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particularly what's punished.
You don't even have gossip anymore to figure out, you know,
who got fired for what? Company
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doesn't want to talk about it.
But everybody knows, right? You learn that stuff. That's all
gone. I think they understand
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this at a kind of gut level.
They also don't think they have to do much about it,
unfortunately, to make it
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better, and they're really,
really reluctant to spend money on anything. So if you could
suggest that there are things
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you could do that don't cost
anything, they're probably inclined to do that. But a lot
of these innovations, like,
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let's take our culture more
seriously, would also require their time. - Right. - You know, we
need our managers to be seen, to
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be visible. They need to see you
walking around. Well, that means I got to take time away from
deal making, and, you know,
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conversations with investors. Do
I want to do that? No. I saw you talk earlier this year
about the component of entry
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level jobs, and the fact that
there are instances where even the entry level job requires a
couple of years of experience.
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Why has that happened, and what
kind of an impact is it having? Yeah, well, that, particularly
after the Great Recession, we
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started to see employers just
ramp up the requirements. And the reason was, they could. You
know, they had lots of people
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just saying, "How high would you
like me to jump?" So they just started adding requirements and
adding requirements. And you
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know, on our campuses, you
discovered that students couldn't get internships unless
they had already had an
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internship, because nobody
wanted to be the first person to give them— break them in as to
what it means to actually show
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up on time and that stuff, right?
So I think, you know, we still have a problem on the hiring
side, in that employers are
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unrealistic about what they're
looking for, given what they're willing to pay. And some of that
is just sloppiness. You know, we
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hire by committee. "Just tell me
what would you like to see in this job," and then "What would
you like to see?" And we just add
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them up, and you end up with
this Christmas tree that nobody is qualified for, right? So that
still goes on. I think what's
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different now is they pay a
price for it. You know. So time to fill positions is going up,
and companies just leave
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positions vacant. And CFOs often
think that saves money. You know, it hurts performance, it
hurts economic costs. But
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finance, again, in terms of
accounting, it might look like you're saving money. So, you
know, it's this dilemma between
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are you trying to run an
effective organization, or are you trying to run one that looks
good on paper?
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How do you view the use of AI in the
workplace, how it will be used and relied upon? And— and also,
there was the narrative for a
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while about AI replacing jobs.
But it feels like it's now more of, AI is going to be a
complement to human jobs.
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Yeah. You know, it's again, this
story about vendors. If you ask the people who are creating
something what it can do, you
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get this incredible story. And
it might be true that it literally could do those things,
but it turns out that not
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everybody wants them, and to do
them sometimes costs an unbelievable amount of money,
right? So, for example,
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generative AI could write all
your form letters for you now. Yeah, it could do that. But
nobody writes those now. They're
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all form letters. They've gone
through legal. No manager's sitting down and handwriting notes to
customers, right? So a lot of
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stuff they could do doesn't need
to be done. I think when we're looking at actually trying to
automate work, as they say,
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which means take over these
tasks from workers, it's really hard to make that go. It takes a
ton of IT time and money and
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generative AI, which can do
great things, is no longer cheap. It's quite expensive to
get the most, you know, the
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fanciest stuff. And the problem
is, the things they're trying to automate are low value. And we
think, "Oh, okay, we'll do those
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first, because they're low
value." But the problem is, if you— if you need expensive AI to
automate something that's cheap,
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there's no way it's going to pay
off, right? It's one thing to get fancy, generative AI to do
gene sequencing for you,
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something of real value. - Yeah.
- It's another to get really expensive AI to read forms, you
know? And so I think we
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discovered the same thing we
discovered a while ago with robotics, and that is, it's not
taken over anybody's jobs,
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really. It might take over a
task or two from people. - Right. Not the whole job.
That's a good thing.
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I mean, none of this is bad. It's just that the hype was so
out of proportion to the
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reality. And the reason is, the
hype comes from the people who are building the tools, not the
people who are trying to use
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them. And well, what I'm
discovering is, you know, you look at these surveys of people
who say they're using these
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tools, and you get these really
high numbers. The reason is, they're often under pressure to
use them. So I've heard from
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some HR people who say their CEO
is given a mandate. Say, "Gotta automate 30% of this." So what do
they do? They claim that
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anything they're using is AI. So
applicant tracking software, which is simply word recognition
stuff, been around for 25 years
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or so. We're using AI, right?
And if you go to your computer and you ask ChatGPT to look up
something for—"We're using AI."
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Right? But are you actually
replacing people with it? The evidence on that is, it's really,
really rare, right? So I don't
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think it's going to change very
much. To automate a particular job takes a ton of work.
Somebody's got to be willing to
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front all that money, and you're
in competition with all these other investment deals for it.
So I think the problem here is,
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again, expectations. We believed
this stuff is free, you know. ChatGPT is free, so just use
that. But that won't help you
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automate these tasks. And the
costs of— this company's been giving away this software.
They're not in business to give
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this stuff away.
- Right, exactly. And it's getting
more and more expensive as more people
use it, right?
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Is there something that you are
watchful for as we flip the calendar to 2025, in and around
work? Workplace, workforce?
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Well, I think there are
political issues. You know, there's— it's now a full
employment project to try to
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understand why President Trump
won. And it all centers around working class people, and
complaints about not getting
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what they felt they should get
from the workplace and from jobs and things. And— but we are
installing in Washington a
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pretty employer-friendly
workplace which is clawing back— pretty clearly going to claw
back the Biden administration's
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efforts to help unions, and some
of those on things like mandatory overtime, to make it
more applicable, more broadly, to
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more jobs, and all those kinds
of things. So I think the interesting political situation
is going to be to see, was the
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original story right? That, you
know, working class people switched allegiance because they
didn't think the Democrats were
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delivering for them, but then
we're moving toward a model which at least traditionally,
was going to be worse for them.
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And what's the response to that
going to be? Or is it turning out that that's actually not why
they voted the way they did,
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right? So I think that's the big
question, at least in the pundit class we're working for. I think
in the— on the ground, I think
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we're hearing an awful lot of
talk about remote work among managers now, because they are
rethinking this. Part of it,
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recently, because Amazon, quite
publicly, called everybody back in the office, and not just
called them back, but is making
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them come back, which is a
different thing than just saying "You got to come back." - Yeah.
- And they told him, you know, they're
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going to start firing people
really, if you don't— effectively, if you don't come
back. So that has suddenly got
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the attention of lots of other
companies that were feeling like they should do it. Is the time
right? Is the labor market soft
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enough, we're not worried about
what the HR people told us, that everybody's going to quit? - Right.
- So I'd say, in practice,
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on the ground, that's the big
issue. Peter, great to see you again.
Thanks very much.
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Thank you. Peter Cappelli, Management
Professor here at the Wharton School.