How to fix high inflation, weak growth and labor shortages? Boost worker productivity.

Anna Marie Atkinson, a human resources manager, is comfortable setting policies, onboarding new employees and getting involved when workers get in trouble or a crisis arises.

But with her Denver-based paper-manufacturing company coming up empty in a monthslong search for an account manager, she volunteered to take on the role part time. She now spends half her day in the far less predictable world of customer service, answering an endless variety of questions from businesses.

In human resources, “I was so used to a set of rules,” she says. “If they say A, you say C. In customer service, there are so many different scenarios you can’t really train for. It is a little unsettling.”

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With many companies struggling to find workers because of persistent labor shortages and others loath to hire with a projected recession looming, a growing number of firms are squeezing more out of their existing employees. They’re cross-training them for unfamiliar jobs, installing labor-saving technology and becoming more efficient by eliminating unnecessary steps from production or service routines.

All told, such strategies can increase U.S. productivity, or output per labor hour, reversing a steep slide in the first half of the year and helping solve several of the nation’s economic woes. In the July-September period, productivity rose at a 0.3% annual rate after falling two straight quarters, the Labor Department said Thursday.

While that's a modest improvement, it should signal stronger increases ahead, says Gregory Daco, chief economist of EY-Parthenon. Businesses across the country are fervently looking for ways to become more efficient and productive, Daco says, noting he regularly speaks to executives in various industries.

And that could be a game changer for a wobbly economy.

What is worker productivity?

Lower productivity contributes to inflation – which is hovering just below a 40-year high – by forcing companies to raise prices more sharply to maintain profits since they’re getting less output for the wages they pay.

Turning that around could help reduce inflation and the need for more big interest rate hikes by the Federal Reserve after officials approve an expected three-quarters point increase Wednesday.

Boosting productivity growth can also juice the economy. The drop in productivity during the first six months of the year was a big factor in the economy’s contraction in the same period because U.S. gross domestic product can grow only by adding workers or increasing each worker’s output.

And bolstering productivity growth can help U.S. businesses meet demand and survive if they can’t find workers or are hesitant to add them amid forecasts of a recession that could hammer revenue in 2023.

“It could be key to escaping an environment of weak demand and high inflation,” Daco says. “It could be the solution to all our issues.”

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Why has productivity been so feeble lately?

No one knows for sure. But Daco, in part, points to the early retirement of millions of baby boomers with decades of experience during the health crisis and their replacement by millions of younger workers with less experience. Also, the job market has been beset by massive churn, or turnover, both because of retirements, COVID-19-related job switches and a record level of job quitting as workers hopped to higher-paying positions.

Those millions of workers who took new jobs had to be retrained and needed time to get up to speed in their new gigs, Daco says.

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What is quiet quitting?

Quiet quitting – a trend that has many burned-out employees meeting their job requirements but resolving not to go beyond – is likely also playing a role, says Barclays economist Jonathan Millar.

The root of the productivity slump could be even simpler, says Ian Shepherdson, chief economist of Pantheon Macroeconomics. Early in the pandemic, companies laid off tens of millions of employees and made do with smaller staffs, sharply increasing each worker’s productivity, he says.

More recently, total U.S. payrolls have topped their pre-pandemic level as COVID-19 fears eased and Americans returned to the workforce but consumer demand has slowed. Thus, the recent fall in productivity “is the unwinding of the (previous) unsustainable jump,” Shepherdson says.

Whatever the reason, many businesses are doing something about it.

Workers wear multiple hats

TerraSlate, the paper company that employs Atkinson, the HR manager, has struggled to add eight workers to its staff of 25. So employees are being cross-trained for other jobs, says Kyle Ewing, president of the company, which makes waterproof, tear-proof paper for restaurants, the military and others. Online manuals cut the time needed for employees to shadow, or observe, experienced colleagues from about a month to a week.

“Our goal is for each person on our production team to do multiple things,” he says.

While Atkinson, who is in her 20s, initially felt anxious in her new part-time position, she enjoys answering customers’ questions on topics such as the timing of product deliveries.

“HR is a little isolating,” she says. “I like being customer-facing. I get to interact with somebody. I like having positive communications with people.”

The experience, she says, will also make her a more valuable job candidate for future positions.

Envision Tees, which prints custom T-shirts for corporations and other organizations, has trained employees such as sales or purchasing representatives to embroider, fold shirts and wash screens that create designs. Now, they can jump in quickly during surges in orders, says CEO Tom Rauen. The move was necessary because the company, based in Dubuque, Iowa, has been unable to add two production workers to its staff of 35.

Envision also hired a consultant who cut the distance between each manufacturing stage – such as embroidering and shirt folding – by about 35 feet to speed production, reduce employee fatigue and limit the need to add workers.

For the longer term, Envision is spending $100,000 to buy shirt folding and screen washing machines and another $30,000 for a digital printer, increasing production capacity tenfold and further minimizing the need to hire, Rauen says.

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Businesses install tech, automation

Many manufacturers are installing automation and artificial intelligence to cope with worker shortages, says Paul Wellener, the lead of Deloitte’s U.S. industrial products and construction practice.

“Those investments…are driving increases in productivity across the board,” Wellener says, noting that in September, factory output increased 4.7% from a year earlier. Business capital spending on equipment surged at a 10.8% annual rate in the third quarter after falling 2% the prior quarter, the Commerce Department says.

Wagon Wheel Title & Escrow, a Nashville, Tennessee-based property title company, is spending about $30,000 on new software to enter orders for title searches, send out settlement statements for sales and gather client contact information, says owner Angie Lawless.

The technology will allow the company to train workers who handle those tasks to instead do higher-level “processing” work such as ensuring titles are clear of liens, she says. That means Wagon Wheel won’t need to hire two processors when the housing market rebounds.

Lawless says sales are down about 40% this year, following a 30% leap in 2021 because of the cratering homebuying market.

“If we were in more flush times, we wouldn’t even be paying attention” to such technology benefits, she says.

Others are maintaining sales but are worried about a potential recession next year. Farbman Group, a commercial real estate company in Southfield, Michigan, recently installed sensors outside bathrooms in 10 of its office buildings to track when they’re used so they can be cleaned and restocked when needed, says company President Andy Gutman. That allows for about 15% fewer contract janitors.

“I think we’re very cautious about” adding workers because of recession forecasts, he says.

Is the era of quiet quitting already over?

Danielle Vincent, CEO of Sparks, Nevada-based Outlaw, which sells colognes, soaps and other fragrances, has a more old-fashioned approach. She was reluctant to fire three workers who were “quiet quitting” – taking long bathroom breaks and loading about two-thirds fewer shipments per hour than other workers.

“I worried if I let them go I wouldn’t be able to find replacements” because of the worker shortage, she says.

Over the summer, she fired them and replaced them with employees who are doing so well that she scrapped plans to bring on temporary workers for the holidays.

“I am freaked out” about the possibility of a recession, she says.

So are some quiet quitters.

“Employees are feeling more pressure to deliver with layoff possibilities ahead,” taking some steam out of quiet quitting, says Mark Royal, senior client partner for Korn Ferry, a recruiting and human resources consulting firm.