Among white collar workers there are two effects of the coronavirus-related lockdown being talked about more than anything else. The Zoom meeting and working from home.

Work from home has become such a common feature it now has its own acronym, WFH. The daily office experience of those who can work remotely has moved from the office to the home.

Some can’t wait to get back to their desks while others are saying, now that we’ve seen it work why not keep it going after Covid, with positive implications for commuting, IT, HR, interaction, productivity, commercial property. Of course, not everyone can WFH. Builders, and workers in shops, hotels and factories can’t work from home. Healthcare workers and everyone else in the frontlines of the coronavirus battle also won’t be able to work remotely once the pandemic is controlled.

Covid has been a transformation and that raises a bunch of questions about the need for as much office space if workers need to commute to the office every day. The need for workers to gather together has shaped almost every aspect of modern work. And any long-term shift towards remote working will have far reaching consequences. It could alter the shape of cities, affect gender equality and even change people’s views about time.

The modern office emerged along with the industrial revolution in Europe when people migrated to cities in search of work. Factories required everybody to be together so that they could take advantage of machinery. They had to be in cities because they could work together easily.

That in turn led to the office to manage all that. Early offices were organised into rows of desks for clerks overseen by a central manager, mirroring the production line on the factory floor. And 200 years later and despite the rise of the internet, the basic function of the office persists.

A leap in communications via electronic means like email or shared documents was made in the last twenty years. However, the realization that everybody need not be in the same place was realised by most managers and workers only following the coronavirus lockdown. The uncomfortable truth about offices is that they are expensive and inefficient.

Companies in Colombo will spend around Rs250,000 to Rs1 million on office space per employee every year, based on an average workplace having about 200 square feet for every white-collar worker. Although offices are sitting empty corporate leases can run for almost a decade and there yet has not been a rush to sell office real estate. So the office in some form will expect to survive the pandemic.

In Sri Lanka, the coronavirus confining the office to an expensive artifact isn’t relevant to all workplaces. Like in other developing countries, a significant number of the workforce does not have an office in the conventional sense, because many of them are self-employed, they work in farms or in small businesses that employ half a dozen people informally.

Sri Lanka’s economy has boomed compared to GDP growth levels several decades ago and the need for change has seemed less pressing. However, as the country rises up the income league table its companies are losing their edge as a lowcost destination for manufacturing and services to the rest of the world.

Already it’s far cheaper to manufacture goods and procure services elsewhere in South Asia, including some regions in India and Bangladesh. If they already haven’t, improving infrastructure and the skills of the work force in South Asia will soon see them eclipse Sri Lanka’s competitiveness. Prosperity due to cost arbitrage will become more difficult in the future.

Now, Covid 19 is transforming people’s relationship to work, for whitecollar workers, for blue collar workers and for the self employed.

Tens of thousands of people have either lost their jobs or can no longer find work. Without an income, they are using up savings, borrowing or cutting expenses to get by. Impacts on incomes aren’t uniform. Of Sri Lanka’s 21.6 million people, 8.5 million are in the labour force (defined as those who have a job or are looking for one).

Of this number, 8.18 million have a job or are self-employed (Chart 1). It’s important to appreciate there are three classes of workers in Sri Lanka and the pandemic-busting lockdown’s effects on them weren’t uniform (Chart 2). Incomes of public sector workers whoaccount for 15% of those employed were unaffected by the Coronavirus.

In fact, some public sector workers received additional allowances during the lockdown and their salaries were paid earlier than usual during some months, ensuring they faced no financial hardships. Before getting carried away with WFH and the future of the office, it’s important to appreciate that only a minority of Sri Lankan workers actually have an office. Of those that have a workplace, many including those working in hospitality, front line staff and factory workers have to turn up. Government workers are also not equipped to work from home because the use of email, video conferencing and cloud software aren’t widely used.

However, besides public sector workers almost everyone else’s employment income was hit by the lockdown from mid March to mid May 2020. Even after movement restrictions were eased, people were fearful of the pandemic and cautious. Besides buying food, families stayed at home and consumption fell hitting the revenue of businesses.

Many second-class workers, the 3.47 million people in private sector jobs found they couldn’t take their fixed remuneration for granted.

Reliable data is unavailable but most had their allowances and pay cut, some didn’t get paid at all during the lockdown and others lost their jobs. Nearly 2,800 private sector businesses employing almost 600,000 people (representing 17% of the private sector workforce) responded to a Department of Labour survey in May 2020.

It found that 64% of employees in these businesses were not in work during the survey period of May 2020. Of the 2,764 businesses responding to the survey 1,084 establishments (or 40% of respondents and employing 27% of the nearly 600,000 workers covered by the survey) had indicated they were unable to pay salaries.

The report observes that these businesses may layoff people. The Department of Labour survey observes that there is a “strong relationship between the size of the establishment and the ability to operate the business during the survey period, ability to pay salaries in future, and the total employment, with significant variations with respect to industries.”

The survey was conducted several months ago and it’s not clear if these businesses have seen a reversal in their outlook since. Those able to work from home are a privileged minority. In general, the higher a country’s GDP per head, the more people are able to work remotely. In Cambodia just 11 percent of jobs can be done from home compared to 45% in Switzerland or 37% in America. Those who are self-employed or are family workers (workers helping in the family’s own business) faced the greatest disruption to income.

The Western province of Sri Lanka, where over a quarter of the population lives was the coronavirus epicenter, and faced the most severe lockdown. Self employed people from tuk-tuk entrepreneurs to those with informal jobs went without any income. Around half of those who are self employed and family workers are farmers or farm workers.

As food supply chains creaked because of the lockdown, farmers were unable to sell their crops. Without detailed surveys however, it’s impossible to estimate the breadth and depth of the pandemic’s impacts on farmers and farm workers. Covid 19 is impacting people’s relationship to work in three ways. First is the impact on income security or erosion of security for those who had taken it for granted in the past. Its second impact is on whitecollar office workers who have had to get used to working in a very different way.

The third is the impact it’s expected to have on competitiveness of firms and job creation due to erosion of agglomerationeffects of the past. If fewer people were at work what would be the impact on all else whose work relies on those whitecollar office workers.

Sri Lanka is not alone. In rich and poor countries alike, the coronavirus pandemic is impacting incomes, how people work and the competitiveness of economies and companies. Critically, the coronavirus disruption can become a trigger to pivot a country towards greater prosperity.

I n the litany of gripes about Sri Lanka’s inclement business climate, rigid labour laws vie for pride of place with its inefficient bureaucracy, the labour forces poor work ethic, and policy instability. On labour market efficiency, Sri Lanka ranks 131 out of 137 countries ranked by the World Economic Forum’s (WEF) Global Competitive Index of 2018, which is the latest available data.

Sri Lanka’s labour laws are mostly a legacy of its past. One of the last alterations to employment laws were amendments to the Termination of Employment of Workers (Special Provisions) Act in 2008 which made it costlier to lay off workers. Myriad laws and regulations on labour can be grouped into seven categories (Chart 3). These 25 laws, including 15 Acts and 10 Ordinances, can apply variously to employment. Not all of these laws will apply to every job, but many will.

Not all Sri Lankan managers speak only about the need for flexible labour laws, fearing such public utterances will make them and their companies unpopular. However, the anonymity of the WEF’s Global Competitive Index survey allows a franker assessment (Chart 4). Of the top four problematic factors for doing business in Sri Lanka, two were related to labour: the poor work ethic of the workforce ranking second and restrictive labour regulations at fourth place. Executives have ranked the other factors as far less important than the first four.

In April 2020 when Echelon hosted Decodes, a webinar during the pandemic lockdown, listed Access Engineering’s Managing Director, Christopher Joshua, Hemas’ Chief Executive, Steven Enderby, Hirdaramani Group Director, Ranil Pathirana and, Ashok Pathirage, Chairman, Softlogic Holdings, all suggested that flexible labour laws were the most critical reform they figure the government could undertake to make sure businesses had a fighting chance to navigate the crisis.

Businesses managers don’t exaggerate when they identify labour laws as impeding competitiveness of companies.

When businesses can freely compete, consumers benefit with lower prices, and for those companies that export goods or provide services overseas, they can grab larger market share because they are more productive. Business owners complain that onerous labour laws put them off hiring and push them towards temporary-employment agencies.

Employers who find labour laws thoroughly unsuited to a modern economy have had no reason to cheer before the pandemic or since. In fact, almost all businesses, reeling from no revenue due to the pandemic and no help, cut worker pay although the legal framework does not allow for that. Tacitly the government now admits the coronavirus has exposed the system’s faults. The government, through the Ministry of Employment and Labour Relations, has supported an agreement also involving the Employers Federation and unions, to pay lower pay for employees who do not have work.

Meanwhile, the Department of Labour publishing the findings of its survey on the coronavirus impact on Sri Lankan businesses, has suggested ‘measures to ease the financial burden on employers’ to sustain businesses. Of the shortterm recommendations, one was for maintaining employment with reduced pay or what the department referred to as ‘short-term lay off ’, so that these employees may return to their full-time roles in the future.

At present, unions cannot strike the sort of deals that are common elsewhere in the world, such as accepting pay cuts during downturns in return for reduced or no job losses, since individual workers may later complain to labour officials that they haven’t been paid. Unless new rules take effect in a few months almost all private sector businesses will be in legal limbo for the unremunerated value of employment contracts.

SOME THINGS ARE ALSO HARDER TO FOSTER REMOTELY LIKE CORPORATE CULTURE AND CREATIVITY

Managers, business owners and auditors will all want to understand how these can be accounted for unless, as expected, laws are amended. Businesses expect the new government to bring clarity and amend the laws. In Sri Lanka, sympathy for producers’ triumphs over consumer interest. Consumers have to bear higher costs for the lower productivity of inflexible labour contracts that businesses have to endure. Suspicion of profit also precludes any sensible discussion of the cost to Sri Lanka in lost jobs.  

Remote working will also not fit in with the country’s labour regulations. Before labour laws were introduced people were paid based on how much they produced and not by how much time they spent at office.

WFH during the pandemic has seen people adopt some of these old practices of working when it suited them, like on a Sunday afternoon and late on a weeknight, shifting to a pattern of work similar to being paid for the function than for the time they turn up. When the office has ceased to be the center of life, the idea of working 9 to 5 would be less meaningful.

Private sector companies and those in the services industry are suggesting that more of their whitecollar workers could be working from home in the coming years. In some Sri Lankan companies, almost all staff continue to operate from home, despite there being no restrictions for gathering in an office. Dialog, a telco, is one example. These roles tend to be highly paid skills and have a disproportionate impact on the economy.

These service sector jobs are known as knowledge jobs and where they are physically located is as important as they support entire ecosystems of other jobs around them. Knowledge workers include doctors, lawyers, tech workers but also many white-collar workers like unit managers. From taxi drivers, to restaurant workers and grocery store workers depend on the spill-overs of tens of thousands of knowledge workers turning up to work. The reason knowledge jobs tend to be based in cities is because they depend heavily on agglomeration effects.

When knowledge workers are close together, they become much more productive. It’s difficult to replicate those agglomeration benefits with a looser relationship to a city or with no relationship to a city at all. Some things are also harder to foster remotely like corporate culture and creativity and these will be the mainstays of the post pandemic office.

For younger workers, they make friends and build connections and a network for when they get on later in life. It’s very hard to build a core in a company with people who haven’t met. If Sri Lanka adjusts its inflexible labour rules, the country may also come full circle. Before the creation of the office and the onerous labour regulations that forced its unaltered existence, there was no working week, no 9-to-5s, and no fixed workplaces for many people.

Thanks to covid-19, this can maybe move closer to the way things will look when the world emerges from lockdown, and structures allow some level of WFH combined with the positive effects of agglomeration.