Can remote work reduce inflation?

In a recent interview with Fox, BlackRock CEO Larry Fink said, “We need to get our people back into the office” because he said that would lead to “an increase in productivity that will offset some of the inflationary pressures.”

Fink did not cite any statistics, surveys or studies to support his claims about the supposedly low productivity of remote work or its impact on inflation. He simply insisted that office work would reduce inflation. So what does the data say?

Research shows remote work facilitates wage growth and inflation

A widely cited July 2022 study by the highly respected National Bureau of Economic Research (NBER) found strong evidence that remote work has actually reduced inflation, namely that many employees have a strong preference for working remotely. mostly remote or full-time, they may be willing to accept lower salaries to work remotely. As a result, the researchers found that remote work reduced wage growth by 2% over the past two years.

Notably, the decline in growth occurred specifically in the mostly higher-paying white-collar positions that could be filled remotely, leading to wage compression that reduced the wage inequality between blue-collar and blue-collar workers. whites. Since higher wages lead to increased consumer spending, which leads to inflation, the study concluded that remote work reduces inflation.

Plenty of other evidence supports the conclusion that remote work reduces wage growth, such as a June 2022 survey by the Society for Human Resources. He reports that 48% of survey respondents will “definitely” be looking for a full-time job at the WFH when they next search. For them to keep a full-time job with a 30-minute commute, they would need a 20% pay raise. For a hybrid job with the same commute, they would need a 10% pay raise.

Another survey of 3,000 workers at big companies such as Google, Amazon and Microsoft found that 64% would prefer permanent work-from-home positions to a $30,000 pay rise. Indeed, companies that offer remote work opportunities are increasingly hiring in regions with lower cost of living in the United States and even outside the United States to get the best value for money. for talent. This is one of the main reasons why one of my clients, a late-stage software-as-a-service startup, decided to offer fully remote positions.

Evidence belies claim about remote work productivity

These data show that remote work lowers labor costs and therefore lowers inflation. What about the opponents’ claims about productivity?

Surveys have long found that workers report being more productive while working remotely, but we might feel some skepticism about self-reported responses. On the other hand, the president of employee productivity monitoring company Prodoscore, David Powell, said that “after evaluating more than 105 million data points from 30,000 US-based users, we discovered a 5% increase in productivity during the work-from-home pandemic. period.”

And we’ve gotten better at working remotely over time. A Stanford University study found that remote workers were 5% more productive than office workers in the summer of 2020. In the spring of 2022, remote workers became 9% more productive, likely because of many companies have learned to work better remotely and invested in more remote-friendly technology.

A July 2022 study reported in another NBER article found that productivity growth in businesses that rely heavily on remote work, such as IT and finance, increased by 1.1% between 2010 and 2019. at 3.3% since the start of the pandemic. Compare that to industries that rely on face-to-face contact, such as transportation, restaurants, and hospitality. They have gone from productivity growth of 0.6% between 2010 and 2019 to a decline of 2.6% since the start of the pandemic.

Case study evidence confirms these broader trends, as noted in another NBER article on a study conducted at a real-world company, Trip.com, one of the largest travel agencies in the world. He randomly assigned engineers, marketing employees, and finance employees to work some of their time remotely and others in the same roles at work full-time in the office.

Guess what? Those working a hybrid schedule had 35% better retention, and engineers wrote 8% more code. Writing code is a standardized and very strict measure of productivity and provides strong evidence for higher productivity in remote work.

The evidence therefore strongly suggests that remote work costs less and is more productive, reducing inflation at both ends. What about additional costs?

Remote work allows companies to reduce costs

According to a Flexjobs analysis, employees can save a lot of money — up to $12,000 — for full-time remote work. This involves savings on transportation, such as gas, car maintenance, parking, and public transportation. Workers also don’t have to buy expensive office clothes or eat at overpriced downtown restaurants. Workers have to pay a little more for cooking at home and higher utilities. Yet these costs tend to be much lower than office travel costs.

Businesses, on the other hand, can save a lot of money on real estate, utilities, office furniture, cleaning services, and related costs. The average office space per employee can reach $18,000 per year, which means the savings can add up quickly. No wonder office occupancy is down and companies are shrinking their real estate footprint. For example, Amazon — which allows full-time and part-time remote work — recently halted its construction of five towers in Bellevue, Washington, due to remote work.

Businesses are investing more in work-from-home support, such as IT and cybersecurity. And others more forward-looking provide remote work support for home offices. For example, Twitter, Facebook, and Google provided a flat $1,000 allowance for home offices. As another alternative, one of my clients, the University of Southern California’s Institute of Information Science, researched the best options for home offices and offers its staff a wide standardized range of technologies. and home office furniture. This can improve productivity and is probably a wise long-term investment. And these expenses are much lower than the costs of office employees.

So, in addition to lower labor costs and higher productivity, employees and employers pay significantly less for staff to work remotely. All the evidence shows that remote work lowers inflation.

Cognitive biases can mislead inflation and remote work productivity

Information on how remote work reduces inflation is readily available. Yet many prominent CEOs continue to bring employees back to the office. What explains this seemingly contradictory behavior?

As a behavioral science expert in decision-making about the future of work, I can tell you that I have observed many leaders exhibit poor judgment, likely due to a combination of biases cognitive. One is called belief bias, where our belief in the desirability of an outcome – such as workers’ desire to return to the office – leads us to misinterpret the evidence supporting that outcome. Another is confirmation bias, where we look for evidence that confirms our beliefs and ignore evidence that does not.

These mental blind spots can impact decision-making in all areas of life, from the future of work to relationships. Fortunately, recent research has shown effective and pragmatic strategies to overcome these errors in judgement, for example by limiting our choices to best practices.

So, while the facts indicate that remote work reduces inflation, improves productivity and lowers costs, it took a lot of effort to convince some traditionalist executives within my client organizations of the benefits of remote work. Their personal discomfort, due to these cognitive biases, undermined their judgments. It took a discussion about cognitive biases and how we should avoid trusting our intuitions in new contexts to reverse them.

I hope prominent CEOs will recognize the consequences of returning employees to the office. Otherwise, in my view, their businesses and the economy as a whole will suffer. Their judgment should be a lesson for all business leaders to rely on facts and not wishful thinking in their public communication and decision-making.

Conclusion

The evidence strongly suggests that the claim that getting employees back to the office will increase productivity and reduce inflation is false. Surveys and studies contradict this and show that remote work helps fight inflation by reducing wage growth, boosting productivity and lowering labor costs.

Research shows that remote work alleviates pressures on wage growth. In fact, employee surveys from the largest companies reveal that many workers prefer permanent work from home to a pay raise. More and more companies are employing workers away from low-cost areas to reduce expenses, thereby reducing inflation.

Likewise, surveys have long shown that workers report being more productive when working remotely. In addition, remote work has much lower labor costs than office work, which is why many companies are investing more in teleworking-friendly technologies to facilitate working from home.

All of this suggests that cognitive biases such as belief bias and confirmation bias can mislead us about how remote work might affect inflation. Acknowledgment of these facts, rather than wishful thinking, would help businesses avoid the perilous effects of inflation.

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