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Remote work could ease pressure on the Fed

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That’s because workers are willing to accept smaller pay raises for the convenience of working from home. That, in turn, helps moderate trade costs and slow what economists call the wage-price spiral, when companies pass on higher spending to consumers in the form of higher prices.

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About 4 in 10 companies said they expanded opportunities to work remotely to ease pressure on their labor budget over the past year, and a similar number expect to do so over the next 12 months, according to a University of Chicago study. . The authors found that it would reduce wage growth by 2 percentage points over two years.

“This moderating influence lessens pressures and (modestly) eases the challenge that policymakers face in their efforts to reduce inflation without crippling the economy.”, the authors wrote. They include Nicholas Bloom of the Stanford University, Steve Davis of the University of Chicago Booth School Y Brent Mayereconomist at Federal Reserve Bank of Atlanta.

Labor savings of 2 percentage points for employers translates to $206 billion, according to a separate analysis by Davis. That’s based on the $10.3 trillion in total wages and salaries paid to American employees in 2021, according to figures from the Bureau of Economic Analysis.

inflationary pressures

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The Chairman of the Federal Reserve, Jerome Powellsaid during the June 22 congressional hearing that officials “anticipate ongoing rate increases will be appropriate” to cool the highest price pressures in 40 years. Sharp rate hikes could potentially tip the US economy into a recession, he said, and managing the so-called soft landing would be “very difficult”.

The authors made it clear that their analysis is not “reason for complacency” on short-term inflationary pressures. “Our evidence says only that the challenge is a little less daunting than they suggest” some economists, they wrote.

“The key is the reduction of inflation, which is a big problem for Jerome Powell and the establishment of interest rates”Bloom said by email.

remote work

The analysis could provide some macroeconomic support for telecommuting advocates, who also cite earlier research by Bloom and other academics that has found the practice can improve job satisfaction and even reduce attrition rates without harming productivity. In earlier research, Bloom found that American workers would be willing to take a 6% pay cut to work from home two or three days a week.

On the other hand, those pushing for workers to return to the office often claim that collaboration and innovation can suffer if workers aren’t close enough together.

The debate is raging everywhere, from Silicon Valley to Wall Street. Tesla Inc. CEO Elon Musk has told his employees they need to go back to their desks or find work elsewhere, baffling employees at Twitter Inc., a company that supports remote work and which Musk wants to acquire. Apple Inc. just backed away from a plan to have its workers come to its offices three days a week after some staff members complained. The CEO of Goldman Sachs Group Inc., david solomonhas described remote work as a “aberration”while the head of JPMorgan Chase & Co., Jaime Dimondhas said that it is a substitute for face-to-face collaboration and idea generation.

With fears of a recession on the rise and employers beginning to resort to hiring freezes or even layoffs, there is a growing sense that employees may need to return to the office more often to be in the good graces of their bosses. Still, demand for remote work remains strong: FlexJobs, a job site focused on flexible work arrangements, drew more than 3 million visits in May, an 18% increase compared to the same month last year. according to research firm Similarweb.

Along with the dampening impact on wage growth, remote work can lower labor costs in other ways, the study found, in part by leading to greater use of part-time employees and independent contractors.

Source: Gestion

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