Does remote work contribute to high inflation? | Smart Change: Personal Finance

(Bram Berkowitz)

Many different factors have contributed to the rise in inflation this year. Rising gas prices, a lot of stimulus over the past couple of years, and pent-up demand as a result of the pandemic are just a few of the big factors to bring up. Inflation has pushed up bond yields and forced the Federal Reserve to aggressively raise interest rates, both of which have rocked the market this year.

But now, a lesser-known reason behind inflation has emerged: remote work. That’s right, all people who now choose to work from the confines of their homes can actually drive prices higher, at least according to Black stone CEO Larry Fink. Could Fink be right? lets take alook.

Productivity is declining this year

If you work in an office or spend the bulk of your work on your computer, there’s a good chance you started working at home during the pandemic, a trend that will likely extend into the present.

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According to a study conducted by the large consulting firm McKinsey earlier this year, 58% of Americans work from home at least one day a week, while 35% of study participants said they had the option to work remotely throughout the week. Bosses may argue that work is still done in a timely and efficient manner and most workers seem to have flexibility.

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But this year’s economic data paint a very different picture. YoY Nonfarm Productivity declined 4.1% in the second quarter and 7.4% in the first. These declines are among the largest ever recorded.

Non-farm productivity looks at the production of non-agricultural workers for the number of hours worked. So, let’s say you have an accountant who does tax returns. In one year, this accountant might work 40 hours per week and complete 20 tax returns per week on average. But if that accountant works 40 hours the next year and only completes 18 tax returns on average per week, his productivity is down. This is a very simple example but should clarify the general idea.

How can lower productivity contribute to inflation?

Well, we know that there has been wage inflation this year due to a tight labor market and high levels of inflation, which has driven up the cost of living. If a company has to pay its employees more and those employees produce less, that company may need to raise prices to cover increased labor costs.

On the one hand, the combination of high wages and a tight labor market may have given workers a sense of security. After all, if hiring is difficult and wages are higher, the employee will not only feel that they have more job security but may be less concerned about displacement from their current job since there are many other jobs out there. This may lead to lower productivity if the worker feels that he does not need to work as hard to keep his job or earn more money elsewhere.

On the other hand, the Economic Policy Institute says that between 1979 and 2019, while net productivity increased by nearly 60%, workers’ compensation increased by only about 16%. In addition, this year’s wage inflation continues doesn’t keep up With inflation rising, so perhaps the compensation is simply catching up with productivity right now.

judgment

Because of the conflicting economic data, it’s really hard at the moment to tell if remote work is a driver of inflation. For example, GDP declined in both the first two quarters of 2022, indicating a technical recession. If consumption decreases, this can certainly affect production more negatively.

As Jason Furman, professor of economics at Harvard University, points out the shop That companies have spent a lot of time trying to improve the morale of their employees, especially since mental health has become more important since the pandemic began. This may have inadvertently decreased productivity.

In the end, I think it’s too early to make an announcement somehow, or know what it would be like if more people were working in the office. More people returning to the office could increase demand at the pump due to increased travel, and more people in the office could drive up restaurant and block prices as more people go out. I think there are a lot of advantages to working in the office and working remotely.

While working remotely may lead to even more inflationit doesn’t seem to me the main culprit, at least with the data available at the moment.

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