Remote Work Could Save Firms $206 Billion and Ease Pressure on the Fed

The rise of remote work could make the Federal Reserve’s task of taming inflation a bit easier, while saving employers more than $200 billion, according to new research.

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

About 4 in 10 firms said they’ve expanded opportunities to work remotely to lessen 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 working paper from the University of Chicago. The authors found it would reduce wage growth by 2 percentage points over two years.

“This moderating influence lessens pressures and (modestly) eases the challenge facing monetary policy makers in their efforts to bring inflation down without stalling the economy,” the authors wrote. They include Stanford University’s Nicholas Bloom, the University of Chicago Booth School’s Steven Davis, and Brent Meyer, an economist at the Federal Reserve Bank of Atlanta.

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

Inflation Pressures

Fed Chair Jerome Powell said during June 22 congressional hearings that officials “anticipate that ongoing rate increases will be appropriate” to cool the hottest price pressures in 40 years. Steep interest-rate hikes potentially could tip the US economy into recession, he said, and managing a so-called soft landing would be “very challenging.”

The authors made clear that their analysis is not “grounds for complacency” about near-term inflation pressures. “Our evidence says only that the challenge is somewhat less daunting than suggested” by some economists, they wrote.

“The key thing is the reduction on inflation, which is a huge issue for Jerome Powell and setting interest rates,” Bloom said via email.