Remote work leads to slower wage growth for workers

Job postings for remote work are on the rise

The ability to work remotely, which rose in popularity over the course of the pandemic, has become so valuable to employees that they're willing to trade pay raises in order to maintain the option to work from locations outside of their employers' offices, according to a new research paper from the National Bureau of Economic Research (NBER).

Some workers are effectively choosing to earn less by forgoing raises or taking pay cuts, so long as they can choose where they work at least a few days a week, the NBER research shows.

The study's authors estimate that remote work, considered a job amenity, will restrain wage growth across the economy by two percentage points over two years. 

"[Remote work] moderates wage growth because it is a cooperative outcome between workers and employers, rather than something that is imposed on workers," Steven Davis, a co-author of the paper, told CBS MoneyWatch. 

"Benefits on both sides"

Many workers value being able to work from home because it gives them a better work-life balance and a greater sense of autonomy. "Work arrangements have changed in a way many workers value," Davis said. 

For employers, there are benefits, too, like higher employee retention and savings on employee onboarding and real estate costs. 

"Employers say if it is a way to keep workers happy and moderate wage growth pressures, it's a trade-off we're willing to take," Davis said. "There are benefits on both sides."

Decline in real compensation

But high inflation could cause workers to rethink the trade-off between remote work and a bigger salary, as they notice their dollars no longer going as far. 

Higher prices on goods and services could lead workers to ask their employers for larger-than-usual raises.

"Inflation shot up and caught most people by surprise. You can see this in that nominal wages have advanced more slowly than nominal prices over the past 18 months," Davis said. 

The rise of remote work as an amenity by employers is expected to moderate wage growth.

"The wage-price spiral effect might be weaker than it would be otherwise," Davis said, referring to the causal relationship between rising wages and increased disposable income, which in turn raises the demand for consumer goods and causes prices to rise.

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When you can't work remotely

Of course, not all jobs can be performed remotely, and so the moderating effect on wage growth does not apply to every industry. Workers in higher-paying jobs and industries typically have a greater ability to work remotely than do low-wage workers. 

Workers in the hospitality industry, for instance, have seen their wages rise faster than inflation. 

"Most jobs in hospitality and leisure don't lend themselves to remote work," Davis said. "Wages have risen more for low-end jobs than high end jobs, which is consistent with idea that the rise of remote work is concentrated in higher-end jobs."

"That has been helping to restrain growth in out-of-pocket pay for higher-wage workers relative to lower-wage workers where this effect isn't really present because the jobs don't lend themselves to remote work."

To cope with inflation, many Americans are tapping into their pandemic savings to cover their rising costs.

The only group of workers that didn't tap their pandemic savings during the first quarter of the year was the bottom 20% of earners, according to Moody's Analytics. 

That's because workers in industries like hospitality, retail and health care have seen their wages rise faster than inflation.

"They haven't begun to draw down their savings because of very strong wage growth for low-wage workers," said Moody's economist Mark Zandi. "They've been getting wage increases that are larger than the increases in inflation."


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