(p. A15) The U.S. inflation rate tumbled from June 2022 to June 2023. It was no slide down the Phillips curve of the sort that textbooks attribute to tighter monetary policy. Instead, inflation fell 6 percentage points as unemployment stayed low. It is thus a mistake to credit this episode to the Federal Reserve’s departure from low interest rates.
. . .
Employees initially reaped the benefits of remote work, because their wages reflected pre-pandemic conditions and expectations. Over time, pay adjusted and employers adapted, eventually allowing them to benefit from slower wage growth.
My research quantifies this source of wage-growth moderation. Along with the Atlanta Fed, our team asked hundreds of business executives whether remote work affected their firms’ wages. Thirty-eight percent told us their companies had relied on the work-from-home boom to moderate wage-growth pressures in the previous 12 months. Forty-one percent said their firms planned to use remote work to restrain wage growth in the next 12 months. We found that the boom reduced overall wage growth by 2 percentage points from spring 2021 to spring 2023. In all likelihood, the effects extended beyond this interval, because pay adjusts slowly.
Remote work cuts costs in other ways, too. When employees work on site only two days a week, their companies need less space.
For the full commentary see:
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(Note: the online version of the commentary has the date June 19, 2024, and has the same title as the print version.)
Davis’s research mentioned above is: