According to new research, the rise of remote work could make it easier for the Federal Reserve to control inflation.

Workers are willing to accept smaller pay increases to work from home. The wage-price spiral is when companies pass higher expenses on to consumers in the form of higher prices, and it helps moderate business costs.

According to a working paper from the University of Chicago, about 4 in 10 firms have expanded opportunities to work remotely in the last year, and a similar number expect to do so over the next year. Wage growth would be reduced by 2 percentage points over the course of two years.

The authors wrote that the moderating influence lessened pressures and made it easier for monetary policy makers to bring inflation down. They include an economist at the Federal Reserve Bank of Atlanta, as well as two University of Chicago Booth School students.

The 2 percentage-point labor savings for employers equates to $206 billion, according to a separate analysis. The $10.3 trillion in total wages and salaries paid to US employees in 2021, according to the Bureau of Economic Analysis, is based on that.

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Inflation Pressures

The hottest price pressures in 40 years will be cooled by ongoing rate increases according to Fed Chair Powell. He said that managing a soft landing in the US economy would be very difficult.

The Federal Reserve is battling highest inflation in 40 years

The authors made it clear that their analysis isn’t ground for complacency about inflation. The challenge is somewhat less daunting than some economists think, they wrote.

Reduction on inflation is a huge issue for Powell and setting interest rates.

Remote Work

The analysis could provide some macroeconomic support for remote-work advocates, who have found that the practice can improve job satisfaction and even lower quit rates without harming productivity. Workers in the US would be willing to take a pay cut to work from home two days a week.

Collaboration and innovation can suffer if workers aren’t together enough, according to those pushing for workers to get back to the office.

From Silicon Valley to Wall Street there is a debate going on. Musk wants to acquire a company that is remote-friendly, and he told his employees to get back to work. Some staff at Apple complained about the plan to have workers work three days a week. Goldman Sachs Group Inc. CEO David Solomon has said that remote work is not a substitute for in person collaboration.

Higher borrowing costs and so-called quantitative tightening are expected to have a negative impact on jobs. Wage growth has not kept pace with inflation, as unemployment was near a 50-year low last month.

With fears of a mounting recession and employers starting to resort to hiring freezes or even layoffs, employees might need to get back to the office more often to stay in the good graces of their bosses. FlexJobs, a job site focused on flexible work arrangements, attracted more than 3 million visits in May, an 18% increase compared with the same month last year, according to researcher Similarweb.

The paper found that remote work can reduce labor costs by leading to more use of part-time employees and independent contractors, along with the moderation of wage growth.