BlackRock CEO Larry Fink is wrong about remote work and inflation. Remote work reduces inflation, because remote work productivity is higher, while other costs in remote work are lower. That’s the key take-away message of this episode of the Wise Decision Maker Show, which describes how remote work reduces inflation.
Video: “BlackRock CEO Is Wrong: Remote Work Reduces Inflation”
Podcast: “BlackRock CEO Is Wrong: Remote Work Reduces Inflation”
Links Mentioned in Videocast and Podcast
- Here is the article: BlackRock CEO Is Wrong: Remote Work Reduces Inflation
- The book Leading Hybrid and Remote Teams: A Manual on Benchmarking to Best Practices for Competitive Advantage is available here.
- You are welcome to register for the free Wise Decision Maker Course
Hello, everyone, and welcome to another episode of the wise decision maker show where we help you make the wisest and most profitable decisions. As always, my name is Dr. Gleb Tsipursky, COE of disaster avoidance experts, the future of work consultancy, that sponsors the wise decision maker show. And today, we’re here to talk about remote work inflation, remote work and inflation. Now, what you might have heard is that Blackrock CEO, Larry Fink made a strong claim on inflation and remote work. And that’s what I’m responding to. So he said that, basically, returning to the office will help reduce inflation, therefore, we should get everyone back to the office, ideally, nine to five, because that will improve productivity. That’s what he’s saying. But returning to the office will reduce inflation by improving productivity, because if you improve productivity, then you don’t have to hire as many people to work, and then you don’t have to pay as much wages, so people will not be buying as much stuff. And that will reduce inflation, because people buying stuff, increase inflation, and in general, higher wages, increase inflation, and higher productivity, decrease inflation, for the reason that you need to hire less people to do the same work, and therefore you pay less wages, and people have less money to spend on buying things. And therefore, producers don’t raise their prices as much, because there’s less money chasing the same product now is returned to the office, actually a reduction of inflation. That’s the bigger claim that Larry Fink makes. Let’s talk about productivity and other things that would impact inflation, and see whether real return to the office indeed, reduces inflation or not. The evidence shows the answer is clearly no. And I’ll go through the evidence, remote work overall results in higher productivity, not lower, and lower labor costs. So let’s go through the numbers. Now. David Powell, the President of Product score, which is an employee monitoring software provider, said that after evaluating over 105 million data points from 30,000 US based press corps users, we discovered a 5% increase in productivity during the pandemic work from home period. So 5% increased when we all had to shut down and do our work from home instead of in the office. So this is definitely a very clear indication that people doing remote work, work more, work harder. So remote work boosts productivity. And we know that productivity from remote work is actually improving over time. So the real Stanford University study that showed that work from home efficiency was up, it was up by four or 5% in May 2020. And this was an independent number. So the Stanford University independently arrived at the 5% number higher productivity, which aligns with the 5% higher productivity from product score, which you can get that number independently separately. So the fact that there are two independent ways of getting the 5% higher productivity really indicates pretty well that remote workers are 5% more productive, on average, than office workers doing the same work. So work from home efficiency by 5%, higher in 2020. But by May 2022. When they redid the study, it was 9% Higher 9% Higher, why the improvement in productivity, that’s a huge, huge improvement 80% improvement from 5% to 9% Higher. So why is that? Well, the primary reason is that we learned how to do remote work better, we learned how to collaborate better, leaders learned how to lead better teams and learned how to communicate and work together better. So this is coming with better communication, leadership, collaboration, and also better technology. So investment into technology by companies who provide their employees with better technology, learning how to use technology, better utilities, providing better technology, for the speed of the internet and so on, and other things like that, and also workers furnishing their home offices to be more efficient and productive. Now, another data point is that the pandemic productivity growth, which we saw clearly during the early parts of the pandemic, was driven mostly by remote work. So we saw that there was productivity growth. According to the National Bureau of Economic Research, there was a study that for service industries relying on work from home from 2010 to 2019, the average annual productivity growth was 1.1%. But during the pandemic year from 20 To 2020 21, the average growth was 3.3%. So huge increase in growth from 1.1% to 3.3%. And this was service industries that relied on work from home, like technology and finance. What about industries flying in in person services? Well, there was a 6% average annual increase in productivity from 2010 to 2019. But there was a decrease of 2.6% during the pandemic year, so a decrease of 2.6%. So the productivity growth in the pandemic unit really came from the work from home capable industries. Now, that’s productivity growth. So we know that companies need to hire less people. So overall, they will be paying less wages, and therefore they don’t have to, employees will have overall less money to spend, and that will overall drive down productivity. There are also other cost savings for remote work, for example, work from home decreases company needs for office space and related expenditures to chairs like utilities, cleaning, security, and so on. So we see many companies cutting real estate costs Amazon, for example, post construction of five towers, because of remote work, and so many other companies are doing the same thing. And remote work does boost spending. There is that spending, like back end at work from home equipment and office space. For example, top tech giant’s provided $1,000 stipends to each of their employees for home offices, Twitter, Facebook, Google. But this is something that is definitely worthwhile. So there was an example of my client, I’ll tell you about them, I was helping them transition to work from home. It’s the University of Southern California Information Sciences Institute. And they allowed me to talk about my work for them. So what we did there is we surveyed all the employees on the kind of things that they need to work from home, what would be comfortable for them, technology, ergonomic furniture, and then we decided that we weren’t going to provide them with a stipend. Because many people weren’t really sure what they wanted, what they needed, they didn’t really know what was going to be best for them. And also, the IT department would have a lot of trouble supporting people’s technology needs if they all got different sorts of technology that might not be even compatible with each other. So we decided to get a standardized package for everyone, where they could select from a couple of different options for each thing like miles, laptop, webcam, microphones, and so on. And so that then, we know that these are high end quality technology that’s going to be appropriate. Also furniture that will be like standing desks and chairs, for standing desks and so on, that will be ergonomic. Good for people. So we provided all of those to our employees. And then we also sent over tech and facilities to their homes, to help them set up the technology and the furniture. And so that’s what we did. When my consulting firm in the University of Southern California has the Information Sciences Institute, which is the Information Sciences Institute, it’s doing AI research, cybersecurity, and many, many other activities. So it’s an example of what to do. Now, this spending really helps boost productivity. So overall, it has a deflationary impact short term inflationary because of course, there’s more spending, but because of this productivity boost, ongoing productivity boost, that’s going to be deflationary. And also productivity and less sick days better well being so people are spending less on health care costs that are missing work less. So all of that has a deflationary impact. Now, we also know that remote work reduces wage growth. So there was a National Bureau of Economic Research Study, which showed that remote work lessened wage growth by 2% in the first two pandemic year, so 2020 and 21. We know that employee surveys also find that remote work lowers wage growth because workers value remote work as a big benefit. So they’re willing to accept lower wages if they can do their work remotely, which of course results in less consumer spending. Like we talked about lower price inflation. Employees demand higher salaries. By contrast, for office work, there was a Shrm Society for Human Resources survey, which showed that nearly half of workers will prefer to work remotely in their next job. And so, if they’re not going to work remotely, they expect a higher salary. So an average of 10% more for half time in the office 2.5 days a week, if there’s a 30 minute commute, and 20% more accordingly, for full time in the office with the same commute. Employees will also take work from home over large raises proportional to how much they make the real survey of 3000 workers at top companies 64% preferred a permanent remote work over a $30,000 per year. So that’s a lot of companies where a lot of people are working, where 64% prefer permanent remote work over a $30,000 Raise. So that’s pretty telling, of course, smaller companies, which have smaller, lower salaries, people take less money for permanent remote work, but it’s telling us the reality of how remote work lowers wage growth. And also hiring remote workers cost companies less because you can get the best value for talent, you can hire them anywhere around the globe, you can hire them in low cost of living areas. So I mean, at least around the country, if you want the same cultural fit, and lower cost of living areas, you don’t have to give as much of a cola cost of living adjustment. So this lower costs for employees means higher efficiency for companies and thus less inflation because of lower wages. And then again, people don’t have as much money to spend on goods and services. And that drives down prices. We also know that remote work boosts retention. So there was a National Bureau of Economic Research against study of a major travel agency called trip.com, which used a randomized control trial, it assigned randomly half of a good workers to hybrid work and half workers to full time in office work workers like software programmers, HR people, marketing staff, and so on counting those who worked in a hybrid schedule experience 35%, better retention, as well as higher productivity. So for example, engineers are about 8% more code. And we know that higher retention lowers costs for companies, because of their uses, therefore it reduces inflation, because hiring a new employee can take and training them up to the same level as an employee who left the company can take anywhere from half a year to a year’s worth of salary for that employee. So that’s a huge cost. Now, we remote work can also save employees money, so not only saves employers money, it also saves employees money, because employees spend less on commuting, that’s a lot there’s gas, there’s car maintenance, there’s parking, public transport, we do that office attire, so you have to have fancy clothing, you have to dry clean it, eating out with expensive restaurants or getting a desk or getting takeout. The downtown restaurants tend to be expensive. But there are of course, some additional costs for remote work. That wouldn’t be there for office work, for example, eating at home, utilities at home tech and furniture for home office. But those are much less. So first of all, work from home is a lot cheaper. So there was another analysis by flex jobs, which shows that full time remote workers can save up to $12,000 a year, up to $12,000. That’s a lot of money. So what’s up with thinking? Why did Larry Fink of Blackrock, which is a very major prominent company, think that inflation is going to be brought down by coming to the office? Well, it’s most likely due to cognitive biases. So these are mental blind spots that cause us to make bad judgments. One of them is the belief bias. It evaluates claims based on how much one wants to believe it rather than the data. So if you say, Well, I’d like to be lower, I’d like to have workers back to the office. What kind of reasons can I find? Can I pull it out of various places? And one of the things that I guess he decided to pull out because Blackrock was a financial management company, he knows that people are worried about inflation, he’s like, Well, perhaps I can use inflation somehow to justify getting workers back to the office. Another one is confirmation bias, where we reject information that goes against our beliefs, and look for information that confirms our beliefs. And we, Larry, clearly rejected extensive information that showed that remote work is much more productive on average, than in office work. To avoid the mistakes of executives like Larry Fink, you really need to realize that getting back to the office will increase inflation, because it will hurt the bottom lines of companies, companies will have to pay more in wages, and they will also have less productivity, therefore, that will hurt their bottom lines. They also will need to spend more on office space on utilities and things like that. Likewise, it will increase inflation because workers will have to spend more on going to the office than they would have been spending working from home. Leaders need to avoid the mistakes of Larry Fink like failing to look at hard data, wishful thinking. So that’s what I want to tell you about how the Blackrock CEOs really know Don’t go remote work will definitely reduce inflation and going back to the office will definitely increase inflation. I hope you enjoyed this episode of the wise decision makers show. Please make sure to subscribe to the wise decision maker show wherever you check that out whether it’s an YouTube or an iTunes, make sure to leave a review. We’d love to hear what you have to say and help others discover the show. And please recommend the show to your family and friends. That’s the best way to support the shows you love. Alright everyone, I look forward to seeing you on the next episode of the wise decision maker show. In the meantime, the wisest and most profitable decisions to you, my friends
Transcribed by https://otter.ai
Bio: Dr. Gleb Tsipursky helps leaders use hybrid work to improve retention and productivity while cutting costs. He serves as the CEO of the boutique future-of-work consultancy Disaster Avoidance Experts, which helps organizations adopt a hybrid-first culture, instead of incrementally improving on the traditional office-centric culture. A best-selling author of 7 books, he is especially well-known for his global best-sellers Never Go With Your Gut: How Pioneering Leaders Make the Best Decisions and Avoid Business Disasters (Career Press, 2019) and The Blindspots Between Us: How to Overcome Unconscious Cognitive Bias and Build Better Relationships (New Harbinger, 2020). His newest book is Leading Hybrid and Remote Teams: A Manual on Benchmarking to Best Practices for Competitive Advantage (Intentional Insights, 2021). His writing was translated into Chinese, Korean, German, Russian, Polish, Spanish, French, and other languages. His cutting-edge thought leadership was featured in over 650 articles and 550 interviews in prominent venues. They include Harvard Business Review, Fortune, Inc. Magazine, Business Insider, Fast Company, Forbes, and elsewhere. His expertise comes from over 20 years of consulting, coaching, and speaking and training for mid-size and large organizations ranging from Aflac to Xerox. It also comes from his research background as a behavioral scientist. After spending 8 years getting a PhD and lecturing at the University of North Carolina at Chapel Hill, he served for 7 years as a professor at the Ohio State University’s Decision Sciences Collaborative and History Department. A proud Ukrainian American, Dr. Gleb lives in Columbus, Ohio (Go Bucks!). In his free time, he makes sure to spend abundant quality time with his wife to avoid his personal life turning into a disaster. Contact him at Gleb[at]DisasterAvoidanceExperts[dot]com, follow him on LinkedIn @dr-gleb-tsipursky, Twitter @gleb_tsipursky, Instagram @dr_gleb_tsipursky, Facebook @DrGlebTsipursky, Medium @dr_gleb_tsipursky, YouTube, and RSS, and get a free copy of the Assessment on Dangerous Judgment Errors in the Workplace by signing up for the free Wise Decision Maker Course at https://disasteravoidanceexperts.com/newsletter/.