Working Hard or Hardly Working: The Economics of Remote Work
Almost two years after the COVID-19 pandemic drove wealthy nations’ employees home to work, high-profile employers are beginning to change their stance. On May 31, 2022, Elon Musk, the CEO of some car company you’ve probably never heard of, announced that all Tesla workers would be required to spend a minimum of forty hours working in-person; failure to comply would mean having to “pretend to work somewhere else.” Musk claims that only with in-person work can a company hope to innovate and create meaningful new products. On the other end of the spectrum are companies like Twitter (which, coincidentally, Musk reached a deal to acquire); these companies have given the green light to permanent remote work even after the end of the pandemic. What is the real effect of remote work? Does it excuse laziness or increase employee well-being? And what does it mean for investors?
When the pandemic began and countries around the world locked down, there remained the question of what to do with the employees. While large numbers of workers in sectors requiring in-person contact, such as hospitality, manufacturing, and construction, were laid off, so-called white collar jobs were able to transfer relatively smoothly onto online platforms. In this brave new world of working from home, people found themselves needing fewer cars and more electronics, Peloton bikes, and toilet paper. When lockdowns and restrictions began to be lifted, however, the return of employees to work meant that a host of goods were suddenly in demand again. To make matters worse, many businesses, anticipating lower demand, unable to increase production due to COVID lockdowns, and suffering from supply chain bottlenecks, were often unable to produce enough to meet the new demand for goods. The result was that businesses had to charge higher prices for the few goods they had, consumers were willing to pay more, and prices began to rise.
Mr. Musk’s primary concern, however, has more to do with employee productivity than large-scale inflation fears. Acknowledging other companies’ policies toward remote work, he nevertheless asserts that it has “been a while” since these companies “shipped a great new product.” Included in Musk’s indictment are companies as prominent as 3M, Spotify, SAP, all of which have adopted flexible work arrangements indefinitely. On the relationship between remote work and productivity, the verdict is mixed. One study done by Microsoft claims that the gains from remote-work are only short-term; over the long run, the lack of opportunities to collaborate and share ideas with colleagues take their toll.
In any case, while the long-term verdict on remote work remains to be settled, the short-term consequences of the practice are being felt even now. The increases in demand and supply chain issues caused by remote work and its uneven reversal have contributed to a perfect storm of rising prices–the rate of inflation since last year reached 9.1% in June, its highest level in decades–that has caused the Federal Reserve, America’s central bank, to raise interest rates on loans. Upon this announcement, stock prices tumbled. The US is now officially in a bear market, with stock prices consistently going down as investors try to make a profit before the downturn they foresee.
Eccles Federal Reserve Board Building
Somewhat paradoxically, this development means you can buy stocks at a lower price than usual. Be forewarned, however, that a bear market is not the time for quick profits off risky investments, and you can probably expect low returns on even sound companies for the time being. Additionally, several companies that performed well during the quarantine, such as Peloton, saw their stock prices fall with the lifting of quarantines even before inflation rose. So, take advantage of lower stock prices, but know that short-term gains will likely not materialize and stay away from stocks that fell before the bear market; their prices may keep falling as the return to work continues.