BlackRock CEO Larry Fink claimed in a recent interview with Fox Business Network anchor Liz Claman, that "we have to get our employees back in the office." He claimed that doing so would result in "rising productivity that will offset some of the inflationary pressures."
Fink did not provide any data in the form of statistics, surveys, or studies to support his claims. He simply insisted, without evidence, that in-office work would reduce inflation. So what does the data say?
A widely-cited July 2022 study from the highly-respected National Bureau of Economic Research (NBER) found strong evidence that remote work decreased inflation. Namely, because employees have a strong preference for mostly or full-time remote work, they are willing to accept lower wages to work remotely. As a result, the researchers found that remote work decreased wage growth by 2 percent over the last two years.
Plenty of other evidence backs up the finding that remote work reduces wage growth, such as a June 2022 survey by the Society for Human Resources. It reports that 48% of survey respondents will "definitely" look for a full-time WFH job in their next search. To get them to stay at a full-time job with a 30-minute commute, they would need a 20% pay raise. A different survey of 3,000 workers at top companies such as Google, Amazon, and Microsoft found that 64% would prefer permanent work-from-home over a $30,000 pay raise.
This data shows that remote work decreases costs of labor and thus reduces inflation. What about Fink’s claims about productivity?
Surveys have long found that workers report being more productive working remotely, but we might feel some skepticism for self-reported answers. It’s harder to feel skeptical of evidence from employee monitoring software company Prodoscore. The company’s President David Powell said that, "after evaluating over 105 million data points from 30,000 U.S.-based Prodoscore users, we discovered a five percent increase in productivity during the pandemic work from home period."
And we have become better at working remotely over time. A Stanford University study found that remote workers were 5% more productive than in-office workers in the summer of 2020. By the spring of 2022, remote workers became 9% more productive, since companies learned how to do remote work better and invested into more remote-friendly technology.
What about ancillary costs? Employees can save a lot of money, up to $12,000 for full-time remote work according to a Flexjobs analysis. That involves savings on transportation, office attire, and meals.
Companies save a lot of money on real estate, utilities, office furniture, cleaning services, and related costs. An average office space per employee can be up to $18,000 per year. No wonder office occupancy is down and companies are cutting their real estate footprint.
All the evidence shows that remote work decreases inflation, and improves the bottom lines of companies by improving productivity and decreasing costs. Yet Fink joins many prominent CEOs in driving employees back to the office. What explains this seemingly contradictory behavior?
As a behavioral science expert in decision-making around the future of work, I can tell you that I’ve observed many leaders exhibiting poor judgment due to a combination of cognitive biases. One is called the belief bias, where our belief in the desirability of an outcome causes us to misinterpret the evidence supporting this outcome. Another is the confirmation bias, where we look for evidence that confirms our beliefs, and ignore evidence that does not.
Thus, while the facts clearly show that remote work reduces inflation, improves productivity, and reduces costs, it took a lot of efforts to convince some traditionalist executives within my client organizations about the benefits of remote work. Their personal discomfort – due to these cognitive biases – undermined their judgments. It took a discussion about cognitive biases and how we should avoid trusting our intuitions in new contexts to turn them around.
Hopefully, prominent CEOs like Larry Fink and many others will recognize the dangerous consequences for inflation and for the bottom lines of their companies of driving employees back to the office. Otherwise, it’s safe to predict that their companies and the economy as a whole will suffer.
Dr. Gleb Tsipursky helps tech and finance industry executives seize competitive advantage in hybrid work by driving employee retention, collaboration, and innovation through behavioral science as the CEO of the future-proofing consultancy Disaster Avoidance Experts, and authored the best-seller "Leading Hybrid and Remote Teams: A Manual on Benchmarking to Best Practices for Competitive Advantage."