Power to the people!
But can the rise in workers' negotiating power since Covid 19 continue?
If you’re reading this from your living room couch instead of your office chair, you’re not alone. In just a few short years, remote work has gone from a pandemic-induced necessity to a bargaining chip for companies desperate to fill job openings.
But is the tide changing? In recent months, we’ve seen such juggernauts as Amazon, JPMorgan Chase and Salesforce issue full return-to-office mandates. Even Zoom, one of the companies that made remote work possible, is calling workers back (part-time, but still).
Our read on the situation: The continued persistence of flexible work arrangements in the face of an ending pandemic is just one piece of evidence that the balance of power has shifted rapidly from employers to workers.
Employees continue to look for (remote) work
Survey data on remote work is conclusive: People are working from home and loving it. According to the latest State of Remote Work report from video conference provider Owl Labs, only about one-fifth (22%) of employees worldwide are working full-time from the office. And workers don’t want to change a thing. Job search facilitator Remote.co finds that remote work options are the No. 1 factor that professionals say they use to evaluate job opportunities, even above salary considerations.
Despite some big-name defections from the remote work revolution, companies appear to have realized the value of offering this non-wage benefit. A recent McKinsey survey finds that 90% of employers plan to offer some type of hybrid model in the coming future.
Real wages are growing … finally
For decades, wage stagnation has been a top concern of economic policymakers. Real wage growth has lagged productivity growth since the 1970s. Many consider this to be a major contributor to growing wealth inequality in the U.S. But the narrative has changed drastically in the last couple of years. Although down from its peaks in 2022, wage growth is still tracking at historically high levels on a year-over-year basis. In June, wage growth outpaced inflation for the first time in two years.
Why the changes? Tight labor markets
How did we get to a scenario where C-suite executives are offering higher flexibility and greater pay? They’ve had little choice as workers realized they have more bargaining power than at any time in recent memory because of a slack-free labor market.
This is due, in part, to an increase in retirees since the start of the pandemic—to the tune of almost 4 million since March 2020. Who has taken their place? Younger employees. The labor participation rate for “prime age” (25 to 54) workers has soared to its highest level since 2002.
But the wave of pandemic retirees left big shoes to fill. With job openings still at multi-decade highs (albeit down from last year’s historic highs), it appears young workers haven’t been able to close the gap entirely.
The potential implications are wide-ranging
All eyes are on inflation. If employers have to keep paying up to attract talent, they will look to offset these costs by raising the price of their goods and services—passing those costs on to consumers. And because price increases tend to be sticky, we could be talking about an effect that lasts months or even years, undermining the Federal Reserve’s mandate and potentially dampening corporate profits and earnings. (For an earnings season preview, see Steve Auth’s recent piece, “Every cloud has a silver lining.”) A scenario such as this could be met with higher-for-longer interest rates, or even additional rate hikes.
It's also worth considering the downstream effects on different pockets of the economy if these trends continue. According to industry tracker Cushman & Wakefield, overall U.S. office vacancy rates are now at their highest level on record. A prolonged period of high vacancy rates will put undue pressure on the commercial real estate (CRE) market. Just think of all the regional banks with high CRE exposure and you could very well imagine another wave of bank failures.
In the long term, as the market returns to normal, we should watch the labor market for any sign of weakness to see if the pendulum swings back toward companies. However, as a generation of employees that grew up with technology and the internet continues to enter the workforce, some of these trends might be here to stay.