New research from the National Bureau of Economic Research (NBER) shows that employers use remote work to reduce personnel costs. The study, which NBER conducted in April and May, also found that many workers are just fine with that. This development may not be good news for community college graduates, who are typically paid less than workers with higher educational attainment.
Employers have discovered that work-from-home (WFH) delivers multiple economic benefits, including slower growth in wage expenses and lower space costs. According to the research, employers initially assumed that WFH was a temporary accommodation for the pandemic.
At the same time workers established a firm preference for WFH, employers also found that the labor market had tightened significantly. For many employers, offering WFH became necessary to discourage resignations, but labor scarcity has not led to vastly increased wages among WFH workers.
Workers sought to retain their WFH status, even after the public health response to COVID-19 indicated that a return to work was safe. For many workers, WFH means lower transportation-associated expenses. In 2020, gasoline consumption in the United States dropped by more than 13.5%, mostly driven by WFH. Since the beginning of the pandemic, gasoline consumption in the United States has declined by more than 8% and auto insurance policy purchases dropped by nearly 7.5% in 2021. While many factors could be responsible for the drop in gasoline consumption, hybrid and electric vehicles accounted for less than 10% of new vehicle sales in 2021. The drop in auto insurance policy sales implies that fewer drivers are on the road.
Instead, salaries have fallen between 1.5%-7.3%. Workers are perfectly happy with the trade. Reduced commuting time and costs offset the slow growth of salaries. In some cases, workers have accepted lower salaries to retain the WFH benefit.
Community college graduates may be less marketable
This isn’t great news for community college graduates. By offering WFH benefits, employers can reduce labor costs without significantly sacrificing productivity. It also means that they can hire workers with better educational resumes at lower cost. Reducing salaries by 5% or more can help employers offset inflation or benefits costs. It can also reduce rents and lower health insurance costs by reducing the risks associated with commuting.
According to the NBER research, community college graduates typically engaged in occupations least likely to support WFH. Seventy-five percent of workers engaged in production, hospitality, retail and wholesale trade, were most likely to perform their jobs in person. That means these workers cannot receive the benefits associated with reduced commute costs and time. It does not mean, however, that these workers will enjoy the benefits of a larger salary.
WFH has only increased the demand for better educated workers who are willing to accept lower pay while their employers reduce operating costs. This will put community college graduates at a significant disadvantage in competition for higher-paying jobs.
Photo Credit: Laura Crowhurst , via Flickr
