UNIVERSITY OF BOHOL

PROFESSIONAL STUDIES

The Shift to Remote Work Lessens Wage Growth Pressures

July 23, 2022

Assignment submitted to:

Dr. AMMON DENIS R. TIROL, DM, CPA
as partial fulfillment of the requirements in
BA 205 SURVEY OF ECONOMICS
Summer AY 2021-2022

KEZIAH REVE B. RODRIGUEZ

MASTER OF SCIENCE IN BUSINESS ADMINISTRATION
 The Shift to Remote Work Lessens Wage Growth Pressures

The COVID-19 pandemic has dramatically changed the workplace. In order to decelerate
the spread of the virus and protect employees, most companies have shifted to remote work, with
video calls and instant messaging to replace face-to-face meetings and break room
conversations. There are even companies that announced that they will allow employees to work
at home permanently. Huge swathes of the labor force are unable to work remotely, including
healthcare workers and other essential workers, and experts are saying that these developments
could have profound implications for the economy, inequality, and the future of industrialized huge
cities.

In the Philippines, the pandemic has had a significant impact on employment. According
to the study conducted by the Philippine Business Coalition for Women and Investing Women,
majority of employees reported their job was suspended, hours and pay reduced, or they were
forced to take unpaid leave. There is also a total of 6 out of 10 families that lost their income. Also,
over 60% of those affected began working from home (Australian Aid, 2020). This in turn,
insinuates the need to increase the compensation of those members of the family who are
employed either working on site or working remotely.

With the shift to remote work, salaries in the Philippines were projected to increase in 2021
despite the economic fallout from the pandemic. Companies in the country presented a forecast
that shows an average of 5.6% overall increase in salaries for 2021, up from 5.3% in 2020.
According to Mercer, “while the salary increase budget remains stable in spite of the pandemic,
what we are seeing is that companies are increasingly prudent with their compensation policies
as well as the allocation of the salary budget. Some considerations include how business-critical
the roles are, the potential and performance of the employees, flight risk, and availability of jobs
in the market” (Kew, 2020).

In the study conducted by Barrero, Bloom, Davis, Meyer, and Mihaylov (2022), they
explained how the amenity-value shock associated with the rise of remote work reduces labor’s
share of national income and compressed the wage distribution citing an argument on a modified
wage-catch up, questioning the control of the growth of the shift to remote work, the other labor
cost effects in shifting to remote work, and what are the implications of the shift.
 In order to level on the argument of the wage catch-up, there is a need to start on the
observation of the impact of remote work and how it saves time on commuting and grooming.
There are multiple reasons why adjustments to compensation packages linger the transition to
higher levels of remote work. This includes the timeline by which the remote work setup started
with extreme abruptness in 2020. Another reason is that work from home setup was seen as a
transitory development, one that would largely reverse once the vaccines became widely
available. The authors pointed out that as long as remote work is seen as a transitory occurrence,
there is a little effort to adjust companies’ compensation packages. Lastly, salaries and other
components of compensation adjust slowly to changes in economic conditions, an observation
that underlies much of macroeconomics and leading models of inflation.

There are two questions raised on the argument against the wage catch-up. First, does
the possibility of advanced mechanism really work in the behavior of wage-setting firms? Second,
how much wage-growth restraint does it yield in the transition to higher levels of remote work and
new compensation packages? To answer the first argument, majority of business executives who
participated in the study agree that there is a positive implication of advanced mechanism in wage-
setting firms. Businesses in the industry sector expanded the opportunities to work remotely as a
way to keep employees happy which also contributes on the moderation of wage-growth.

To answer the second argument, 41% of employers indicated they intend to allow
employees to work from home or other remote locations at least one day a week to restrain wage-
growth pressures over the next 12 months. And when asked just how much wage-growth
moderation these employers expected to achieve by expanding remote work options, all
respondents including those that are not using remote work as a strategy to restrain wage growth
indicated a cumulative wage-growth moderation of 2% over two years centered on April and May
2022.

With the shifting to remote work, the costs for turn overs, hiring new employees, and on
boarding them should also be considered. Since remote work blends well with remote job
interviews, it also lowers hiring costs. On the other hand, the onboarding and training of the new
employees may increase the possibility of incurring additional and higher costs for new remote
employees, especially if business are fully working remotely.

The shift to remote work carries three implications including the moderation of near-term
inflation pressures, a source decline in labor’s share of national income, and a force for wage
compression.
 With high inflation that could cause workers to rethink their trade-off between remote work
and a higher compensation, they notice that their earnings are not going as far. Higher prices in
goods and services could lead employees to ask for larger-than-usual pays. The rise of remote
work as an amenity by businesses is expected to moderate wage-growth. According to the study,
the wage price spiral effect might be weaker than it would be otherwise since the relationship
between the rising wages and increased disposable income raises the demand consumer goods
thus causing the prices to rise.

Since not all businesses are suitable for remote work and the moderating effect of wage
growth does not apply to all industries, workers in higher-paying jobs usually have a greater
change of working remotely than low-waging workers. Employees in the hospitality industry, for
example, have experienced their wages rise faster than inflation. According to the study, jobs in
the hospitality, entertainment, and leisure sectors do not lend themselves to remote work. Wages
have risen more for low-end jobs than high end jobs which is consistent with the idea that the rise
of remote work is focused on higher end jobs. Thus, this has contributed to restraining the growth
of out-of-pocket pay for higher-wage employees relative to lower-wage employees where this
effect is not present because their jobs do not allow them to work remotely.

The study sums up that remote work contributes to lowering business costs and overall
inflation in a number of ways. Offering remote work could be a way for businesses to prevent
employees from quitting, lowering turnover costs. Similarly, remote work can be used to recruit
highly qualified applicants on a lower cost. It is also important to take note the businesses save
for office space, supplies, and energy, costs that companies shift to workers.

A lot of Filipino remote workers are currently experiencing difficulties securing stability
when it comes to their remote employment. In spite of the freedom of time and high pay that
comes with an international or even national remote work opportunities, there are employees who
are not properly registered under the Philippine laws, therefore could not maximize the benefits
that are mandated by the government.

Remote work is here to stay, and in the foreseeable future there will be more opportunities
to shift into remote work as the world eases back to normal. With inflation flaring up, it is not crystal
clear that remote work is the ultimate cure all. However, it is supplemental that the radical
experiment of widespread remote work unleashed by the COVID-19 pandemic continues to
reshape our economic lives in profound ways.
References
Australian Aid. (2020, May). Impact of COVID-19 on employees in the Philippines. Retrieved
from Investing in Women: https://investinginwomen.asia/knowledge/impact-covid-19-
employees-philippines-may-2020/

Barrero, J., Bloom, N., & Davis, S. (2020). Barrero, Jose Maria and Bloom, Nicholas and Davis,
Steven J., Why Working From Home Will Stick (April 22, 2021). University of Chicago,
Becker Friedman Institute for Economics Working Paper No. 2020-174, Available at
SSRN: https://ssrn.com/abstract=374164. Becker Friedman Institue of Economics
Working Paper, 70. doi:https://dx.doi.org/10.2139/ssrn.3741644

Barrero, J., Bloom, N., Davis, S., Meyer, B., & Mihaylov, E. (2022). The Shift to Remote Work
Lessens Wage-Growth Pressures.

Cerullo, M. (2022, July). Remote work leads to slower wage growth for workers. Retrieved from
CBS News: https://www.cbsnews.com/news/remote-work-slower-wage-growth-for-
workers/

Kew, I. (2020, December). Mercer. Retrieved from asean.mercer.com/newsroom/salaries-in-

philippines-set-to-rise-in-2021.html: https://www.asean.mercer.com/newsroom/salaries-
in-philippines-set-to-rise-in-2021.html