BlackRock CEO’s Comments About Inflation and Remote Work Show Poor Judgment

By Gleb Tsipursky

BlackRock CEO Larry Fink claimed¹ in a recent interview² with Fox that “we have to get our employees back in the office.” According to him, 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 say³?

A widely-cited July 2022 study⁴ from the highly-respected National Bureau of Economic Research (NBER) found strong evidence that remote work decreased inflation. Namely, because employees have a strong preference⁵ 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. Notably, the decrease in growth occurred specifically in the mostly higher-paid, white-collar positions that could be done remotely, leading to wage compression that reduced wage inequality between blue-collar and white-collar work. Given that higher wages result in more consumer spending that leads to inflation, the study concluded that remote work reduces inflation.

Plenty of other evidence backs up the finding that remote work reduces wage growth, such as a June 2022 survey⁶ 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. For a hybrid job with the same commute, they would need a pay raise of 10%. A different survey⁷ 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. Indeed, companies that offer remote work opportunities are increasingly hiring in lower cost-of-living areas of the US and even outside⁸ the US to get the best value for talent. That’s a major reason why one of my clients, a late-stage software-as-a-service startup, decided to offer some all-remote positions.

This data shows that remote work decreases costs of labor and thus reduces inflation. What about Fink’s claims about productivity?

Surveys have long found⁹ 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 software¹⁰ company Prodoscore. Its 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 study¹¹ 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 better¹² and invested into more remote-friendly technology¹³.

A July 2022 study¹⁴ reported in another NBER paper found that productivity growth in businesses widely relying on remote work like IT and finance grew from 1.1% between 2010 and 2019 to 3.3% since the start of the pandemic. Compare that to industries relying on in-person contact, such as transportation, dining and hospitality. They went from productivity growth of 0.6% between 2010 and 2019, to a decrease of 2.6% from the start of the pandemic.

Case study evidence backs up these broader trends, as reported in another NBER paper¹⁵ about a study at a real-world company, Trip.com, one of the largest travel agencies in the world. It randomly assigned some engineers, marketing workers, and finance workers to work some of their time remotely and others in the same roles to full-time in-office work. Guess what? Those who worked on a hybrid schedule had 35% better retention, and the engineers wrote 8% more code. Writing code is a standardized and very hard measure of productivity, and provides strong evidence of higher productivity in remote work.

The evidence demonstrates that remote labor both costs less and is more productive, reducing inflation at both ends. What about ancillary costs?
Employees can save a lot of money, up to $12,000 for full-time remote work according to a Flexjobs analysis¹⁶. That involves savings on transportation, such as gas, car maintenance, and parking, or public transportation. Workers also don’t have to buy expensive office attire, or eat out at overpriced downtown restaurants. Workers do need to pay somewhat more for cooking at home and higher utilities. Yet these costs are much smaller than the costs of coming to the office.

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 to¹⁷ $18,000 per year, which means savings can add up fast. No wonder office occupancy is down¹⁸ and companies are cutting¹⁹ their real estate footprint. For example, Amazon – which allows full-time and part-time remote work – recently paused²⁰ its construction of five towers in Bellevue, Washington, due to remote work.

Companies are investing more into support for work from home such as IT and cybersecurity. And more forward-looking ones are providing remote work support for home offices. For instance, Twitter, Facebook, and Google provided²¹ a flat stipend of $1,000 for home offices. As another alternative, one of my clients²², the University of Southern California’s Information Sciences Institute, researched the best options for home offices and provides a standardized and wide range of home office technology and furniture to its staff. Doing so improves productivity, and is a wise long-term investment. And such expenses are much less than the costs of employees in the office.

Thus, in addition to lower labor costs and higher productivity, both employees and employers pay much less to have staff work remotely. All the evidence shows that remote work decreases inflation.

Such information is easily available, and Fink could have assigned a summer intern at BlackRock to find the evidence. He chose not to do so, instead making statements that are patently against the facts. By doing so, he shows poor judgment²³, likely due to a combination of cognitive biases²⁴. One is called the belief bias²⁵, where our belief in the desirability of an outcome – such as Fink’s desire for workers to return to the office – causes us to misinterpret the evidence supporting this outcome. Another is the confirmation bias²⁶, where we look for evidence that confirms our beliefs, and ignore evidence that does not.

Fink’s failure to evaluate the abundant evidence accurately casts doubts on the recommendations made by BlackRock more broadly. It’s likely to undermine investor trust in its products. His poor judgment should be a lesson to all business leaders to rely on the facts, and not wishful thinking, in their public communication and decision making^27.

Dr. Gleb Tsipursky serves as the CEO of the boutique future-of-work consultancy Disaster Avoidance Experts. He is the best-selling author of 7 books, including Never Go With Your Gut: How Pioneering Leaders Make the Best Decisions and Avoid Business Disasters and Leading Hybrid and Remote Teams: A Manual on Benchmarking to Best Practices for Competitive Advantage. His cutting-edge thought leadership was featured in over 650 articles in prominent venues such as Harvard Business Review, Fortune, and USA Today. His expertise comes from over 20 years of consulting for Fortune 500 companies from Aflac to Xerox and over 15 years in academia as a behavioral scientist at UNC-Chapel Hill and Ohio State.

References

1. BlackRock CEO Larry Fink thinks he has a solution to inflation: Bring people back to the office, Fortune, November 7, 2022 https://fortune.com/2022/09/07/blackrock-ceo-larry-fink-remote-work-inflation-labor-productivity/?itm_source=parsely-api
2. BlackRock CEO Larry Fink discusses inflation, ESG investing in the energy sector, Fox Business, September 6, 2022 https://www.foxbusiness.com/markets/blackrock-ceo-larry-fink-discusses-inflation-esg-investing-energy-sector
3. Hybrid and Remote Teams, Disaster Avoidance Experts https://disasteravoidanceexperts.com/hybrid/
4. The Shift to Remote Work Lessens Wage-Growth Pressures, NBER, July 2022 https://www.nber.org/papers/w30197
5. Americans are embracing flexible work—and they want more of it, McKinsey, June 23, 2022 https://www.mckinsey.com/industries/real-estate/our-insights/americans-are-embracing-flexible-work-and-they-want-more-of-it
6. Nearly Half of Workers Are ‘Definitely Looking’ to Work Remotely, SHRM, June 13, 2022 https://www.shrm.org/resourcesandtools/hr-topics/behavioral-competencies/global-and-cultural-effectiveness/pages/nearly-half-of-workers-are-definitely-looking-to-work-remotely.aspx#:~:text=Forty%2Deight%20percent%20of%20about,with%20a%2015%2Dminute%20commute.
7. A $30K raise or remote work forever? Employees want remote, Human Executive Report, June 14, 2021 https://hrexecutive.com/a-30k-raise-or-remote-work-forever-employees-want-remote/’
8. Remote work is freeing tech talent from the limits of geography, Fortune, April 8, 2022 https://fortune.com/2022/04/07/remote-work-tech-talent-international-limits-careers-work-labor-shortage-pandemic-cohen-bouaziz/
9. The Benefits of Working From Home, AirTasker Blog, March 31, 2022 https://www.airtasker.com/blog/the-benefits-of-working-from-home/
10. 3 New Studies End Debate Over Effectiveness Of Hybrid And Remote Work, Forbes, February 4, 2022 https://www.forbes.com/sites/bryanrobinson/2022/02/04/3-new-studies-end-debate-over-effectiveness-of-hybrid-and-remote-work/?sh=52dfba9e59b2
11. Tell your boss: Working from home is making you more productive, Vox, May 30, 2022 https://www.vox.com/recode/23129752/work-from-home-productivity
12. Hybrid and Remote Teams, Disaster Avoidance Experts https://disasteravoidanceexperts.com/hybrid/
13. How remote work will force technology to improve in 2022, FastCompany, January 5, 2022 https://www.fastcompany.com/90706854/how-remote-work-will-force-technology-to-improve-in-2022
14. A New Interpretation of Productivity Growth Dynamics in the Pre-Pandemic and Pandemic Era U.S. Economy, 1950-2022, NBER, July 2022 https://www.nber.org/papers/w30267
15. Hybrid work is looking like a silver bullet for cutting down on employee churn, Fortune, July 26, 2022 https://fortune.com/2022/07/26/hybrid-work-lowers-attrition-rates-improves-satisfaction/
16. 6 Ways Working From Home Can Save You $6,000 or More Annually, FlexJobs https://www.flexjobs.com/blog/post/does-working-remotely-save-you-money/
17. The Wisenet Imperative https://www.kcrepsource.com/library/media/pdf/MASTER-WISENET.pdf
18. Office Owners Reeling From Remote Work Now Fret About Recession, Wall Street Journal, July 5, 2022 https://www.wsj.com/articles/office-owners-reeling-from-remote-work-now-fret-about-recession-11657022402
19. Companies Plan Additional Cuts to Office Space Amid Looming Downturn, Wall Street Journal, July 7, 2022 https://www.wsj.com/articles/companies-plan-additional-cuts-to-office-space-amid-looming-downturn-11657186201
20. Amazon will pause Bellevue towers to study impact of hybrid work on its offices, still plans 25k jobs, Geek Wire, July 14, 2022 https://www.geekwire.com/2022/amazon-will-pause-bellevue-towers-to-study-impact-of-hybrid-work-on-its-offices-still-plans-25k-jobs/
21. Can a company save money with remote work?, Lano, August 27, 2021 https://www.lano.io/blog/can-a-company-actually-save-money-with-remote-work
22. Testimonial from Dr. Craig Knoblock, ED of USC ISI, for Dr. Gleb Tsipursky’s hybrid work consulting, YouTube https://www.youtube.com/watch?v=PrSbwctaVDg
23. Never Go With Your Gut, Disaster Avoidance Experts https://disasteravoidanceexperts.com/nevergut/
24. The Blindspots Between Us, Disaster Avoidance Experts https://disasteravoidanceexperts.com/blindspots/
25. The belief-bias effect in the production and evaluation of logical conclusions, Springer Link, November 17, 1989 https://link.springer.com/article/10.3758/BF03199552
26. How Confirmation Bias Reduces Business Profits, Disaster Avoidance Experts, February 8, 2022 https://disasteravoidanceexperts.com/how-confirmation-bias-reduces-business-profits/
27. Never Go With Your Gut, Disaster Avoidance Experts https://disasteravoidanceexperts.com/nevergut/