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Policy Hub: Macroblog provides concise commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues for a broad audience.

Authors for Policy Hub: Macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

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January 12, 2022

Hybrid Working Arrangements: Who Decides?

Even after—or should we say "if"?—working from home eventually becomes less of a necessity, it's likely to stick around in a hybrid form, with some working days performed at home and some in the office. (This recent study Adobe PDF file formatOff-site link, coauthored by three of this post's authors, also makes this case.) Still, much remains undetermined about how that hybrid arrangement will work and who at the firm decides how many and which days employers will require workers to be onsite.

To shed some light on how hybrid working arrangements are working, we posed a few special questions to executives in our Survey of Business Uncertainty (SBU) last July and again last month (December 2021). Specifically, we asked, "Does your firm currently have employees who work remotely?" If they said yes, we followed that up with the question, "Who decides which days and how many days employees work remotely?" Respondents selected options ranging from fully decentralized to company-determined schedules. (The results between the July and December surveys were nearly identical, so we've combined them here to simplify this discussion.) Among firms in our panel, 53 percent have employees who work remotely, and their survey responses are interesting (see chart 1).

Chart 1: Firms are split on who determines hybrid work

As you can see, respondent firms are roughly split, with about 30 percent leaving the decisions up to their employees, 30 percent giving teams (or team leads) decision rights, and nearly 40 percent indicating the decision on how many and which days employees will be remote resides at the company (management) level.

To dig into these results a bit further, we looked at who makes these decisions over working arrangements by industry and firm size. Given the differences across the industrial sector's ability to work from home (see research by Jonathan Dingel and Brent NeimanOff-site link), we find it somewhat surprising that little difference exists across industries about whether the decision to work remotely is fully decentralized, made at the team level, or determined by the company (see chart 2).

Chart 2: At smaller firms, employees themselves are given the ability to decide where to work

However, we see a stark difference when comparing these decision rights by firm size. More than half of the smallest firms in our panel (those with fewer than 25 employees) allow the employees to decide how and when to come into the office, compared to just 10 percent of larger firms (with 250 employees or more). Instead, these larger firms have left decisions about remote work with the team. Although that's certainly far from a rigid, top-down approach, it can suggest a need for coordination among teams, and this variation highlights remote work's big trade-off: balancing employee choice with the coordination that work life sometimes requires.

Allowing employees to choose their teleworking days has the benefit of flexibility, letting them to plan their work schedules around some nonwork commitments. But it has the cost of limiting face-to-face meetings, as on any given day of the week larger teams will likely find one or more members working remotely, which forces meetings partly or completely online. In our discussions with larger firms, they highlight the importance of face-to-face interactions and so have been promoting team- or company-level coordination. Interestingly, smaller firms appear to be walking another path: providing greater individual choice. Which one of these approaches becomes prevalent should become clear by the summer, when employees can (hopefully) return to the office. Though the future of office work appears to be a hybrid one, the form of decision making that will dominate that future has yet to be determined.

July 15, 2021

Onboarding Remote Workers: A Hassle? Maybe. A Barrier? No.

As the need for social distancing recedes and government restrictions ease, most people look to regain some notion of normalcy in their day-to-day lives. At the same time, many workers have come to like their office away from the office. And the COVID work-from-home experiment has gone well enough for it to stick around, possibly in a hybrid formOff-site link. Those are key conclusions in a recent study Adobe PDF file formatOff-site link (by three of this post's authors) titled "Why Working from Home Will Stick."

One frequent concern we hear about remote work is the challenge of hiring and onboarding new employeesOff-site link who rarely—or even never—set foot on the employer's worksite. Yet our evidence suggests that these challenges are modest and aren't a big barrier to finding, onboarding, and integrating new employees.

During the past two months, we asked executives participating in our Survey of Business Uncertainty (SBU) about their experiences hiring remote workers and integrating them into their organizations (see the three charts below). The share of new hires who work almost entirely from home (rarely or never stepping onto business premises) was 15.8 percent, a figure nearly identical to the share of all paid workdays performed at home in earlier pandemic-era snapshots from the SBU. Moreover, the share of new hires varies across industries, just as we'd expect based on research by Jonathan Dingel and Brent NeimanOff-site link that flags which jobs can be performed remotely. The Survey of Working Arrangements and AttitudesOff-site link (whose data underpin our aforementioned recent study, "Why Working from Home Will Stick") also suggests that new hires are at least as likely to work from home as the general population.

Chart 01 of 03: Impact on integrating new employees who work from home

Chart 02 of 03: Share of new employees hired during pandemic work almost entirely from home

So as we see, new hires are working remotely to the same extent, and in the same proportion across industries, as incumbent staff. These findings suggest that integrating and training new remote workers isn't a big barrier to hiring. But it must be a pain, right? Otherwise, why all the fuss?

And here, the unanimity dissipates. Of firms with new remote workers, 60 percent say the integration process is more challenging. On average, SBU respondents say it takes about a month or so longer to fully integrate remote-only employees, though the spread about that average is pretty wide—ranging from six weeks less to six months longer.

If you're at a firm that finds it challenging to onboard remote employees, perhaps you'll find some solace in the fact that most of your new staff appear not to notice. In the The Survey of Working Arrangements and AttitudesOff-site link, 42 percent of workers hired into fully remote positions during the pandemic say that adapting to their new jobs has been neither easier nor harder than adapting to in-office jobs before the pandemic. The other 58 percent are distributed similarly over "easier" and "harder" (see the chart).

Chart 03 of 03: How many more weeks has it taken you to adapt to your new job?

Stepping back and taking a broader look, many observers wonder why aggregate U.S. employment remains 6.8 million below its prepandemic peak, despite record numbers of job openings. On the list of potential reasons for this shortfall—such as lingering concerns about the virus, generous unemployment benefits, inadequate childcare options, and more—it appears you can cross off the difficulty of onboarding and integrating remote workers.

July 14, 2021

Are Labor Shortages Slowing the Recovery? A View from the CFO Survey

The economic recovery from the pandemic-induced downturn of 2020 has been swift in terms of overall spending. It took about one year for real gross domestic product to return to its pre-COVID level. Firms in the latest CFO SurveyOff-site link expect the pattern of strong sales to continue for 2021 and 2022. At the same time, firms report—by a large margin—that their top concern is a shortage of available labor. In this post, we investigate the extent to which labor-availability problems are restraining sales revenue growth. Said another way, could the recovery in spending be even stronger if labor shortages could be resolved?

In this quarter's CFO Survey, we asked firms' financial executives a series of questions designed to uncover just how much a labor shortage has crimped their revenues. We estimate that the labor shortages have reduced economywide sales revenue by 2.1 percent, which suggests that the lack of available labor has reduced nominal private-sector gross output by roughly $738 billion, on an annualized basis (or $184 billion per quarter; see the note below).

Difficulty finding new employees for open positions is widespread, as indicated by three-quarters of the respondents to the July 2021 CFO Survey (see chart 1), a finding consistent with the record levels of unfilled job openings in the Job Openings and Labor Turnover Survey from the U.S. Bureau of Labor Statistics.

chart 01

Among firms that struggled to find workers (nearly 40 percent of our overall panel), slightly more than half reported that their inability to find employees cost their firm revenues. It also appears, as chart 2 indicates, that smaller firms have been disproportionately affected by labor shortages. Of the small firms (fewer than 500 employees) that struggled to hire employees, nearly 60 percent indicated that labor shortages caused their revenue to suffer, compared to 40 percent of large firms.

chart 02

Digging even deeper, we posed the following question to the firms indicating that their inability to find employees has reduced revenue: "By roughly what percentage would you say your firm's revenue has been reduced due solely to your inability to find new employees?" The response was a fairly consistent 10 percent across industry groupings for this subset of panelists Aggregated across the full panel (thereby also accounting for firms that have not been affected by hiring difficulties or revenue effects), this decline indicates that labor shortages cost the economy 2.1 percent in nominal sales revenue (or private-sector gross output). Nationally, this impact translates into an annual reduction in gross output of $738 billion.

chart 03

There does not seem to be just one reasonOff-site link for why workforce participation has remained lower than it was before COVID despite the record number of job openings. For instance, households have had ongoing virus concerns, and many have struggled to find childcare. Also, the share of older workers choosing to retire has risen, and government support payments have made not working relatively less costly than in the past. Nonetheless, the CFO Survey results suggest that labor shortages have burdened firms significantly and could further restrain aggregate economic growth if not resolved.

Note: The figure given in this post earlier was erroneous. The correct estimate of the reduction is $738 billion (or $184 billion per quarter). Nominal gross output for all private industries was $35.18 trillion in the first quarter of 2021 (at seasonally adjusted annualized rates). Multiplying that by 0.021 results in $738 billion (and dividing that by four yields $184 billion per quarter). The U.S. Bureau of Economic Analysis defines nominal gross output for private industries this way: "Principally, a measure of an industry's sales or receipts. These statistics capture an industry's sales to consumers and other final users (found in GDP), as well as sales to other industries (intermediate inputs not counted in GDP). They reflect the full value of the supply chain by including the business-to-business spending necessary to produce goods and services and deliver them to final consumers."

May 20, 2021

Has the COVID-19 Pandemic Affected Demand for Office Space?

Last July, our Atlanta Fed colleagues concluded that the COVID-19 pandemic would not decrease demand for commercial real estate (here). As the COVID-19 pandemic passes the one-year mark, have expectations on what a "return to the workplace" looks like changed for businesses and their employees? Many firms continue to allow employees to work from home (here and here). Anecdotes suggest that many are reimagining their office culture as they scrutinize empty or underutilized office space in an effort to reduce structural costs. Has this also resulted in a significant shift in demand for office space?

To understand how office market performance fundamentals have changed since the COVID-19 pandemic began, we examine office-using employment, vacancy rate, and rental rate trends across the 10 cities with the highest office space square footage stock. We hypothesize that markets with higher office space inventories likely have more office workers and may experience larger, longer-lasting effects resulting from massive shifts to remote work arrangements.

The United States experienced significant declines in employment due to COVID-19, but what was the effect on the office-based workforce? Using the Bureau of Labor Statistics' office-using employment series at the metropolitan statistical area (MSA) level, we observe in chart 1 that the number of employees using commercial office space has declined significantly in the pandemic. The graph on the right illustrates the monthly change in the number of employees using offices, which decreased by 6 percent on average from March 2020 to April 2020. The decline was most severe (11 percent) in the Los Angeles-Long Beach-Anaheim, CA MSA and mildest (2 percent) in the Washington-Arlington-Alexandra, DC-VA-MD-WV MSA. Although most markets saw a positive change in May 2020, the graph on the left shows that the number of employees using physical office space is still lower than it was before the start of the COVID-19 pandemic.

Chart 1 of 3: Office Using Equipment

The survey conducted by our colleagues in June 2020 (here) indicated that roughly 80 percent of respondents had no plans to change their current floor space needs. It seems reasonable, however, that the significant decline in office-using employment across metro areas with the largest office stock might translate to higher vacancy rates. Recent office market data from the CBRE Economic Advisors (CBRE-EA)1 indicate that office market vacancy rates increased significantly in 2020. Chart 2 illustrates stable vacancy rates before the COVID outbreak. Following the outbreak, in the second quarter of 2020, vacancy rates moved up. The overall office market vacancy rate was 12.2 percent in the fourth quarter of 2019 and 12.3 percent in the first quarter of 2020, then steadily increased through the year to 15 percent in the fourth quarter of 2020. All markets experienced vacancy rate increases for office space, with markedly different changes. Changes for the Denver and New York office market vacancy rates, for example, were larger than for most other cities. Denver's increased by 30.89 percent from the first quarter of 2020 to the fourth quarter (from 12.3 percent to 16.1 percent) while New York saw the largest jump (36.78 percent, from 8.7 percent to 11.9 percent). Interestingly, although Denver experienced the second highest jump in vacancy rates in 2020, the Denver and Houston MSAs did not experience a dramatic change in the number of employees using office space in 2020.

Chart 2 of 3: Office Market Vacancy Rate

Observing that office space vacancy rates increased significantly during the pandemic, we wondered if landlords renegotiated rent rates, so we explored the trend in gross asking rent. This is the estimated rent rate for a gross lease type where a landlord is responsible for expenses such as utilities and property taxes. Chart 3 illustrates trends of gross asking rent per square foot from the first quarter of 2016 to the fourth quarter of 2020. The data indicate that the asking rent rate did not change significantly during the pandemic compared to the previous period. While gross asking rent in the Dallas market increased slightly from the third quarter of 2020 to the fourth quarter, it was a relatively minor change. With such a high level of uncertainty, it's possible that real estate firms and investors were not convinced they needed to adjust asking prices. Another possibility is that tenants received longer periods of free rent in exchange for not adjusting rent prices downward. This second scenario effectively makes rents cheaper, although contract rates appear to be the same. We are unable to investigate further due to the unavailability of prerequisite data.

Chart 3 of 3: Office Market Asking Rent


We explored office market fundamentals since the onset of the COVID-19 pandemic and found that office-using employment declined while vacancy rates for office space increased significantly. How office property asking rent rates have responded to the pandemic remains unclear. Due to the long terms required for commercial leases, landlords appeared unwilling to lower rents because they expected that market conditions would soon improve.

Since firms remain uncertain as to when employees will return to the office, policymakers and investors should monitor current office market vacancy rates to best prepare to operate in an environment with sustained high vacancy rates. Will some firms have to reimagine their space and convert assets into different property types? We'll continue to monitor these market fundamentals, including property conversions, and report back. Meanwhile, you can track trends in market fundamentals with the Atlanta Fed's Commercial Real Estate Momentum Index.

1 [go back] CBRE- Econometric Advisors (EA) release quarterly data on the commercial real estate markets.