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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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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."



March 22, 2021

Inflation Expectations Reflect Concerns over Supply Disruptions, Crimped Capacity

As the COVID-19 pandemic stretches into its second year, we've seen evidence of changes in how it, and attendant policy measures designed to support the economy, are affecting firms. Early in the pandemic, firms generally appeared more concerned with flagging demand and falling revenue than issues of having sufficient supplies (notwithstanding obvious acute issues at grocery storesOff-site link). Rather, at least through August 2020, firms saw the COVID-19 pandemic as disproportionately a concern of demand rather than supply Adobe PDF file format—so much so, in fact, that firms scaled back on wages, expected to lower near-term selling prices, and lowered their one-year-ahead inflation expectations to a series low (going back to 2011). These findings, based on our Business Inflation Expectations (BIE) survey, are consistent with other academic research based on quarterly earnings calls of public firmsOff-site link and research out of the Harvard Business SchoolOff-site link.

However, as the pandemic continued to unfold and as relief and support continued to flow into the economy via ongoing monetary and fiscal policy efforts, many firms have begun to indicate a shift in concerns—from flagging demand toward concerns about fulfilling demand. Although the recovery remains decidedly uneven across industries, strong shifts in consumer activity (toward durable goods purchasesOff-site link) amid crimped production due to COVID-19 restrictions appear to have disrupted supply chains, to the extent that shipping containers sit mired in ports amid "floating traffic jamsOff-site link." Along with these difficulties, firms continue to indicate issues with employee availabilityOff-site link, which hampers their operating capacity.

To investigate the breadth and intensity of these disruptions in supply chains and business operating capacity, we posed a few questions to our BIE panel during the first week of March. Specifically, we asked whether they'd recently experienced some form of supply chain disruption (anything from supplier delays to delays in shipping to their customers) as well as their experiences with crimped operating capacity (due to a variety of issues, ranging from employee availability to physical distancing issues). While we borrowed those two questions more or less directly from the U.S. Census Bureau's Small Business Pulse SurveyOff-site link, we also extended them by asking firms to gauge the intensity of these disruptions (on a scale ranging from "little to none" to "severe"). In addition, we posed these questions to medium-sized and larger firms in addition to those with fewer than 500 employees.

Chart 1 below shows the results. Regarding supply chain difficulties, we found that more than half of the firms in our panel felt some form of supplier delay, and the level of disruption is "moderate to severe" for 40 percent of them—a striking finding for a few reasons. First, our panel, like the nation, is disproportionately weighted toward service-providing firms (roughly 70 percent service firms to 30 percent goods producers). Second, just a few months ago (December 2020), firms ranked "supply chain concerns" as eighth out of their top 10 concerns for 2021. These results align with well-known diffusion indexes—the Institute for Supply Management Manufacturing and Business ServicesOff-site link surveys—that have shown that a greater share of firms are experiencing slower deliveries and lower inventories in recent months.

Chart 1 of 4: Intensity of Disruption to Supply Chains and Operating Capacity

In addition to issues receiving raw materials and intermediate goods from suppliers, a little more than one in three firms in the BIE panel also indicated that they themselves experienced delays in fulfillment, and the responses to the question on disruptions to operating capacity allow us some insight into the potential causes of these delays.

Here, a third of firms indicated that they were having difficulties with their employees' availability for work. Presumably, these issues stem from employees' concerns over contracting the virus, outbreaks causing production delays, or employees' inability to work due to familial issues such as childcare or the care of other dependents. One out of five respondents indicated that the intensity of disruption to operating capacity stemming from employee availability was moderate to severe. The same share of panel respondents—a fifth—indicated that a lack of adequate supplies and inputs on hand (likely due to supplier delays) caused a shortfall in production relative to capacity.

Comparing these responses to the Census Bureau's Small Business Pulse Survey, we find that the relative rankings of sources of disruption are quite similar—supplier delays far outweigh other supply chain disruptions, and the availability of employees for work are the most frequently cited sources of disrupted operations. Yet we find a greater incidence of disruption (even if we restrict our sample only to small firms). For example, 40 percent of firms surveyed by the Census Bureau indicated supplier delays, which slightly more than half of firms indicated to us. Such a discrepancy is unlike previous comparisons to other Census Bureau work (which match quite closely) and could be the result of a number of survey-specific factors. For instance, the types of respondents differ markedly—whereas the BIE elicits responses mainly from those in the C-suite and business owners, the census typically aims for someone in the accounting department. The number of response options also differs, and census respondents have seen these questions on disruption to supply chains and operating capacity numerous times over the pandemic.

Although disrupted supply chains and crimped operating capacity are significant enough to warrant attention on their own merits, another aspect of these issues deserves attention. Concurrent with widespread supply chain disruption and hobbled operating capacity, firms have ratcheted up both their perceptions of current inflation and their expectations for unit costs going forward (see chart 2).

When we survey firms' expectations around inflation, we prefer to gauge their views on the nominal aspects of the economy through the lens of their own-firm unit costs, as other Atlanta Fed researchAdobe PDF file format shows. After falling to the lowest levels on record during the depths of the pandemic, firms' perceptions of unit cost growth over the past year have risen sharply. Interestingly, these perceptions correlate tightly with movements in official aggregate price indexes, such as the gross domestic product price index (also called the GDP deflator) and the personal consumption expenditures price index.

Firms also appear to anticipate higher unit-cost growth in the year ahead. Since hitting a low in April 2020, firms' unit-cost (basically, inflation) expectations for the year ahead have surged to all all-time high just 11 months later. Not only does that kind of volatility speak to the dramatic and disparate impact COVID-19 has had on business activity, but it also suggests that the underlying drivers of these expectations have shifted markedly. (Incidentally, chart 2 shows that this measure of firms' inflation expectations moves in lockstep with professional forecasters' views.)

Chart 2 of 4: Firms' Views on Current and Expected Inflation

Indeed, in sharp contrast to their views early in the crisis, firms' one-year inflation expectations appear to have risen sharply alongside their views on supply chain and operating capacity disruption. Chart 3 shows a simple scatterplot between firms' one-year-ahead inflation expectations and a summary measure of the intensity of their disruption. To create this measure, we first assigned a score from 0 to 4 to each special question response based on whether they responded "None," "Little to none," "Mild," "Moderate," or "Severe." We then add their scores to obtain their disruption index. The mean disruption index value for firms in goods-producing industries is 9.3 and 6.6 for service-providing firms. And consistent with anecdotes and news stories, the disruption is highest in manufacturing industries (9.75) and trade and transportation industries (9.1).

Chart 3 visualizes the relationship between inflation expectations and the index of supply chain disruption. Although supply chain disruption isn't the only factor influencing year-ahead unit cost expectations, we can see that firms with the largest levels of disruption tend to be those that hold higher expectations for inflation in the year ahead.

Chart 3 of 4: Disruption and Inflation Expectations

For another perspective, chart 4 shows that the relationship between inflation expectations and disruption depends on whether the responding firm belongs in the goods-producing sector or the service-providing one. While both have strong positive relationships, it's interesting to note that the relationship is even stronger among firms in the goods-producing sector. While perhaps an unsurprising result, it is a reassuring one given that the most-cited reason for supply chain disruptions—supplier delays—is more likely to affect goods-producing firms.

Chart 04 of 04: Disruption and Inflation Expectations by Sector

Overall, when one contrasts the early portion of the pandemic with the more recent period, significantly more firms indicate that they are experiencing disruptions in their supply chain and operating capacity. More than 50 percent of our survey panelists indicated delayed deliveries from suppliers (and for most of those respondents, the disruption is moderate to severe). Combined with crimped operating capacity due largely to uncertain employee availability and lack of inputs, firms are beginning to view these disruptions as factors that are driving up their unit costs and leading to higher inflation expectations. We can connect the dots from firms' year-ahead inflation expectations to the intensity of these supply and production disruptions. Firms experiencing the most intense disruption tend to be those with the highest expectation of future inflation. This explanation tamps down the speculation that the potential inflationary impact of recent fiscal stimulus on demand is behind heightened year-ahead inflation expectations.

February 24, 2021

WFH Is Onstage and Here to Stay

Chances are you recognize the relatively new acronym WFH as "working from home." In less than a year, WFH has become a ubiquitous, inescapable facet of life for many people, so much so that newswires now ask which cities are best for WFHOff-site link, and online job boards compile listsOff-site link of companies that allow remote work on a full-time, permanent basis.

Many people are debating the pros and cons of WFH. For employees, gone are the long commutes and cramped cubicles, but other work-related stresses have emerged. As the pandemic drags on, some workers experience feelings of loneliness and isolationOff-site link, health problemsOff-site link, and challenges related to work-life balanceOff-site link.

Back in May 2020, the Atlanta Fed's Survey of Business Uncertainty (SBU) elicited firms' views on WFH and found that, on average, firms anticipated that WFH would triple to 16.6 percent of paid workdays after the pandemic ends, up from 5.5 percent before it struck. Eight months later, we were curious to see whether and how plans had changed. So, in the January 2021 SBU, we asked two special questions very similar to ones we posed last May. Specifically, to gauge the extent of WFH, we asked, "Currently, how often do your full-time employees work from home?" To assess the future extent of WFH, we asked, "How often do you anticipate that your full-time employees will work from home after the coronavirus pandemic ends?" We asked firms to sort the fraction of their full-time workforce into six categories, ranging from five full days WFH per week to rarely or never.

It turns out that current plans are similar to those in May, with one important exception: firms increasingly favor a hybrid model for the postpandemic economy, walking back plans for the share of staff that will work exclusively from home. Chart 1 summarizes the responses to WFH questions posed in January's SBU and compares them to our May results. We also compare the results to statistics computed from the American Time Use SurveyOff-site link, conducted by the U.S. Bureau of Labor Statistics in 2017–18, which provides a useful benchmark. Aside from the striking similarity in pre-COVID levels of WFH across the surveys, several findings are worthy of note.

Chart 1 or 2: WFH before, during, and after the Pandemic

First, according to the January SBU, more than 35 percent of employees currently WFH at least one day per week. This estimate is plausible in light of work by Jonathan Dingel and Brent Neiman of the University of Chicago's Booth School of Business, which indicates that nearly 40 percent of U.S. jobs can be done at home Adobe PDF file formatOff-site link. Moreover, the current WFH configuration tilts toward multiple days at home. All told, 25 percent of paid workdays are currently performed at home.

Second, firms report surprisingly similar figures in May 2020 and January 2021 for the share of employees whom they expect to work from home at least one day per week after the pandemic. Given the unprecedented nature of the pandemic recession, eight months is a long time over which to hold such stable expectations, suggesting that firms are serious about their intentions.

However, expectations have adjusted in one key respect: last May, firms anticipated that 10 percent of the postpandemic workforce would be fully remote, as compared to just 6 percent as of January. While still double the pre-COVID share, the revised expectation suggests many firms are coalescing around hybrid arrangements, whereby employees split the workweek between home and employer premises. These plans entail a large break from prepandemic working arrangements, but they imply more limited scope for employees to live anywhere—or for employers to hire from anywhere.

Chart 2 shows how the extent of actual and planned WFH varies by industry. Every major industry sector saw dramatic increases in WFH during the pandemic. With the exception of retail and wholesale trade, firms in every sector anticipate that a tenth or more of paid workdays by full-time employees will take place at home after the pandemic ends. For firms in business services, information, finance, and insurance, the postpandemic figure is 30.6 percent. And for the economy as a whole, it's 14.6 percent—nearly triple the prepandemic level.

Chart 2: Paid WFH Days as a Share of All Working Days before, during, and after the Pandemic

Further digging into our survey results reveals the finding that COVID-19 shifted employment growth trends in favor of industries with a high capacity of employees to WFH and against those less able to accommodate remote work. Firms with a high WFH capacity experienced much higher stock returnsOff-site link in the past year than did firms with a low capacity. In addition, urban residences have become cheaper relative to suburban ones since the pandemic struck, suggesting that a shift to WFH has lowered the desirability of urban livingOff-site link. More WFH also means fewer people commuting into city centers and less worker spending on meals, coffee, personal services, shopping, and entertainment near employer premises. A recent study finds that a permanent shift to WFH will directly reduce postpandemic spendingOff-site link in major city centers by 5–10 percent relative to prepandemic circumstances. Of course, such changes also mean lower sales tax revenue for cities that had high rates of inward commuting before the pandemic.

To summarize, firms have largely stuck to their early expectations about the extent of WFH in the postpandemic economy. There has, however, been a notable drop in plans for employees to work from home five days a week. Remarkably, in every major industry sector except retail and wholesale trade, firms anticipate that WFH will account for one-tenth or more of full workdays by full-time employees, far above prepandemic levels. These shifts toward more remote work are driving a reallocation of jobs across industries and locations, contributing to fewer jobs, lower sales tax revenues, and lower property values in city centers. Our results suggest that these effects are likely to persist.