COVID has also impacted workers’ preferences over labor and leisure. It’s harder to pin down, but this factor keeps appearing in the news. Senior management has to persuade workers to come into the office two days a week. All this incentivizing is surely costly. Thus, while work-from-home may be productivity enhancing in some sectors, this must not be true of most sectors. Effective labor hours have fallen, tightening labor supply further. Moreover, the fall in productivity can explain the decline in real wages, as prices have risen faster than wages.
The COVID-induced tight labor market has pushed up prices and wages, and I expect that these inflationary pressures will continue despite rising interest rates.
COVID has also impacted asset values, and particularly in real estate. Mortgage rates almost doubled in 2022, and significant declines in office occupancies are creating revenue problems for commercial real estate. Rising interest rates also means that refinancing commercial property will be difficult.
Keep a close eye on signs of trouble in real estate. They have a way of causing wider damage to the economy.