Business Update - Weekly Digest (October 27, 2021)
On November 8, the U.S. will open borders to foreign travelers, marking a new stage in the pandemic. The Delta variant surge is easing, vaccinations and boosters are available to more people, and mask mandates are being dropped in some places. Case counts appear to be decreasing, and hospitalizations are declining in most parts of the country. However, worker shortages—particularly in restaurants—persist as a reminder that the pandemic is still not behind us.
TAX MATTERS
Many federal tax provisions are indexed for inflation, but some are not, with the result that periods of high inflation— as we have now—some taxpayers will be winners, and some will be losers. Middle-income households tend to benefit from provisions such as the standard deduction, which increase every year with inflation, while higher-income households tend to be impacted by provisions that have not changed in years. The standard deduction for a couple filing jointly will likely increase from $25,100 to $25,900, but the $500,000 exemption from capital gains for selling a home hasn’t changed since the law was passed in 1997, even though home prices have doubled since then. Many workers will see small increases to their paychecks in January as less income tax is withheld to compensate for the increased standard deduction.
THE GREAT REASSESSMENT
In an effort to stem the tide of employees leaving, some companies are offering paid sabbaticals to help combat burnout. For example, Synchrony Financial offers employees the option to apply for a sabbatical of up to one year at reduced pay, and consulting firm PwC is offering a one- to six-week leave of absence at 20% of pay. However, because many people can’t afford a pay reduction, this benefit may be of more interest to higher earners.
Job openings are near record highs, enhanced unemployment benefits have ended, kids have returned to school, and hourly pay has increased, but Americans are still not returning to work for at least six reasons.
First, the ongoing pandemic is still keeping many front-line workers away for health reasons.
Early retirements have reduced the pool of available workers.
While most schools have reopened, outbreaks at schools result in quarantines, which make it difficult for parents to commit to steady work.
Reduced spending and pandemic stimulus payments have allowed many people to amass sufficient savings to stay out of the workforce.
While wages have increased, that increase may not be sufficient to attract people back to work.
Other factors, such as a mismatch between worker and company expectations and the desire of many to switch careers, will take time to resolve.
REOPENING THE OFFICE AND REMOTE WORK OPTIONS
Going back to the office after an extended period of remote work can be a rocky return. Advice from five Harvard Business School professors can make that transition a bit easier. For example, Tsedal Neeley suggests using “the office as a tool rather than a destination” to encourage workers to return when there’s a need for collaboration, connection, or creativity. Joe Fuller reminds managers that because the pandemic is still ongoing, a flexible approach can help businesses adapt to the “next normal” and to the “next normal” after that.
ECONOMY
In response to the ongoing supply chain problems, P&G joins many of the nation’s largest companies in raising prices on a broad array of consumer goods. P&G, like many other big companies, has the resources to charter its own ships or move production to other locations. P&G has also benefited from consumers with more disposable income to purchase its offerings, which tend to be more expensive than the competition. However, as consumers face price increases across the board, companies that have benefited from higher prices may be at risk.
