Covid-19 reshapes employee expenses

  • The COVID-19 pandemic has changed which products and services most employees deem essential, with rent and the cost of home-working among their biggest job-related expenses.
  • New York City continues to be the most expensive in the world for rental accommodation.
  • Hong Kong has reported one of the sharpest falls in rental costs, possibly owing to the exodus of expatriates after the National Security Law was introduced.
  • US cities have the highest utility prices among the top ten cities—power bills rose by an estimated 10-15% from 2019 levels.
  • The cost of travel has become less important to many employees, as travel restrictions continue and working from home becomes commonplace.

The EIU’s 2020 Worldwide Cost of Living Index has found that Hong Kong, Paris and Zurich are the world’s most expensive cities. The survey, which compares the price of a basket of 138 items in about 130 cities around the world, sees the two cities gain four places over their previous ranking to overtake Singapore and Osaka.

To understand the impact that national lockdowns and working from home have had on the cost of living, this year the EIU has specifically assessed which costs have become more significant for employees across the ten most expensive cities found in the EIU’s Worldwide Cost of Living Index.

In a special report, entitled How Covid-19 is affecting employee expense trends, The EIU identifies five costs that have gained importance for employees, analysing the pandemic’s impact on accommodation prices, workplace set-up at home, utility bills, healthcare expenses and education. Key findings include:

  • Although more people are working at home, there is greater uncertainty in the housing market as there is no longer a concrete need to be in a certain place. The move to working from home has prompted a movement of people out of cities and as such, we have seen a 5.8% drop in the average cost of a three-bedroom apartment. Despite this, we have seen some large increases in this field, notably Zurich’s rent for such an apartment rising by 20% (US dollar).
  • Employees working from home are likely to incur additional expenses for technology and office equipment where these are not already provided by employers. This has led to a rise in the cost of items such as personal computers, which can be attributed to a combination of greater demand and supply-chain shortages as the pandemic hit manufacturing hubs.
  • Healthcare and education fees have seen rises in some of the most expensive cities. In particular, the cost of a routine medical check-up has risen in Paris and Zurich, cementing their status as the world’s most expensive cities. Zurich also tops the list for education fees, along with New York, with the latter seeing a rapid rise in the past year.

The COVID-19 pandemic has caused the US dollar to weaken while western European and north Asian currencies have strengthened against it, which in turn has shifted prices for goods and services. Zurich and Paris are now tied at the top spot with Hong Kong. The pandemic has led to the reshaping of employee expenses. In terms of consumer goods, there has been a sharp increase in the prices of computers, while clothing prices have seen a decline.

While working from home has lowered the cost of commuting for employees, at the same time executives are facing increased utility bills and absorbing the cost of working from home technologies. We anticipate these trends to continue long into 2021, and so human resource managers may need to change the way they calculate salaries or cost-of-living allowances to take lifestyle shifts into account in the short term.

Upasana Dutt, Head of Worldwide Cost of Living at The Economist Intelligence Unit

The report also finds that transport and business travel costs have become relatively less important during the pandemic. The ongoing trend of working from home may allow HR executives to review allowances for transport costs. That said, although the use of public transport has fallen, the image of the car as being a relatively safe way of travel during the pandemic has seen the transport index get slightly more expensive compared to last year.

A focus for the coming year is likely to be on the model of working favoured by the majority of a company’s staff, whether this is focussed on remote working or a hybrid model. This will then influence what is deemed relevant and necessary for employees. Several companies in the US have already announced plans for permanent remote-working and a simultaneous reduction in compensation packages for those residing in cities with a low cost of living.

Download a free version of the report “Worldwide Cost of Living 2020: How is Covid-19 affecting employee expense trends?”