Working From Home: Can the global economy hope to adapt and thrive under the “new norm”?

The Enlightenment of WFH

Although deemed the “new norm” working from home was the luxury of freelancers and the self-employed pre-pandemic, the average muggle was resigned to the fact that the working week revolved around an office space and to suggest otherwise was radical and frankly ludicrous. The Great British public couldn’t be trusted nor wanted to work in the comfort of their own homes on their sofa wearing their slippers!

5.1% of workers reported working remotely regularly, however now in recent a YouGov survey, 57% wanted the option of working from home in some capacity. This represents a drastic shift in opinions of “hybrid work” and the preferences of the labour force. A shift reinforced by the findings of firms who state the top 3 reasons for incorporating hybrid work as: Improved staff well-being (60%), Reduced overheads (43%) and Increased productivity (41%).

But this raises the question if on the surface WFH is mutually beneficial in the eyes of firms and their employees, a lesser spotted phenomenon in most labour markets, then why has the chorus line from most governments rang to the tune of getting people back into the offices? Are their hidden consequences to the working revolution that are yet unclear?


Is WFH beneficial for the economy?

The research on such a topic is predictably very new and as such varied in its conclusions, and while conclusions can be drawn, we should exercise caution in following them through on said conclusions, as we may not yet have seen any long-term effects to this change in the working landscape. Some argue that despite workers preferring their home set up to the office “staying at home is likely to delay the recovery of the vital office-adjacent economy”[1]. This refers to public transport systems, city centre businesses and commercial real estate activity being heavily propped up by the average commuter, for example, the New York Subway which created $17bn of revenue pre-pandemic and now ridership is less than 50% of its pre-pandemic level (Aug 2021).

A pattern of balancing acts across the economy develops as we delve deeper if we explore the idea of removing the commute from the working day it saves time, costs, and removes that specific stress from workers’ lives boosting productivity. However, there are productivity benefits that arise with greater proximity known as agglomeration economies the greatest example of which might be Silicon Valley in California. The Valley is home to most of the largest and fastest-growing tech companies in the world like Apple, Facebook, and Google. This isn’t by accident, proximity to other similar companies produces knowledge and information spill-over effects due to the density of economic activity. Similar effects are felt when workers are in the office together and companies would risk losing these productivity-boosting effects by conducting business virtually. Frakes and Wasserman[2] conducted research that confirmed that these spill overs existed and were crucial especially in new employees’ development, while Mas and Moretti[3] detailed how workers’ efforts, and subsequent productivity, were driven by those around them and without this driving force this can produce negative effects.


The deeper we dive the more acts we encounter; the utility of the office space dwindles as it becomes less of a necessity and more of a luxury to companies. Physical commercial real estate was already experiencing a downward trend pre-pandemic due to the emergence of e-commerce but now offices space is under attack, with demand at only 58% of its pre-pandemic level (February 2022) it seems the real estate market has hit a big bump in the road. On the contrary, when one door closes another door opens, as now people who work from home are demanding more real estate space residentially to accommodate for their new working environment e.g., home offices.


The exact balance of these said balancing acts cannot yet be ascertained due to the aforementioned long-term effects we are yet to experience. This does however second our notion as to why governments are so keen to return to the status quo, as it seems for every downturn in one market leads to an upturn in another. But be warned, drawing conclusions from such short-term consequences can be a dangerous game.


Can it and will it be sustainable?

Overall, I think the mass migration of workers from offices to their homes is at this stage, irreversible. In the wake of a “cost of living crisis,” people are hardly willing to accept to bear the brunt of extra costs, with research suggesting the savings associated with WFH could be £500 per month. Savings made on costs such as childcare (£62 per week for after-school clubs in the UK) are transactions many working parents would be unwilling to return to, with WFH presenting a costless and simple solution to the issue of childcare provision for the government. This isn’t to suggest that office working will become completely obsolete as many enjoy the social aspects and 81% of workers between 18 and 34 expressing concerns of loneliness while working from home.


However, I believe this to be the era of hybrid working and while governments scramble to encourage workers back into the offices to save city centre businesses, this battle seems futile. Like any shock, companies were forced to adapt when the pandemic struck to be able to operate successfully remotely or die. Now the dust has settled it’s the turn of the city centre businesses governments are so desperate to save to do the same. During their research Barrero et al (2021)[1] surveyed 30,000 people and forecast an increase in 15% of workdays completed from home and report a 5% productivity boost due to optimised working arrangements.


The will of employees and their employers and the reported associated benefits of hybrid work is hard to argue with and I don’t expect the push to return to offices to last much longer. It will be important however to keep an eye on the long-term effects, will the balancing acts mentioned actually balance out? Will the shift away from offices continue to a greater extent or have we reached our new equilibrium? Does this shift represent an opportunity for a new era of easier and smoother business creation? All will be interesting to witness going forward.

 

Edited and Reviewed by Tanish Bagga.

 

References/ Further Reading:

What will the WFH trend mean for the economy and global supply chains? (openaccessgovernment.org)

[4] Why Working from Home Will Stick (lse.ac.uk) [1] Why remote work is a big problem for the economy - CNN [2] Microsoft Word - paper_v5 (oecd.org) [3] Peers at Work (berkeley.edu)

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