What the ‘Work from Home’ revolution means for those who can’t

The COVID-19 pandemic changed how we live, how we work, how we get from where we live to where we work or even if we have to leave where we live to get to where we work. But the number of workers whose commutes have been shortened from 45 minutes to 45 feet make up only a fraction of the U.S. workforce — the rest are still making the twice-daily trek. In his new book Going Remote: How the Flexible Work Economy Can Improve Our Lives and Citiesurban economist Matthew E. Kahn examines how this tectonic shift in work-life balance might ultimately play out, as well as the increased economic and social stratification it could cause.

blue background, a bunch of yuppies sitting on clouds and working on laptops. White text for the title of the book, yellow for the author’s name.

taken from Going Remote: How the Flexible Work Economy Can Improve Our Lives and Cities by Matthew E Kahn, published by the University of California Press. © 2022 by Matthew E Kahn.

Not everyone can work remotely. If 35 percent of the workforce works remotely at least a few days a week, it will have at least three effects on other workers. First, the demand for service jobs will increase in the residential areas where remote workers move. As remote workers move further from city centers, this will lead to increased demand for service workers at the Starbucks and other stores where they shop. Land prices are cheap on the outskirts of the suburbs and the purchasing power of such local service providers will be higher than if they were looking for jobs in the city center. While service workers can’t work remotely, they can move to remote locations where rents are cheaper if more people work from home. If 35 percent of the workforce starts working from home three days a week and is therefore home five days a week, there is a demand for a service sector in the areas where they live. This creates new jobs for less skilled workers in such areas. Housing is cheap in these areas. This increases the quality of life of such service providers. There will also be new construction jobs as new houses are built further from the job centers. Families who spend more time at home will invest money to upgrade the house. This creates new opportunities for those who provide home improvement services. Some people can add a new office to their home or other features to tailor it to their needs.

While there are significant opportunities for less skilled workers to live and work far from cities in the cheaper parts of metropolitan areas, a countervailing force is the rising minimum wage. In cities, the minimum wage is usually non-binding, as workers have to get higher nominal wages to attract them. By contrast, in more suburban and suburban areas, demand for workers may decline if one has to pay service personnel $15 or more per hour. If workers far from cities could find very cheap housing, many would be willing to work for less than $15 an hour. While most people think a high minimum wage is “good” for low-skilled workers, economists emphasize the likely unintended consequence. When employers are legally obliged to pay people higher than market wages, they create fewer jobs. For example, such companies can replace and rely on robots or other capital. Economists argue that a higher minimum wage increases unemployment for lower-skilled workers. In places where housing is cheaper, the minimum wage is more likely to be a binding restriction for employers. The net result may be counter-intuitive here. Less skilled workers will benefit more from the rise of WFH when they live and work in states with less generous minimum wages.

In this chapter, I focused on how WFH beneficiaries are reconfiguring their lives to make the most of this new opportunity. Here it is important to note that those who are not currently eligible for WFH are not locked into this category. Younger workers can retrain in the field to open up this opportunity for themselves. Parents of younger children can invest in their children to increase their chances of being eligible for WFH in the future.

Those who work in the service industry and thus earn their living from face-to-face interaction still benefit from the rise of WFH as they benefit from a larger menu of options for where to live their lives. When a wealthy environmental community emerges in Bozeman, Montana, new opportunities open up for people in the service industry to live and work there. While this option may not appeal to everyone, it is important to increase the menu of options. Employees who are not eligible for WFH know themselves and their life goals, and they will make the right choices for themselves and benefit from a wider menu of alternatives.

As more people have the opportunity to live and work where they want to be, this increases not only their physical and mental health, but also the responsibility of our institutions. If there are places whose governments do not meet the wishes of the local residents, people are more likely to leave. In this setting, real estate prices are more likely to reflect changes in the local quality of life. If an area has a rising crime rate, people in the new WFH economy will “vote with their feet” and real estate prices in that area will fall. This requires local officials to be more responsive in addressing new quality of life challenges because if they don’t, the tax base will shrink.

While this has been an optimistic chapter, I must make some cautionary remarks about concentrated urban poverty. WFH creates an incentive for the American people to proliferate. This chapter outlines the benefits of this emerging trend. At the same time, such suburbanization can contribute to further isolation of the urban poor. Poor people live in central cities in areas like Baltimore and Detroit because there are old, cheap housing and good public transport. If the poor stay in these city centers and the richer people move to the suburbs, then there is greater geographical isolation of the poor and this can reduce political support for programs redistributed to them because there is an “out of sight, out the heart” effect and the physical distance between the groups acts as a kind of moat. Previous research in urban economics has shown that university graduates are more likely to move to the suburbs when violent crime increases in the city center. This propensity to engage in “flight from plague” is likely to increase in a WFH economy as educated people no longer commute five times a week to jobs in the center of the city.

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