Is remote work here to stay?

The answer seems clearly to be, “Yes.” Some economists say the rise of remote work might be the pandemic era’s most enduring labor market trend. And they list a range of benefits – from better work-life balance to the freedom of not being forced to live near where you work.

But the increase in remote work could come with downsides. Tax receipts in city centers are sure to drop if fewer people are making a daily commute in. And some experts say an employer pullback on remote work could be on the way because its benefits to productivity are unproven.

JAY LINDSAY:

Remote work was a thing for decades before the pandemic – but it was never a big thing. And some of the highest-profile efforts to adopt it became high-profile failures.

In the 1990s, for instance, California pushed remote work to reduce traffic and smog in Los Angeles. It built so-called "telecommuting centers," where workers could find office equipment close to home and avoid a full commute. But the centers flopped.

And then there was IBM, which began its famous commitment to remote work in the 1980s. By 2009, it boasted that 40% of its employees didn't even have an office. Then suddenly, in 2017, IBM told thousands of workers to get into the office or get fired.

Entrepreneur.com reacted to this news by announcing: "IBM signals end of telecommuting craze." But the end was not nigh. The COVID lockdowns would soon change the story.

After workers everywhere were sent home, remote work went from an occasional option to the only option for unprecedented numbers of employees. And it was more successful than many imagined it could be.

University of Southern California economist Matthew Kahn names benefit after benefit from the new, widespread adoption of remote work. His list includes less commuting time, more personal time, and greater freedom to choose where to live, since people aren't as tied to an office location.

MATTHEW KAHN:

As horrible as the Covid 2020 shock was, I believe it's going to have a long-term silver lining for millions of American workers.

JAY LINDSAY:

University of Chicago economist Steven Davis agrees. He notes the amount of work being done from home now is both surprising and monumental..

STEVEN DAVIS:

It is an extraordinary event in historic terms, in the combination of the speed and the scale with which there was a profound shift in working arrangements. And I don't think there are actually any close historic parallels in those respects.

JAY LINDSAY:

This is Six Hundred Atlantic, a podcast produced by the Boston Fed. I'm your host, Jay Lindsay. We're basing this season on the Federal Reserve Bank of Boston's 66^th Economic Conference, which looked at the pandemic's impacts on labor markets.

This episode focuses on a question asked at the conference: "Is remote work here to stay?" And the answer seems clearly to be, "Yes" – with a hybrid model where workers split time between home and office being the most common.

Boston Fed economist Chris Foote, who helped organize the conference, said the rise of remote work might be the pandemic era's most enduring labor market trend.

CHRIS FOOTE:

I am not a betting man, but if I were to bet, I would say, "Yeah, it's remote work that people are going to remember." It's such a big potential shift that people are now experiencing.

When have we ever been able to separate where we live from where we work? And the opportunities that that gives people are truly immense in terms of well-being.

JAY LINDSAY:

But the increase in remote work could also come with downsides. For example, if masses of workers aren't taking a daily trip into a particular city, its commercial rents, its foot traffic – and its tax receipts – are sure to drop.

Meanwhile, University of Pennsylvania management professor Peter Cappelli says an employer pullback on remote work could be on the way.

PETER CAPPELLI:

So, I think on the employer side, I think that most employers, if they could wave their magic wand, would want people back in the office.

So, I think that's where we're headed. Slowly working our way back up toward more people back in the office.

JAY LINDSAY:

Perhaps unsurprisingly, remote work was quite uncommon in pre-internet days. Data presented by Davis at the conference indicate the percent of full paid workdays performed at home was less than 2% between 1965 and 2000.

But even after the Internet was everywhere, remote work didn't really become a thing. It hadn't even cracked 5% of full paid workdays by 2019. Then, the pandemic hit, and full paid workdays performed at home shot up to more than 61%.

Davis says as even as the COVID restrictions disappeared, the percentage of full paid workdays performed at home has stayed elevated, settling at around 30%. That's six times what it was before the pandemic.

Researchers say conditions that made this spike possible were unique to the pandemic.

First, the COVID-19 lockdowns forced companies everywhere to experiment with remote work – whether they were skeptical about it or not. Here's Kahn:

MATTHEW KAHN:

Because we had to run this experiment, because of COVID, bosses all over the world collectively learned that their workforce, many of their workforce, preferred to work from home at least sometimes, and that workers can be productive.

JAY LINDSAY:

Davis says another critical factor is that all these organizations had to run this experiment at the same time. So, no company was on an island trying to work things out while their suppliers, clients, whoever, focused on other priorities. They made things work together, and they learned how to integrate remote work into the web of everyday interactions.

STEVEN DAVIS:

It was experimentation at scale, but it was also simultaneous. So, you learned things that would've been impossible to learn otherwise.

JAY LINDSAY:

Jaime Schilling did not mess around when her Arkansas-based employer allowed her to take her San Francisco-based position even more remote. She headed to Hawaii.

The program she joined was called "Movers and Shakas," and it aimed to bring people to Hawaii at a time when no one was coming. In return, Schilling – a fundraising professional – helped local startups and nonprofits in her off-hours.

Schilling says it was a logical sell to her employer: She was already working remotely, why not work remotely in Hawaii – where she actually had a couple clients? And for her, the change also led to added income.

JAIME SCHILLING:

I think the thing that transpired as the Movers and Shakas program wound down and I came back to the mainland is there were these continuing opportunities to kind of have a side hustle and do consulting and stuff because you didn't have to be anywhere anymore.

JAY LINDSAY:

But working remotely is not always easy. Schilling found she misses the structure her daily commute gave her. She also says it's too easy for work and home life to blur together when they're happening in the same place.

JAIME SCHILLING:

I think that so many of us now, without that clear delineation between office and home, we end up working sometimes into the evening, or I'm going to step away and do this or this that needs my attention and come back at 8:00 at night for a couple hours. But it's a lot harder to separate the home-work balance thing.

JAY LINDSAY:

Still, she loves getting back the hours she spent commuting.

JAIME SCHILLING:

Now I can take an hour and a half at the end of my workday, just switch gears to the side-hustle thing, and then have dinner, whatever. There's more flexibility.

JAY LINDSAY:

The fact that people aren't leaving the house to work as much has implications beyond individual employees, bosses, or companies. It also could affect city centers.

If people just aren't coming in as often, demand for commercial real estate will drop and vacancy rates will rise. Downtown foot traffic will fall, and downtown businesses will become less viable.

Some might see benefits here. If working and living downtown becomes less popular, then rents would decline, making it easier for people and businesses who do want to be downtown to afford space there.

But any decline in rental income to landlords has an important implication: Landlords pay taxes, so if rental incomes fall, then the tax revenues that local municipalities receive will decline as well. And Davis says that could get dicey.

STEVEN DAVIS:

The potential for a downward spiral that I pointed to is, first, it goes as follows: There's a negative shock to the tax base. That means less revenues. Cities start cutting back on things like policing, just keeping the streets looking nice and clean, local public schools. So, the city becomes a less desirable place both to live and work.

That reduces the tax base further. And so you can see how there is a potential for a downward spiral in cities that do not adjust appropriately and expeditiously to the changes in their economic circumstances.

JAY LINDSAY:

Kahn says he believes cities will respond well. He predicts entrepreneurs will, for instance, figure out how to convert commercial properties into coveted residential space. And if there's pressure on officials to maintain policing, schools, and other services so that their city remains a place people want to be, they'll devise creative ways to get that done as well.

MATTHEW KAHN:

I actually believe that cities did not face enough competition because everyone was so worried about commuting that they wanted to live close or in these cities. So, I've been actually debating other economists that I believe that these center cities' quality of life will be stronger in the medium term because the rise of work from home will force them to innovate. And innovation is at the heart of everything in the modern economy.

JAY LINDSAY:

There is, of course, the possibility remote work actually hasn't caught on as firmly people like Kahn think.

Cappelli notes that studies have consistently shown that being in the office is better for an employee's career – that there are big advantages to being face-to-face with bosses and colleagues, rather than calling in. Cappelli says that hasn't changed, and people may come back for that reason.

But perhaps the biggest variable is worker productivity. Cappelli says there's no new evidence remote work improves it. So why would employers stay committed to incorporating remote work.

PETER CAPPELLI:

I don't see any evidence, any place, that productivity is up. We expected it to be a disaster and it worked pretty well. But nobody that I know has claimed that it was better, more effective for companies than before the pandemic.

And I don't, again, don't see employers spending a lot of time and energy to try to figure out how to make it work remotely. Because I guess, for them, they'd say, "Why should we? If in-person works on this, why should we try to make it work remotely?"

JAY LINDSAY:

Cappelli says he knows it would be difficult for companies to pull back on remote work, because it's clear many employees like it. But he also doubts a wave of worker resignations is coming if they do.

PETER CAPPELLI:

There's a million surveys showing that the evidence and the psychology, if you look at the percentage of people who say they're going to quit and who actually quit, is pretty small.

JAY LINDSAY:

Schilling, though, thinks something fundamental has changed in the working world.

JAIME SCHILLING:

I think that most employers get that we are in a different world now. And I think there's a competitive advantage there, too, for employers that are like, "Yeah, we offer flexibility." I think a job candidate can very easily say, 'You want me to come to the office full time? Well, forget you. There are a hundred other opportunities where I can be hybrid or work from home.'"

JAY LINDSAY:

Kahn agrees it's a new day and says employers will resist that change that at their peril.

MATTHEW KAHN:

Those firms with innovative bosses who are willing to try new things will have an easier time attracting and retaining talent. Those organizations that keep to the 1960s, Mad Men world of how things are done, they're going to have more trouble attracting and retaining talent and will actually be punished for being a bit of a dinosaur.

JAY LINDSAY:

The rise of remote work may be an early favorite as the most influential pandemic-era labor market trend. But it is not the only one currently changing people's work and lives.

The pandemic saw an historic increase in entrepreneurship. It's the revival of a spirit that appeared to have been crushed during the Great Recession.

JOHN HALTIWANGER:

After the dot-com boom and bust, entrepreneurship had started to decline, it collapsed in the Great Recession, and then it's been very low. And we've been struggling to figure out exactly what happened to the U.S. economy. It sort of lost its mojo in terms of entrepreneurship. So, that's part of why we're so intrigued by this enormous surge.

JAY LINDSAY:

Another trend to watch is a push for increased automation to simplify or eliminate tasks normally done by people. This tech trend, of course, predates the pandemic. But researchers say automation will be a big part of the post-pandemic labor market. The question is whether it will help workers or not.

DARON ACEMOGLU:

The so-so automation, or the excessive automation, is the bad face of automation. And if that bad face of automation is what we see, I think it's really bad for productivity, not that great for productivity, anyway. It's bad for distribution, it's bad for labor.

JAY LINDSAY:

That's next on Season 4 of Six Hundred Atlantic.

JAY LINDSAY:

Thank you for listening to Season Four of Six Hundred Atlantic. You can find interviews and our first four seasons and subscribe to our mailing list at bostonfed.org/six-hundred-atlantic. And we'd really appreciate if you would rate, review, share, and subscribe to Six Hundred Atlantic on your favorite podcast app..

The producers would like to thank our contributors for their time and insights. They are Peter Cappelli, Steven Davis, Chris Foote, John Haltiwanger, Matthew Kahn, and Jaime Schilling

This has been "From Collapse to Recovery," the fourth season of the Boston Fed's Six Hundred Atlantic podcast.