What I think is going to happen in the long run could be a bifurcation of the labor market. You’ll have some firms that say our thing is in-person, we are going to be a firm where people come in five days a week. One quarter of the labor market will love that and they’ll flock to that firm and the other three quarters will slowly drift away. Then there’d be other firms that are going to say our thing is fully remote, and if you’re a fully remote type person, go work for that company. I think there’s going to be a great reshuffle as companies start to differentiate themselves on work-from-home policies.
JF: A lot of your not-work-from-home work has been about management practices and which ones lead to more productivity, and on an economy-wide scale more growth. Is there potential for big productivity gains coming out of this re-sorting of work?
NB: There are two angles for gain from this. One is just productivity of people that can work from home. Our estimates are that it might increase their productivity by 3%, 4%, 5%. They’re maybe half the labor force, but about two-thirds of earnings, which is what’s relevant for GDP. So you can think about that as a 3%, 4% increase in GDP, stretched out over the next few years.
The other benefit that possibly is even larger in the long run is the positive impact on labor supply. There are a number of groups that are more able to work because of working from home. A lot of people—think folks with young kids, people that are disabled, people that are close to retirement age, students—may be happy to work three days a week for six hours a day without the commute, but wouldn’t be prepared to do that for five days a week, including commuting. I think that could push up labor supply by 2%, 3%, 4%, which would be a very large impact on growth.
JF: What about the negatives? One would seem to be the impact on cities. New York seems pretty lively, although I guess we’re going to have to figure out how to pay for our subway if usage stays 30% below what it used to be. And there’s the half of society that can’t work remotely.
NB: A lot of individuals, professionals, managers that used to live in city centers of New York, San Francisco, L.A., Chicago, etc., have decided, look, if I’m only having to come into work two or three days a week, I can live out in the suburbs and commute in. So you see evidence of 5% to 10% of the population leaving the city center. That’s pushed down city center rents and property prices. I see that as good because at the margin, some essential service workers that need to get to work five days a week are going to find it’s relatively more affordable to live in city centers. It’s still extremely expensive, but it’s kind of pushed back a little bit on the affordability crisis, which was a big 2019 issue.
The main worry I have is the one you highlighted, which is the strain on city budgets and particularly mass transit. The issue with mass transit is that almost all the costs are fixed, but the revenues are variable. So if you have a 30, 40% drop in ridership on the subway or BART or the London Underground, which is what’s forecasted, then your costs fall by a few percent and your revenues fall by 30%. Who pays for it? When you say the city should pay, the city is also facing lower property taxes, lower retail taxes, lower hotel taxes. Suburbs of big cities are doing very well, and I think we need to think about redistribution from suburbs to core city centers. Because if you let cities go bankrupt or just shut down the subway, that’s Carmageddon—and everyone suffers.
Justin Fox is a Bloomberg Opinion columnist covering business. A former editorial director of Harvard Business Review, he has written for Time, Fortune and American Banker. He is author of The Myth of the Rational Market.