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The economic impact of WFH

By James Pomeroy, Global Economist

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The pandemic has changed how the world works – and that affects people, business, cities and whole economies.

Remote working has become commonplace across much of the world during the pandemic. Offices were running at half capacity even before Omicron emptied them again. But what might a post-COVID-19 world look like? And what is the impact?

In the current tight labour market, remote-working is likely to become more entrenched. It is already specified in many new jobs advertisements.

Workers seem to prefer a hybrid model that combines home and office working. Professional staff are most affected, especially in developed economies, where the employment mix is more focused on services roles that can be done remotely. But the impact of changing could be substantial.

Remote workers spend less on transport, coffees and lunches, affecting businesses that rely on the footfall of office employees. But general retail and hospitality often depends on them too. Commercial property valuations may thus be impacted. And hotels and conference venues will be hit if business meetings and events move online.

But there are clustering benefits of businesses and workers grouping together – estimated at about 0.5% of GDP in the UK. Too much remote working may impair long-run innovation and growth because of reduced face-to-face contact and knowledge spillovers.

Without networks and mentoring, new joiners and younger workers are hit hardest, even though the young – more technically adept at working remotely – are most keen on hybrid working.

Remote work could make finding opportunities easier, although reduced networking opportunities may counter that.

Meanwhile, half the workforce staying home two days a week would hugely impact on transport operators. Less commuting has an environmental benefit – unless lower investment and reduced services encourage higher private-car use.

Will reduced commuting costs offset the lost clustering benefits that made urban areas more productive? Telecommuting mainly benefits educated workers but can disadvantage the less skilled.

Cutting out commuting can raise efficiency – but so can fitting into the working day domestic chores or receiving deliveries. Remote working may also mean fewer, shorter meetings. And the time saved can enhance skills, health or lifestyles – even though most British workers say they work longer hours when working remotely.

There can be efficiency gains for employers too, including lower overheads or reduced sickness levels, while improved worker wellbeing may cut staff turnover. Hiring may be easier too.

Working from home is encouraging workers to move home. People previously moved from country to cities to find jobs; now remote working allows relocation back to rural areas or suburbs with bigger, perhaps detached, properties with gardens, where spare rooms can double as home offices.

Rents and sale prices are reflecting this trend and if it continues, housebuilding may need to stay higher for longer while focusing on larger homes.

But moving from cities could help level-up regional inequality, encouraging investment in housing, schools and public services. The global 5G roll out should improve broadband speeds and competition between international cities could spark a wave of investment in infrastructure and local transport to attract would-be residents.

So while remote working may create short-term risks to economic growth, the longer-term benefits from reducing regional inequality, better matching of job roles, plus saving costs and time, could be substantial.

First published 24th January 2022.

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The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: James Pomeroy

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