According to a recent study published in the Review of Economic Studies by Oxford University Press, the rapid integration of remote working technologies has significantly impacted American societal norms. The research utilizes an equilibrium model to explore choices concerning residential locations and the distribution of work hours between home and office settings. The findings indicate that the pandemic has notably heightened the productivity of home-based workers compared to their office-based counterparts. This shift is linked to a rise in housing prices, a decrease in office rental costs, and a likely permanent expansion in income disparity and changes in residential patterns within metropolitan areas.
The onset of the COVID-19 pandemic expedited the adoption of technologies that facilitate remote work, leading experts to predict that post-pandemic, the prevalence of such work will exceed pre-pandemic levels several-fold. The researchers suggest that the permanent increase in productivity for home-based work compared to office work has not only fundamentally altered the work dynamic but also has profound societal implications, such as a potential increase in income disparities and changes in residential patterns.
However, this productivity boost is not uniform across all work types. Routine tasks are more efficiently performed from home, while collaborative efforts might benefit from in-person interactions, given the challenges of remote communication and coordination. Although executing specific tasks might be more straightforward from home, initiating collaborative projects tends to be more effectively managed in the office environment.
Historically, the concept of working from home hasn’t been introduced previously. It traces back to at least the early 2000s when a growing number of workers began spending a fraction of their workdays from home, a trend that continued to rise until the COVID-19 pandemic hit. In 2019, about 5% of full workdays were conducted from home, with notable differences across educational backgrounds—higher percentages were recorded among those with bachelor’s degrees or advanced degrees compared to those with a high school education or less. The pandemic accelerated this trend significantly, with estimates suggesting a fourfold increase in full workdays from home compared to the pre-pandemic era. The researchers estimate that productivity improvements had to be substantial to support this surge in remote work, marked at 48% for lower-skilled workers and 82% for higher-skilled workers.
The study reveals that this significant alteration in productivity ratios has led to a major shift towards remote work and a corresponding reduction in the demand for office space, culminating in a roughly 7% decrease in office rents in central business districts. Concurrently, the demand for residential spaces suitable for home offices has spiked, particularly in suburban areas, leading to an increase in housing prices—14% near city centres and 24% in outer suburbs.
The researchers also speculate that while the productivity gains associated with remote work would have likely occurred eventually, the pandemic has significantly hastened this transition. They foresee that this enhancement in productivity will not only lead to higher lifetime earnings for those now working predominantly from home but will also exacerbate income inequalities. This is particularly true as remote work technologies, a key driver of this shift, favour highly skilled workers, echoing the broader trend of rising income inequality driven by technological advancements that disproportionately benefit this demographic.
Morris Davis, the lead author of the study, emphasized the profound and lasting impact of the pandemic on remote work dynamics, highlighting the increased productivity and the resulting implications for income disparities and housing demands. He noted, “The COVID-19 pandemic prompted a radical shift in how much people worked from home, which in turn boosted the productivity of working from home due to mass adoption of remote-work technologies. The increase in productivity is predicted to lead to higher lifetime incomes for those workers in occupations with tasks that are most easily accomplished at home—predominantly high-skill workers—and thus a side consequence of the increase in productivity of working at home is a widening of income inequality. The change in work-from-home productivity also increased the demand for housing, consistent with the increase in house prices we observed between 2020 and 2022. These changes are not temporary, but rather, they represent a new normal that we must adapt to and prepare for.”
More information: Morris A Davis et al, The Work-From-Home Technology Boon and its Consequences, The Review of Economic Studies. DOI: 10.1093/restud/rdad114
Journal information: The Review of Economic Studies Provided by Oxford University Press