Americans Are Done With 5-Days a Week in the Office. Here’s What That Means for the Economy

Americans are shedding their masks, buying concert tickets and booking vacations like it’s 2019. But there’s one thing that’s doesn’t appear to be going anywhere as the pandemic fades: remote work.

Companies from Vanguard Group Inc. to Ford Motor Co. are permanently adopting “hybrid” work schedules where employees spend some of the week at home and the rest at an office. Forecasting the implications of these long-term work shifts on the U.S. economy is no small task.

Enter Nicholas Bloom, a Stanford University economist who started researching the economic impact of remote work years ago and has become a de-facto "working-from-home" expert during the pandemic, with his findings featured in dozens of publications. Bloom, who is also co-director of the Productivity, Innovation and Entrepreneurship program at the National Bureau of Economic Research, has spent the last year surveying tens of thousands of U.S. firms and employees about their post-pandemic work arrangements. 

In a conversation ahead of the release of his latest working paper, “The Donut Effect of Covid-19 on Cities,” published with Stanford colleague Arjun Ramani, Bloom spoke about remote work’s impact on migration, real estate, diversity and productivity.

The conversation has been condensed and edited for clarity.

Your research shows that Americans are congregating in the suburbs and, arguably, apartments in urban, more dense areas are being vacated at a faster pace.

We call it the “Donut Effect.” The places losing the most people are centers of big cities. Downtowns are doing very badly, they’ve lost roughly 15% of people and businesses, and the suburbs of the same large cities are doing really well. In fact, it looks like the suburbs of large cities are the hottest property markets. We think that this is all due to the move to hybrid. If you can work from home two days a week, it makes it more appealing to live in the suburbs because you have to commute less. But it makes it impossible to go and move to Alaska, it doesn’t work.

Americans Are Done With 5-Days a Week in the Office. Here’s What That Means for the Economy

What does that migration mean for urban housing within central business districts?

The center of American cities have had a 40-year boom. Young people have wanted to move into city centers, they haven’t rushed out to suburbs as rapidly as they got older, and empty nesters have wanted to move back. Covid has probably unwound 10 to 20 years of that. So you can think city centers are going to be the price they were, say, in 2005. Which is expensive, definitely more expensive than the suburbs, but that gap has narrowed a little bit.

Some people will pay the same rent and get bigger apartments, other people will pay lower rents for the same apartment and you’ll find they have a bit more spending power, and other adjustments will be that more artists will come back to the city centers — folks that were driven out. And maybe people that need to work in the business premises five days a week — who were priced out but are actually the very people that should be living in the city centers — will return.

Do you imagine that companies opting for hybrid-work environments will adopt smaller commercial footprints?

Only 28% of Americans report that post-pandemic they go back to exactly the same activity as pre-pandemic. The other 72% report that at a minimum, they’d refuse to get into crowded elevators or lifts. So you’ve got a serious problem for what to do with high rises. In some sense that strikes me as the biggest issue for property is how to deal with skyscrapers. There are creative solutions but it’s not easy.

Americans Are Done With 5-Days a Week in the Office. Here’s What That Means for the Economy

You found that work from home in the longer term will bring a 5% productivity boost post-pandemic. What are the components that contribute to that?

Three to four percent of that is saving on time that you spend commuting. The minority of it is, if you’re working from home two days a week, if it’s well managed you can be more productive. The reason is, basically, there will be a reorganization of work.

A well-organized company will set this up from the center and say, for example, the industrial team is going to come in Monday, Tuesday, Thursday. And then the industrial team has all their face-to-face meetings and training and clients on Monday, Tuesday, Thursday. Wednesday, Friday you’re now at home and you do all your quiet stuff like reading, writing, reports, expenses et cetera and that stuff turns out to be done more efficiently at home because it’s quieter.

There’s research that shows remote work makes it more difficult to get promoted. How will longer-term adoption of work-from-home impact that? Especially for women or parents in general who choose to work from home five days a week?

Who would choose to work from home more days post-pandemic is not random. For people with children under the age of 12, you find almost 50% more women than men choose to work from home five days a week. Already, among graduates with young kids there’s a big gender divide among who would choose to work from home five days a week. You hear it for people with disabilities, people who live far away. Working from home in a team where there are other people coming into the office is extremely costly in promotion.

If you let people choose [how often they work from home], my fear is the biggest cost in the long run is all the single young men come in five days a week, and college-educated women with a 6-year-old and an 8-year-old come in two days a week, and six to seven years down the road there’s a huge difference in promotion rates and you have a diversity crisis and, honestly, for companies you have a legal minefield of quite justifiable lawsuits.

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