Coronavirus

Working from home risks cutting off innovation

BY Ian Stewart | tweet IanStewartEcon   /  5 October 2020

A personal view from Ian Stewart, Deloitte’s Chief Economist in the UK. 

The pandemic has created a vast natural experiment in home working. In the UK the proportion of the workforce regularly working from home (WFH) rose from around 5% to close to half in April.

Of course not all work can be done at home. At the height of the lockdown slightly more than half of all jobs were performed outside the household. Retail, healthcare, manufacturing, construction, hospitality tend to be site-specific. Even where homeworking is feasible, it may not be optimal for productivity or for the person doing it.

In recent years the share of the workforce based at home has risen by about 0.2 percentage points a year. Technological improvements, more flexible working practices, the rise in the female workforce and the growth of the service economy have all played a role.

As the forced experiment in home working enters its seventh month it seems to be shaping our preferences. A recent Office for National Statistics (ONS) survey found that almost 30% of working adults plan to continue working from home at least some of the time after the pandemic. An increase to this level would compress decades of growth in homeworking at normal rates into a year or two. The pandemic looks set to turbocharge the gradual, long-term shift to homeworking. 

Among the audience for our regular COVID-19 webinars over half say that they would like to work two or fewer days in the office each week. Less than 1 in 20 want to spend the whole week in the office.

The expectation of a permanent move to working from home is already affecting decision making. In a sign of a shift in the housing market Bloomberg reports that rents for apartments in higher cost US cities, including San Francisco, New York and Boston have dropped while rents in lower cost cities nearby have risen. In the UK Zoopla reports that the price of one-bedroom flats fell in the year to August and prices for larger flats and houses rose. The Nationwide has found that over 40% of Londoners are moving home or have considered doing so as a result of the pandemic.

Switching from workplace to home working changes the nature of work. A study by Harvard Business School found that those who moved to working from home during the US lockdown worked longer hours and attended more, but, thankfully, shorter meetings (on an average, lockdown meetings were about 20% shorter than in normal times).

Another study suggests that workers have more than recouped extra hours worked by not commuting. The research estimated that Americans saved over nine billion hours between mid-March and mid-September as a result of not having to commute (the average US worker spent 54 minutes a day commuting pre-pandemic, UK workers 59 minutes). About one-third of the time saved went into working longer. The remainder was devoted to childcare, leisure activities, home improvement and working on second jobs.

Yet none of this is to suggest that the age of urbanisation is over. Cities are indispensable to human progress. The so-called agglomeration benefits of cities – the way in which, as scale and density increases, output and productivity rises – are well understood. These gains arise because cities foster specialisation, learning, relationships, competition and the exchange of ideas. Most industries see such benefits, but they are especially pronounced in services.

How, then, can we explain the seamless way in which sectors, such as financial services, which see the greatest gains from agglomeration, have moved to homeworking? Does this not show the weakening importance of place, even for sectors that have long been seen as needing cities?

An alternative, and to my mind more plausible explanation, is that such sectors have drawn down on the stock of knowledge, relationships and social capital that were built up in the workplace. In this world we need the office, or some version of it, to renew these assets.

It is unlikely to conform to the once standard template of “nine to five, five days a week”. Homeworking will play a bigger role. Yet most people also want to spend some of the time in the workplace. In our webinar survey fewer than 5% of the audience want to work entirely from home; ONS surveys show a similar proportion. A hybrid form of work, one which captures more gains from homeworking without losing those that stem from agglomeration, is the most obvious outcome.

The last word on this goes to Allen Scott, distinguished research professor at UCLA and a specialist in geography and public policy. In a letter to the Financial Times last week he wrote, “the widely anticipated dissolution of urban agglomerations as a result of coronavirus is no more likely to occur than the “death of distance” that was said to be imminent in the days when the internet was in its infancy”.


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