While a significant amount of remote work is here to stay, markets will continue to adapt to remote work for years. From a macroeconomic perspective, the extent of remote work that will prevail has not been tested by recession. So far, remote work has been adopted in a time of historically tight labor market that has provided considerable leverage for workers. From a more micro perspective, the longer-term impacts of remote work on people's career ladders which are frequently built on personal relationships are still largely unknown. Only time will tell.
Even though the response to remote work is still evolving there are several aspects of the labor market that are not likely to return to pre-pandemic patterns.
The labor market will be more flexible, more expansive geographically, and potentially more isolating. Firm investments in supporting technology have enabled remote work on a large scale, while a competitive market for labor has required firms to be more flexible with respect to total hours worked, time of work, and work location.
Almost by definition remote work defies municipal, state, and country borders, making firms and households much less tied to specific locations. Still, the benefits of consumption and production agglomerations are likely to remain important. The ability to outsource services not requiring in-person work could enhance profits of firms relying on in-person innovation by lowering some costs. Work from home also will create more competition in the labor market over time as firms can access lower cost labor markets at home and abroad to services suitable for remote work.
WFH can reduce unplanned social interaction and enhance the ability to sort into more homogeneous virtual and bricks-and-mortar communities. In an era that is already characterized by sharp divisions about what a basic fact is, further sorting and segmentation is likely to further erode productive social cohesion.
How should cities adapt? The primary reason for cities is to provide economic and social interaction. The benefits of agglomeration have not been eliminated, but the possibility of remote work makes the coordination problem of achieving sufficient density challenging. Remote work may provide very significant savings for the remote worker, but it also may undermine not only their productivity but also the productivity of in-person workers. Policies are needed to ensure that private decisions are consistent with the best level of density with its attendant agglomeration benefits.
More than ever the quality of experience in cities will affect cities' long-term outcomes, as well as the long-term outcome for the income and wealth of the nation. If cities are unattractive, consumption and productivity agglomerations will not be sustained which would likely render significant investment in public and private infrastructure obsolete. Thus, not only will agglomeration benefits be lost, but infrastructure will have to be created in other places. Note also that it would likely result in car-dependent, climate unfriendly development.
In the new world of remote work, commuting cost is the enemy of cities because it is a force against in-person work. Transit remains essential to sustaining cities, but it will need to evolve into a service that is less peak focused and mirrors the all-day flexibility of the new work environment.
Housing affordability is a global problem for cities. To sustain the urban agglomerations in light of remote work, cities have to reduce the barriers to adding to the supply of housing by both the private and public sectors. Preserving access to affordable housing in attractive, successful cities will require some public investment in affordable housing in locations with economic opportunities. Note that the market will provide affordable housing through filtering, but will not fully address the need for housing of moderate income households in a location-efficient manner.
Dick Voith is Chairman and Founding Principal at Econsult Solutions Inc.
Sourced from https://penniur.upenn.edu/publications/expert-voices-2024
