The Economics of Lurking at Home Nick Keeling

What will people remember about the COVID-crisis? There are plenty of things to choose from: financial market crashes, massive government spending, lock downs, social restrictions, the unfortunate level of excess deaths, R numbers, “following the science”,  and vaccine speculation and development speed, to list but a few. But for many office workers, it could be remembered as the event which shifted their work to the home rather than the office.

There can be no doubt that the ability to work from home for many office workers has softened the financial blow from the pandemic on these households. This element of the population was therefore able to continue spending, providing some welcome support to the economy.

However you feel about working from home (WfH), it would appear to be here to stay. A recent survey of 958 company directors carried out by the Institution of Directors indicated that three quarters planned to continue with increased WfH after the crisis ended. Half noted a likelihood that workplaces would be downsized and 40% indicated that WfH was more effective than previous working practices.

And surveys of staff also appear to be on the positive side – apparently commutes on over-crowded public transport are not that popular. Who knew? Lucky really, since the ONS reported that 23% of workers in the UK are still working remotely in October, compared to just 5% prior to the crisis.

The Bank of England considered WfH in its recent Monetary Policy Report. It notes that many Agency contacts expect a hybrid model of two or three days spent in the office/at home to become the new normal for office workers. So, what does the Bank expect this means for the economy?

Widespread remote working could lead to higher working hours and greater labour market participation. A report from the US found that employees tended to use a third of the time previously spent commuting on their job – with an average commute in the UK around one hour, this means an extra 20 minutes worktime for millions of office staff. The Bank also speculated that normalised working from home would open the labour market to those that faced barriers, such as mobility issues, to working in offices. So potential good news for output and inclusion.

It could assist with geographical mismatches, where potential employees have no wish to move. This may also spread economic benefits across the country. However, while this will prompt an even more efficient labour market and solve some regional labour issues, it may have downward pressure on wages, as competition for new jobs at every level of a business could be countrywide.

Home working may also be less positive for innovation or for training new employees. The Report points to collaboration being instrumental to innovation, which is key to raising long-term living standards, and suggests that this may not be as effective when remote working (although innovation may initially be driven by the need for effective home working). Further to this, the Bank notes that some studies have suggested employees feel that they are less productive at home, although it does suggest that the current conditions may be influencing this, as well as those new to working from home taking time to become used to the situation.

Another issue picked up by the Bank is the effect on reallocation of capital. If city centre offices and retail/eating/drinking establishments become less utilised, property values will fall. While buildings can be redeployed for other uses, they can’t be moved! Falling property values may affect new investment, due to a reduction in both confidence and the valuation of security needed for new borrowing. This could negatively affect productivity growth in the long run.

Going further, less need for office space will be a disruptive factor on all businesses involved in construction, refurbishment, maintenance, marketing and sales of these premises. Will we need as many architects, builders, cleaners, estate agents? What about transport? Will TfL, for instance, need the same amount of capacity on some train lines or bus routes if fewer people are commuting to London on any given day.

I’ve focused primarily on economic issues, both positive and negative, but there will also be social and health issues arising from this change. Humanity is a social species and office working includes important social benefits for most people, which could be lost when ensconced in your own home. On the flip side, having more disposable time, working in your own home and avoiding those standing on the walking side of escalators may be beneficial for mental health. Long-term home workers will probably be able to shed some light on this.

As with all things, it seems a balanced approach will be most advantageous. The rapidity of the shift to homeworking will likely be more disruptive than not in the short term for some sectors, but the hybrid-type policy many firms are likely to implement post-coronavirus will hopefully soften the negatives while maintaining the wider benefits.