Widespread working from home might jeopardise the economy, but not in the way the media is discussing. This is the problem posed by the fact that many big employers have no plans to get people back into their offices.
So far, discussion of this has focused on its likely impact upon demand. Dame Carolyn Fairbairn, head of the CBI, has said that city centres are becoming ghost towns as working from home has caused us to spend less on cafes and pubs near city centre offices. (And less on commuting too, but nobody cares about train companies).
Obviously, this is bad for some businesses. Whether it’s bad for all is, however, doubtful. Of course, our spending slumped in the spring as more of us worked from home. But this was because shops and restaurants were shut. Working from home in more normal times is more likely to see a shift in demand. We’ll spend more in local pubs, shops and restaurants and less in ones near the office. And being at home makes it easier to receive deliveries, so there’ll be more online shopping – which is why Amazon’s share price has soared this year.
Some of these shifts are unpredictable. For example, when I started working from home I got a cat, which means that money I saved on shop-bought sandwiches is now spent on tuna and cat treats.
On a bigger scale, if companies move to smaller offices, it would be disastrous for landlords but good for the firms themselves as they save on rents.
Net, I suspect working from home will have huge impacts on the pattern of demand, but not so much upon the level of it. Why should it, if our salaries don’t change?
But demand is only half the story. There are also supply-side impacts which are underappreciated.
A survey by Harvard University’s Ed Glaeser and colleagues has found that many firms who adopted working from home have seen productivity fall. I’m not sure how permanent this is. Any sudden change – especially if introduced during a time of massive uncertainty and falling aggregate demand – will be problematic. Over time, though, such teething troubles can be cured.
In fact, experimental evidence is much more encouraging. Stanford University’s Nick Bloom and colleagues have found that when a Chinese travel agency allowed some workers to work from home but not others the productivity of the home-workers soared as they faced fewer of the many distractions of office life.
Instead, my concern is that home-working might depress the innovation that drives productivity growth. It stops bosses from directly seeing inefficient practices that might be improved. And reduces the number of chance, informal conversations that might spark new ideas. Formal, planned Zoom meetings are not a full substitute for serendipitous chat.
Some work by Jonathan Haskel (now a member of the MPC) and colleagues suggests, however, that this isn’t a great loss. They show that most productivity growth comes not from existing firms upping their game, but from new firms entering and older inefficient ones leaving.
This suggests that as long as there’s still creative destruction, working from home is compatible with innovation and productivity growth.
But there’s a big awkward fact here. For most of human history, we worked from home. It is (was?) only during the industrial era that we didn’t. But equally, it was only during the industrial era that we saw huge productivity growth. The totality of history, then, suggests that working from home is associated with stagnation.
Now, mostly this is correlation without causality. The same technologies that required us to work in factories and offices also facilitated productivity growth. But is this the whole story? Or could it be instead that a small part of it is that presenteeism does facilitate innovation and growth.
The honest answer here is “we don’t know”. After all, if we did know the precise causes of innovation and growth, we’d achieve a lot more of it. What we do know though is that, in the long run it is this issue that matters most.
