Speakers
Remote work has gone from optional to essential in this time of pandemic. In 2017, at least 5% of the workforce labored full-time at home; today, with the spread of Covid-19, roughly half of Americans work from home.
Recent analysis by Upwork’s Adam Ozimek suggests the shift to remote work prompted by Covid-19 is here to stay. Will the rise of remote be the death of cities? Or will the technologies enabling flexible work unlock new gains in urban productivity and opportunity?
On July 9, the Manhattan Institute hosted a conversation with Adam Ozimek on the implications of remote work for the future of cities and the American workforce.
Dr. Adam Ozimek is the chief economist at Upwork, the largest freelancing website, where he leads research on labor market trends. Previously, he was a senior economist at Moody’s Analytics where he managed U.S. demographics forecasts and research. Prior to that, he was the Director of Research for Econsult Solutions, an economics consulting firm in Philadelphia. Ozimek, an expert in the functioning of labor markets, produces research in a broad array of economics fields including demographics, monetary policy and immigration. He has written for the Forbes Modeled Behavior blog and his research has been cited in publications including the New York Times, Washington Post and the Wall Street Journal. Ozimek holds a PhD in economics from Temple University.
Event Transcript
Michael Hendrix:
Welcome to the Manhattan Institute's virtual event on Remote Work and the Future of Cities. I'm Michael Hendricks, Director of State Local Policy here at MI. And we're delighted to be joined today by Dr. Adam Ozimek, the chief economist at Upwork. Remote work has gone from optional to essential during this time of crisis. I say that as someone who's working from home right now. Our goal today is to share some of the latest findings on remote work and to understand what they mean for cities. Now, throughout our program, please enter your questions on any of the platforms you're watching us on and I'll wrap them into our discussion.
Michael Hendrix:
Also, please consider subscribing to the Manhattan Institute's newsletter and our mission. We've posted links for doing so right in the comment section. And now without further ado, Adam Ozimek. Adam is the chief economist at Upwork, where he leads research on labor market trends and a host of other issues. Before that, he was the senior economist at Moody's Analytics. Adam's an expert on labor markets and a must follow on Twitter @ModeledBehavior. Adam, it's great to be with you.
Adam Ozimek:
Thanks for having me. Glad to be here.
Michael Hendrix:
All right, so let's dive right in. How widespread is remote work now? You took part in a couple surveys on this. Not just in its prevalence among workers, but for hiring managers and teams. Walk us through those findings.
Adam Ozimek:
So I did a survey along with John Horton, Erik Brynjolfsson, and a few others about working from home percent. And we found that there's about a third of workers overall that weren't working from home before are working from home now. So that puts it up to about half of people overall. Somewhere in that neighborhood now, working from home, working remote is something that's actually not particularly easy to measure because you have ... When you ask someone, "Are you working from home?" That's not really a 01 question. It's how much you're working from home. Are you working from home one day a week? Are you working from home five days a week? Are you just working from home in the evenings? In terms of how many were working from home before this all started, we don't really have a number there. Think of it as somewhere between 5% to 15% beforehand, depending on the extent of working from home, I would say probably between 40 to 50% now.
Michael Hendrix:
So to be clear, there's many different kinds of remote work, generally. And we started from a pretty low bar before this crisis. 50%, at least, that's a pretty high number now.
Adam Ozimek:
Yeah. It's a huge experiment. Everyone's sort of being thrown into the water. I think that there's been a gradual increase in remote work. If you look at the consistent measures that we do have over time, basically, for the last two decades, the percent of working remote has sort of steadily gone up every year. So it was something that was underway and this has really accelerated it and sort of thrown everyone into the deep end and said, "Let's see how it goes."
Michael Hendrix:
Now I want to dive into the nature of this as a grand experiment. But a quick question is just digging a little bit more. Are there any regional variations in remote work? Is this simply a talk about the Northeast California in DC or was it more widespread? And then if you could also address if there's different industries that have more remote work rather than others?
Adam Ozimek:
Yeah. So definitely the industry mixed different and it corresponds pretty well to what you would guess. So if you look at, what you would guess, based on what the occupations do, what they consist of. Economist [inaudible 00:06:43] put out an estimate before this all started, sort of just as we were beginning to move in the early days of the pandemic, that said, "What percent of jobs can be done remote?" And they looked at, basically, what are the things that you do in a daily basis in your job. What parts of the job do you have to do in person and what parts of the job don't you have to do in person? Then they sort of took a guess, "Well, this job sounds like you could do it, this job doesn't."
Adam Ozimek:
And what they found was that occupations that are higher education tend to be more remotable. Occupations in leisure and hospitality, obviously, tend to be less remotable. Sort of skilled, technical, managerial, professional occupations are more remotable. So there's a big education gradient for sure, there is a big industry gradient. There is some, in terms of who is working remote, there is some geographic variation in the census data, which is one of the few resources that can actually go down to that level of granularity. So our survey, we really can't go sub state or anything like that. But census data, you can do granular in terms of the before world that we used to live in.
Adam Ozimek:
You do see remote work basically everywhere, but you see it more in sort of second tier cities. So Boulder and Boise. Basically, it's bigger city sort of outside of major metro areas, it's kind of where you see it. And the way I think of it is that there's sort of a sliding scale curve of knowledge of remote work. One of the first things that remote work lets you do is hire a little bit outside your labor market, when you're just getting used to it, so you can maybe you start off in the big city and you're working there and your boss lets you go remote so then you move to the slightly smaller city nearby. So that's sort of the geographic variation that we do see, but much more strongly than geographic variation is sort of educational, occupational and industry variation.
Michael Hendrix:
And we're going to get more later in this discussion to the impact on cities. But to continue on the theme of what we're learning now, I mean, again, treating this as a grand experiment. What are we learning about remote work that maybe we didn't know before? What did we guess before but now we're getting confirmed? So just one question is, are workers being productive when they work from home? What are we seeing?
Adam Ozimek:
Yeah. That's a huge, obviously, issue of concern and interest. Is this a more productive way of working? Is this a less productive way of working? In a survey that I did for Upwork, we asked 500 hiring managers about how the remote work experiment was going so far. What makes us, I think, a little extra useful and interesting is that you're actually talking to the people who do the hiring at the company, people who do the managing of the company. And what we found was that one third said productivity had gone up. So in a smaller share had said it's gone down. So you had more increases in productivity than declines. We're not the only study to find this. Alex Bartek did a study based on a survey of business owners. And they found that there was, I think 28% of businesses reported productivity went up and smaller share went down. In general, there's a bigger increase than there's a decrease and ...
Michael Hendrix:
Did you think-
Adam Ozimek:
Sorry, go ahead.
Michael Hendrix:
I was just going to say just out curiosity, what do you say to those people who say, "Well, the increased productivity or the sustained productivity is a short term feature of this." That maybe when things change with the family or kid's situation, they will be less productive. Or new workers who have not been previously inculcated in a workplace's culture, they're going to struggle. Or even AEI's Michael Strain said, "Well, this is just a short term productivity bump because we're responding to manager's anxieties that work from home means shirking from home." How do you respond to that?
Adam Ozimek:
Have you ever been to AEI offices?
Michael Hendrix:
They're quite nice.
Adam Ozimek:
They're nice. They're very nice. If I was Michael Strain, I'd probably be in a hurry to get back to those super nice offices, too. But joking aside, I think that there are things that make these estimates sort of more pessimistic about long run productivity and more optimistic about long run productivity. In general, I think that the long run effects are going to be bigger than the short run effects in a positive way. Let me explain why. So first off, you throw all these people in the water immediately overnight, and they've never done this before, they haven't done this full time. Obviously, there's a ton of learning to go on here.
Adam Ozimek:
Michael just tweeted today that he finally hooked the keyboard and mouse up and he's feeling much more productive. How many weeks that we've been at this, Michael? You're waiting until now to hook up your keyboard and mouse? Come on. So that kind of stuff, though like learning not just how to set up your home office but what software works best for you and your company? And how do we share documents? How do we work like this? There's so much learning to do that in my mind, one-third having a positive productivity effect when you've been thrown into this emergency overnight situation with no time to prepare. That's really positive result.
Michael Hendrix:
Right. And there's also an argument that remote work is working because we're not commuting. Maybe we have fewer meetings. There's less distraction. That's also an argument.
Adam Ozimek:
Yeah. That's what our data shows, too, that the big benefits are less commuting, you have less distractions, fewer unnecessary meetings. I know people tend to focus on some sort of the positive, like you can pop into someone's office and have these chance conversations that are very stimulating. But also on the other hand, you can pop into someone's office and kind of bother them when they're in the middle of something. So those are all positive things that I think we'll build in productivity. I think the biggest most important thing that people are missing is that if ... Take an extreme example where for half of people, productivity doubles, and for half of people, productivity is cut in half. So two very different types and two very different effects in productivity.
Adam Ozimek:
Is that neutral for productivity or is that positive? It's extremely positive because in the long run, those people who it doesn't work for aren't going to do it and those people who it does work for, they are going to do it. So the bad productivity half, they're going to be back to normal. They'll go back to the office. The good productivity half, they're going to continue to work remote. So there's this endogeneity of remote work status that in the long run, we're going to find out the most productive things that can be done remote and people will do them. And we'll find that the least productive things that can be done remote and people won't do them. But right now, we're doing it all remote.
Michael Hendrix:
It's not just a big pile of labor that we can make remote or not make remote, switch on and off. There's different tasks that we can do remote, there's different days that we can be remote. There's a lot of variation there.
Adam Ozimek:
Yeah, and I think that the first sort of toe in the water is everyone of all your existing employees, where they live and what they do, they do those same things when they do the remote. But over the long term, when you go remote, that has a lot of productivity enhancing effects in terms of being able to hire talented workers wherever you are. And, you might also have big changes to the organizational firms around this. Maybe, like you said, maybe we have more specialization of tasks and the people who do office work and in person work, they specialize in some different things than people who do remote work. I mean, it's just to have one-third that have positive productivity. Honestly, surprisingly positive to me because this is like a chaotic, massive, mega instant experiment and you really wouldn't have thought it would have gone so well except that it's working better than a lot of people thought.
Michael Hendrix:
So why is remote work working now? I mean, we've heard about the death of distance before for some time and yet we've seen winning labor markets keep winning. We saw back when Mercer Mayer led Yahoo, she called everybody who's worked remotely back to the office. I mean, aside from a triggering event, is there something, say, in technology or increased comfort with these tools that's allowed us to flip the remote switch on and keep productivity or did we simply need a big event like a pandemic to lower the threshold for change to fix a coordination problem below past inertia and old assumption about remote work. Why now?
Adam Ozimek:
So one thing I found in previous research of mine on remote work and this is before the pandemic, I looked at hiring managers and small business owners in different waves of surveys, and then also individual workers in the third survey. Across all three surveys, comfort with remote work was higher for young people and lower for old people. I think that there may be a generational gap here. And it's not that older workers can't work remote or won't learn to like it, it's that they're less comfortable with it in general. And I think that that's one reason why firms are sort of being surprised by how well it's working because the people in the decision making positions tend to be older on average and they don't like it as much personally and they're not as comfortable with it personally, but then once you act ... I think that that leads to sort of diminished expectations of how well it's going to go.
Michael Hendrix:
But once you force the issue and you're forced to deal with this technologies, maybe you learn them faster than you thought and turns out, it's not that bad.
Adam Ozimek:
You learn them faster than you thought. And also, when you're making the decision, do we do this or don't we do this, you're going to be asking the individual decision makers, "How well is it going to go?" I think if you personally don't want to do it, it's just not your most favorite comfortable way of working, that's going to make you more pessimistic. So in our survey of hiring managers now, we found that 56% found that's working better than they expected. And only less than one in 10 found that's working worse than they expected. So there were these prior beliefs that we're too negative about how remote work was going to go. And you force them to experiment and now they're learning that it goes better than they thought it would. I do think that the sort of differences in age of decision makers is one of the drivers there.
Michael Hendrix:
That's interesting. That kind of gets us to another part of the conversation. So we're getting a sense of what remote work looks like now. But I think inevitably, we begin thinking about post-crisis, what is remote work going to be like? Will we demand more remote work post-crisis? More flexibility? What are your thoughts on that? We'll dig into this more.
Adam Ozimek:
Yeah. I think that if you ask workers what they want, the overwhelming majority want to work remotely, at least, some extent going forward. So about a third want to work after the pandemic every day and then about half want to work between one to four days. So it's really a much smaller minority who don't want to work remote at all. So if you ask the workers, they really want to do this. And it makes sense, right? There's so many benefits. The lower commute, you spend more time at home and then the other things we talked about on how it works well in the office.
Adam Ozimek:
And hiring managers, too, we found are planning on hiring more remote in the future. I think this is because it's gone better than expected. So 62% of the hiring managers we talked to said their companies are going to be more remote in the future. We actually had the luck of doing sort of two waves of our interview. We did one at the end of 2019 of hiring managers, and we asked them about remote work. And then we did another one in April. So we have a really nice before and after a snapshot of the actual decision makers at companies about how they're going to be working remote and how their beliefs have changed.
Adam Ozimek:
And in both surveys, we asked, "What percent of your company is going to be working remote in five years from now?" And we saw growth rates of remote work are expected to double. Workers like it, hiring managers like it, and if you ask the people who are going to doing the hiring, they're planning on significantly increasing their plans in remote work hiring compared to what they're going to do before. So it's hard to come away from this being pessimistic about the future of remote work. Frankly, based on the low baseline we're starting from, if even a fraction of the people who've gone remote choose to adopt this and it doesn't work for 80% of people, that's fine, because that's like a doubling of remote work and it becomes a huge effect even then.
Michael Hendrix:
I do want to get back to ... I mean, as you said, we need to look at how workers are dealing with remote work. But also hiring managers, they matter to how teams work together. How are you approaching kind of a long term effect on culture and team building? Some people have expressed worries, others have been positively surprised on how a team building work. But I think the culture question, isn't culture hard to convey over computer? Over the phone?
Adam Ozimek:
So two things I would say about that. One is that I think there's a sort of status quo bias when it comes to the way that we work that is related to the ... It's preferences of extroverts, basically. So if you think about what office life is like, it sort of favors the extroverts in all of us. There's a lot of socialization, there's a lot of office Christmas parties, people come to work for more than work, and that's what they come to expect. I think that the mistakes that people make is to think, "Just because this is the way that I, the extrovert, have enjoyed things, that this is sort of the optimal labor market equilibrium."
Adam Ozimek:
Because quietly and sometimes not so quietly, the introverts among us have not been happy with the way things work. And they don't want to do office Christmas parties and they're not coming to work to make friends and to socialize. And I think that there's sort of a squeaky wheel gets the grease phenomenon here and the status quo bias. I kind of want to say to the extroverts out there, as something of an introvert myself, you need to understand that just because something is the way you want it to be, it doesn't mean that that's the optimal way. Because introverts have to deal with sort of an office cultural, industrial complex for about a century now, and they don't like it. And the future might be different and they might not like it as much but that doesn't mean that it's not going to happen and that doesn't mean that a lot of people won't be very happy with it.
Michael Hendrix:
For the record, you are an introvert and you also work remotely, and you have been working remotely for some time, right?
Adam Ozimek:
Yeah, it goes great. I love it. I've never been to an office Christmas party in my life. I'm becoming optimistic that I will never have to at this point.
Michael Hendrix:
Now, Nick Bloom from Stanford has done a lot of work on remote work and productivity with remote work. He'd found a pretty positive impact with one Chinese company that's gone fully remote. He suggests making work from home part-time, optional, and even a privilege for high performers. Why shouldn't all employers go 100% remote or should they?
Adam Ozimek:
Well, I mean, some kinds of work just necessarily involves face-to-face business. It's not like the waiter and waitress can go remote. It's not like the flight attendant can go remote. There's going to be things that people do that just work better when you're face-to-face. Sales might be one of those categories as well. When you're thinking about the occupational industrial level, there's going to be things that continue to be done in person, almost no matter how good remote technology gets. And then sort of when it comes to productivity levels, I think that, within from productivity levels, I think that just because someone is ...
Adam Ozimek:
A lower productivity doesn't mean that remote work is not going to work from them. You have an ability to monitor people in what their output just as well if not better when they're working remotely than you do in the office. You can't pop by their desk and peek over the shoulder, but you can dash them on Slack, you can shoot them an email. So it's not obvious to me immediately that remote work necessarily would be something you would want to only offer to your superstars. There's productivity gains potential for everyone across the productivity spectrum.
Michael Hendrix:
I think that there's another question. So I've been asking about has this met or relatively low bar for success with them at work? And it turns out, we've exceeded that. But maybe there's another way that we can look at it, to ask will remote work unlock even new productivity potential? Fine, we're maintaining productivity but is there an argument that actually for some workers and some work places, we could actually do even better than we did before? Is that a fair argument to make?
Adam Ozimek:
Yeah, absolutely. It takes firms time to realize how to optimize on a new technology, especially something as big and drastic as this. If you think about the way that electrification affected manufacturing companies over 100 years ago in the second industrial revolution, it took manufacturers a long time to figure out how to make their factories more productive from electricity. It wasn't like electricity was invented and then six weeks later, we had this massive productivity boom. They had to restructure the way that they worked and they had to think of new ways of doing things. And it's the kind of big rethinking about how your company works, what it looks like, task specialization, capital investments, those sorts of things, you're not going to figure them out in 10 weeks during a pandemic.
Adam Ozimek:
I totally agree, I think this opens up new doors to totally new ways of working. Quite frankly, we do see them in customers at Upwork. So we've been helping people hire remote talent, independent professionals all over the world for 20 years. And what we see is companies find very, very high productivity, new ways of working that I think would surprise a lot of people. And it's stuff that you just can't do when everyone is located in the same company. For example, we have clients who are totally global, meaning they have people in every time zone, which means that they can be working around the clock, and no matter what happens during the day, and I've seen companies who pass things from time zone to time zone so they can do projects very, very quickly.
Adam Ozimek:
If you need to scale quickly, if you need to make rapid major changes, being able to be remote and flexible and working with independent professionals like we have on our platform, it's hard to make those sorts of changes with a company where traditional employment and everyone's in the same building. So I think there's a lot of dynamism potential out there.
Michael Hendrix:
Is this an argument less for proximity and more for timezone coordination? Is that a vision of the future where workers are sited less within particular metros but more within particular time zones?
Adam Ozimek:
That's just one example, I think. It's you wouldn't have been able to foresee the way that factories would be reorganized around electricity at the thought of electricity. You might have been able to think of an example or two, but I think that is a cool instance that I've seen, but I think that that's just going to be the tip of the iceberg.
Michael Hendrix:
That's a pretty bold claim to compare remote work to electricity, but it seems like you're pretty positive and optimistic about this so that's fair. By the way, I also mentioned for our audience, please feel free to jump in with questions, whatever platform you're watching us on, I'll read them, I'll incorporate them into our program. So please, jump in.
Adam Ozimek:
Yeah. I want to throw in there too, Michael, I mean, you followed my work for a long time. I'm not a techno Utopian. I'm not someone who has been talking about how automation and machine learning is going to put everyone out of work and how we're entering this new era of smart technologies. I've never been someone who gets sort of overexcited about future of work ideas. For as long as I've been an economist, that's just, I think we have sort of a tendency to do that.
Adam Ozimek:
I don't want people to sort of just file this under, "Sure, this is the next big thing that everyone gets super excited about, but then isn't anything." And sort of dismisses it like that, because I'm totally with people. I mean, productivity growth is low. It's been low for two decades. So the idea that automation, machine learning, smart technology, all these things are sort of underneath the hood. They're just transforming the way we work. I just don't see in ... Nine out of 10 cases, I'm not a techno Utopian about what's happening so far.
Michael Hendrix:
It's amazing with the whole artificial intelligence conversation. It kind of reveals your priors about the way the world works. Artificial intelligence leads to a very positive vision of the future. For others, a very dystopian version. I kind of am curious in your take, the positive version of the impact of work from home could be ... I don't know, I mean, on many other things, yes, more time with family, but also more national labor markets that are more fluid and dynamic. But then, of course, there's also a dystopian version where it reinforces more uniformity, that eases layoffs, prioritizes privilege, weakens management cultures. What do you see as being kind of a long term impact of work from home on the labor market and productivity?
Adam Ozimek:
I think that it has the potential to be one of the first things in quite some time, that leads against the growth of geographic inequality across United States. So for a long time, we've had places that are high wage places pulling farther and farther away from places that are low wage places in the countries become much more unequal in terms of nominal wages. I think a big part of this story is a concentration of economic opportunity into a handful of very big, very dense, very high productivity cities. I think that even more than we understand, right now, this has had a lot of negative spillover effects.
Adam Ozimek:
Obviously, productivity growth is great. This city's [inaudible 00:29:58] they produced has been crucial. And I don't think you would arrive at a healthier, wealthier United States if we were to sort of crippled these places. I don't think that that's like a route out of this spatial inequality. But I do think that remote work has the potential to sort of be the first thing in a long time that leans against this, and makes it so that in order to have access to a high productivity job, you don't need to pay the ticket of astronomical house prices in a extremely crowded city where they don't let you build houses.
Adam Ozimek:
So you think about all these different sort of negative stories of the last few decades, declining labor share, rising spatial inequality, high housing elasticity, massive price to income ratios in a handful of cities, and demographic decline in sort of smaller lower cost of living places, I honestly think that this is the first thing in a while that can help win against those.
Michael Hendrix:
This is a perfect pivot to the third part of our conversation, how this impacts cities. I actually want to start with a question. I wasn't planning to start on it but this is a perfect moment to ask you. Is going remote simply a response to bad governance? I mean, I read employers describing the reasons maybe for going fully remote and they mentioned things like high housing costs, transportation woes, a lack of visas. If more jobs are in one place far away from a range of housing that accommodates most people's budget or the lifestyle choices maybe remote work is one answer. But surely building more housing near jobs is another.
Adam Ozimek:
Yeah. I mean, I'm all for building more housing in these cities. I don't want to say, "We shouldn't do that. We can't do that." I'm just relatively pessimistic that we're ever going to do enough of that to make the country that much more equal. I also think that there's something fairly negative about productivity and opportunity being clustered in a handful of places, even if those places are able to grow more, I do think that there's something relatively unhealthy, especially in terms of places that get left behind. Because I think in ways that are not very well-appreciated by economists today, population loss is extremely devastating for our economies.
Adam Ozimek:
And it's not simply this equilibrating idea that urban economists think of where it's sort of, "Wages will equalize." People leave and then that's lower labor supply and so wages go up and everybody wins. I don't think it's really like that. I think when places [inaudible 00:32:50] population, it causes a lot of negative spillover. As much as I want to see more houses in big crowded cities and they should build, I'm pessimistic, it's going to happen. Even if it does, things that increase geographic opportunity so that you don't have to move to those places in order to have access to opportunity, I think that is a tremendously positive thing.
Michael Hendrix:
I want to get to those other cities beyond just the coastal cities, but to just step back for just a moment here. Let's assume a world in which today's work arrangements continue for the foreseeable future. Which urban form benefits more? The city, the suburb, the rural area? I mean, surely it doesn't take that many workers making permanent shifts for us to see an impact on migration. Since of course, the baseline numbers on remote work were so small pre-crisis, and in places like New York, we've already seen three years of population loss going into this crisis, surely more this year. Who gets the benefit? City, suburb, rural area, and then we'll dig into that a little bit more.
Adam Ozimek:
Yeah. I think it's a very interesting open question in a lot of ways, specifically, who will benefit the most. A city that I like to think about is Philadelphia as being an exemplar of the uncertainty here. So Philadelphia is a relatively short train ride from New York City. It's significantly lower cost of living.
Michael Hendrix:
It's on the southern corridor.
Adam Ozimek:
It's on the south corridor. And so you might think of Philadelphia as being a very natural beneficiary of this, in the sense that ... Especially if you're a big believer in one day a week in the office, or that you still want to be able to do a commute into the office occasionally, if possible. Prior to this, you did have a significant amount of people who commuted to New York City on the south corridor from Philadelphia. But that's a burden to do that five days a week. That's a lot of train time, even though it's a relatively nice train.
Michael Hendrix:
And very expensive.
Adam Ozimek:
It is expensive. Yeah. So you can easily lose your gains in cost of living. But now, if you only need to do that maybe every other week or maybe once a month, all of a sudden that commute looks a lot nicer. So you can take your New York City job and say, "Hey, I'm going to go remote four days a week." Or, "I'll come in one day every other week and I'm going to move to Philadelphia." So I think that especially within the Northeast corridor, Philadelphia is really a nice option for that, for Washington DC as well as.
Michael Hendrix:
It's the case for not only the city, but a case even for cities that have maybe in recent years been, or in prior decades struggled a lot. Philadelphia lost a lot of people in the '60s, '70s, '80s. And it's only now just beginning to come back. It's an argument for some of those cities that had felt a little left behind.
Adam Ozimek:
Yeah. It is for the Philadelphias, Pittsburghs, Clevelands, it's a way that those cities might benefit. On the other hand, Philadelphia is also connected to other parts of southeastern Pennsylvania, which have a variety of lower cost of living still. So I used to commute in Philadelphia from Lancaster, Pennsylvania where I live and I would ride the SL train. It was about an hour and 10 minutes just on the train plus time to get to the train and then get to your train your office. So it was kind of similar to commuting to Philly to New York and that you can do it benefit from cost of living, but it is a little bit of an annoying commute. But now, once or twice a month, it's a lot easier.
Adam Ozimek:
Rural and lower cost of living small cities outside of Philadelphia, they might be beneficiaries of people who want access to Philadelphia labor markets but want to enjoy even lower cost of living. So in that sense, Philadelphia could be a loser. I think that it's not clear on city by city basis who wins and who loses when you're in sort of the middle of the spectrum. I think probably when you're looking at the far end of the high cost of living spectrum, San Francisco, San Jose, New York City, Seattle, I think those cities are going to lose out. And it doesn't necessarily mean they're going to empty, because they haven't really filled that much to begin with, since they don't really let you build that many more houses there. It's more like they're going to see declines in prices, given their elastic housing supply.
Michael Hendrix:
And it doesn't necessarily mean that someone's going to move to a completely different city, it could just be a boon for the suburbs. It seems like there's an argument in which the degree to which the radius in which you could potentially move out varies by the degree to which you are working remotely. So, if you're supposed to come to the office Monday, Wednesday, Friday, work from home Tuesday, Thursday, seems like if you are in New York, it's a great argument for moving out of the suburbs, or at least that is a kind of freedom that you have. But as you said, if it's a couple times a month, maybe Philly makes more sense. Maybe you just get further and further out from the city. So is this another case for the suburbs?
Adam Ozimek:
I think some suburbs but not all suburbs are low cost of living. Some suburbs are quite expensive, because they're a very desirable place to live and they have close access to good labor markets. So I think in general, a rule of thumb is look at the price to income ratio. Some of price to income ratios due to higher productivity, some of price to income ratios do better amenities, but some price income ratio is due to access labor markets. I think that the higher up your price to income ratio is, the more sort of economic rents there are there to be eroded away by remote work. It doesn't mean we'll be blown away entirely but some of that is economic rents. Then that's going to be where you find the losers.
Michael Hendrix:
Right. Because when you look at New York City, if you go out to Long Island, those suburbs have not been building housing at a terribly fast pace or at all compared to northern New Jersey, which is building a lot more. And so the housing situation looks very different and the price situation looks very different based on where you look. I would imagine that dynamic holds true in other metro areas.
Adam Ozimek:
Yeah. I think there are metro areas that have the low cost living suburbs, high cost living suburbs. Like I said, those amenity driven differences are going to remain but I think that the economic rent differences are going to help them to be eroded away a bit.
Michael Hendrix:
One thing that I'm curious about though is, again, just to pick on New York City because Manhattan Institute's in New York, if you're looking at New York, and maybe somebody was on the precipice of leaving pre-crisis, this crisis of pandemic and urban unrest, pushing them over the edge, do they move to a Rust Belt city? Or do they say like, "Well, look, if I jumped from New York to Austin or New York to Nashville, I'm still jumping into a relatively thick labor market that attracted people from the rest of the country. They're not quite the global superstar that New York City is but still have a lot of options. If I leave my Google job, there's other tech jobs in Austin, that maybe would not be available in Youngstown or Allentown." Is that a case for those kind of cities over some of the other urban options?
Adam Ozimek:
Yeah. I mean, I think that this is one of the reasons why second class city so far have been the larger beneficiaries of remote work because they do have something of a density in their labor markets. So if you lose your remote work job, it's not like you're out of opportunities. And the second class cities tend to be relative commute distance to first class city. So I think that that is a place for sort of immediate benefits to those kinds of places, like Rust Belt cities like that, and the cheaper big cities. But I think that a longer term thing that has a lot of potential is agglomeration. You may think of it as the remote economy, and it won't take a lot to get there.
Adam Ozimek:
Because if you look at the San Jose metro area, this is an area where we hear all the time about the importance of agglomeration economies. You put all these people together in similar industries and similar skills, and you have the benefits from closeness, right? And so what we're talking about right now is will you still want to move to other areas that have that sort of benefits from closeness kind of thing, maybe? But if enough people go remote, then remote work, remote labor markets start to reach agglomeration capable scales, and it's not a lot of people because they're coming from everywhere. It wouldn't take a lot of people to reach us. So you're saying, San Jose metro area, it'll take you about 2% of the labor market to have the agglomeration levels of San Jose but that's not very much.
Adam Ozimek:
Then 6%, you've got a bigger labor market than New York City. So I think to the extent that platforms like Upwork, help create agglomeration economies in digital space. It raises potential for these things that we see cities as being so special for them being available to everyone everywhere. And now all the sudden, when you talk about, "Where can I move?" You don't have to think, "Where do I still have access to a thick labor market?" Because everywhere you have access to potentially the thickest labor market.
Michael Hendrix:
It's really interesting, because that's been the argument for cities. Even as we may pass regulations or laws that make it more difficult to move into San Francisco, or to start a business in Silicon Valley. Nevertheless, the gains from these agglomeration effects are so powerful. That it almost seems like it doesn't matter what bad policies are passed, growth still happens. It doesn't matter if it's difficult to move into Silicon Valley or a lot of people leave, the potential is still there. And people fear that if, or at least experts, some other experts fear that if you leave a place like San Francisco or San Francisco begins to decline, that we begin to see productivity losses, that economy just is not going to grow as fast if you spread people across the rest of the country, even if there may be other social or cultural gains, your argument is maybe we shouldn't be as worried about that, especially if we are more willing to embrace remote work.
Adam Ozimek:
Yeah. I mean, the first thing about that is that if firms and employees are choosing to leave San Francisco, it's, I think, in a lot of cases going to be because of higher productivity elsewhere, because they find that the cost savings and cost savings are higher productivity are worth it. So it's not like the immediate choices lean against productivity, especially when you're talking about cost minimization. Especially, because thinking in sort of a macro perspective, one of the bigger trends of the last 30 years has been the decline of labor share of income.
Adam Ozimek:
And when you ask, "Where did income go? Who's eating up a greater share of our national pie?" One of the answers is landowners and housing owners. So what good is productivity if it gets eaten up by land rents? So I'm also obviously very concerned about productivity growth. It's a top national priority, but when income is being increasingly eaten up by land rents, what good is productivity growth? So I think that's an important caveat to that story, that we're going to lose those things.
Michael Hendrix:
That's really your point. That actually tease up a question from the audience. There's no name attached to this question. But when Facebook said, "At the end of the year, you have to report back to the office, say where you are, where you're going to continue to work, and then we're going to adjust your salary, we're going to adjust it for cost of living." That kind of begs the question for others who are working at other employers, to what degree are they going to be able to keep their salaries if they move? Or are they just going to find that they really didn't benefit at all? Maybe there's other costs associated to the working remotely, that may not be compensated. How do you approach that question?
Adam Ozimek:
So I think one important thing to consider is that it doesn't really matter that much what these guys say they're going to do in the short run, because in the long run, they're going to be affected by the labor market equilibrium, and they're going to be subject to the same competitive, labor market pressures that push wages around. So whether Facebook wants to 100% adjust costs or not, it's not really up to them in the long run, if they want to retain workers. The more people that go remote, the more we have this sort of labor market price setting. But, so far, the empirical research on this is pretty thin and you have something coming out relatively soon on this, so I'll be able to give you a better answer, hopefully in the next few weeks.
Michael Hendrix:
Can you tease any factoids from it?
Adam Ozimek:
No.
Michael Hendrix:
That's right.
Adam Ozimek:
You can bring me back when it comes out. But I think that in general, when you look at the massive, massive gaps in nominal wages, between high cost of living and low cost of living places, and you think about the share that gap that gets eaten up by land rents, it presents a tremendous opportunity for arbitrage where everyone wins.
Michael Hendrix:
That's a great point. So that introduces, in my mind, kind of another set of questions, and maybe we can just go through them kind of popcorn style, thinking about first and second order impacts from remote work. Here's the first one, "What is more vulnerable if working from home, stays at home, office space or retail space?"
Adam Ozimek:
I think office space. Retail space is structurally vulnerable to begin with, because we've seen a relative decline in retail space to begin with. Retail was an area that was sort of weak before this so that makes that more vulnerable but ...
Michael Hendrix:
[crosstalk 00:47:32] worried ... What about open office floor plans, are those dead?
Adam Ozimek:
I think that short run, long run major difference here. Because short run, you're going to be taking a lot of extra precautions related to COVID. But long run, if office space is cheaper then it certainly makes it a lot more affordable for everyone to have their own offices. I think the other fact that there's flexible office space because if people are coming into the office one day a week and everyone's sort of varying which day then I'm not sure you're going to have your own office with a picture of your family up and your Dream Team poster hanging up the wall or your little artifacts and stuff might be more like flexible.
Michael Hendrix:
Will we see less road congestion or more?
Adam Ozimek:
I do not see how we have more road congestion from this. To me, that's an obvious big one here, is massive decline in commutes, massive decline in road congestion.
Michael Hendrix:
So less commuting to work, maybe more going to the grocery store at various odd hours. But that means that it's not concentrated in single periods of time?
Adam Ozimek:
Yeah. It would be hard to think of what are the sort of secondary effects that outweigh a doubling of the share of people who are working at home.
Michael Hendrix:
Will housing become more plentiful or less?
Adam Ozimek:
More plentiful. More plentiful. You're going to have the ability to actually live in places where they build more homes when prices go up. As compared to now when people are trying to cram in places where they don't build more homes.
Michael Hendrix:
Will we see more HQ2 style campaigns or fewer?
Adam Ozimek:
Fewer. I think HQ2 style is all about the trying to get some of those land rents and I'm trying to take advantage of land rents. I think that for one thing, it's much less credible to say I'm going to have 20,000 workers in the city when your workers can work anywhere.
Michael Hendrix:
Who wins the next decade of remote work, introverts or extroverts?
Adam Ozimek:
Introverts.
Michael Hendrix:
A little bias there, but it's a fair point. All right, so moving aside from those popcorn questions. I think it's inevitable. I don't want to stray too far from remote work itself, but thinking about remote works implications, it seems like everything that we're talking about maybe implicates a lot else that we do in person in cities now. Like education, why not more homeschooling and less shopping at a mall. I'm curious how far you'd extend the implications and lessons learned there to other things that we do in person at cities.
Adam Ozimek:
Yeah. Let's start with schools. I think that we've seen some fairly good evidence so far that there's sort of inequality of outcomes for remote schooling and that people with lots of health and human capital at home and high socioeconomic status are sort of coping with this better than people who, the kids might be home alone while both parents are out working or ... There's an income gradient of inequality here generated by remote work. I also think that the in-person schooling, especially for young kids, there's something that's not entirely replicable online there.
Adam Ozimek:
But also, I would say that the more optimistic thing is we're dealing from a massively low baseline here yet again. And so, if even one out of 20 kids finds that remote work does work for them, that's a huge increase. I don't think that remote school is going to replace most school. It's not going to be as big an effect on the labor market. But I do think that for some kids, they're going to find that this does work for them and that this is a better way of learning. Sort of the forced experiment of this has benefits there in terms of ...
Adam Ozimek:
I think that there can be a stigma around virtual schooling for kids. And you might think that it might work better for you, but you don't know. But if you try it and then you end up having to go back to regular school that's a tough shift to take, I think socially for students. And instead of the kid who's not doing so well having to take this big personal risk, to do something that seems a little strange, it might not work out, and you might have to come back to school and be embarrassed about it a year later, everyone gets to try it. I think that this is really tough on parents ... It's really hard for parents and kids right now. I don't think that this is the way things are going to be for everyone. I do think the silver lining is for the small percent of people who this is going to be better for, that they might be able to stick with it.
Michael Hendrix:
Do you worry about the same charge for remote work in cities that there's going to be this inequality of outcome that the winner take all economies that seems to define cities pre-crisis, will continue post crisis, remote work just feeds into that?
Adam Ozimek:
There's many aspects of inequality in relation to remote work and I think that that is only one of them, it's not the most important. To me, the most important is the inequality of place. A lot of people who are left worst off when places decline are low income people because that's who's left behind. And one way to think of the last 30 years of economic history in the United States is the most highly educated, highly capable people have left sort of struggling places and they've taken with them their entrepreneurship, their income, their leadership ability, their human capital, and they've left places in struggling demographic decline. Those people who are left behind or worst off.
Adam Ozimek:
I think that when someone is able to, with a lot of education and higher earning potential, able to live in a small town that was otherwise declining, they bring a lot of important spillover benefits to low income people who are left behind. So I think of low income people in struggling places as being some of the worst off in terms of seeing their opportunity to decline over the last 30 years. And they are going to benefit a lot from this even if they were not remote working before, they're not remote working after but they're living in a community that's going to be maybe less declining, more vibrant, property values aren't falling, school district isn't cutting back with the arts and music programs because all the college educated people are leaving. That's a huge important thing and I think that that's more important.
Michael Hendrix:
That is interesting because it kind of points to how we're finding that maybe for one of the first times in American history or at least within our lifetimes, moving to a big city is no longer a good deal for less educated workers or blue collar workers. It's actually kind of a raw deal. It's also unique to global cities, often you're better off moving to the city. That's not really the case today in places like New York or San Francisco, and so what you're suggesting is that maybe there's been a lot of opportunity that comes even from some winners winning more, especially for spreading the kind of opportunity across the country that maybe it's not actually a raw deal for everybody, and we shouldn't worry as much about inequality. Which actually kind of makes me ask a really big picture, it makes a little fanciful of a question but is working from home a new American frontier?
Michael Hendrix:
I mean, this country was animated by people moving west and then to the city and then the suburb and for a subset of talent recently moving to the downtown frontier. But everybody from Ross Douthat to Peter Thiel, and others have pointed out that not only your city is kind of a raw deal for a lot of lower income folks, but this is the first time in American history where we seem to have lacked a new frontier of opportunity. Something that spurs migration and uses technology to unlock new potential and animates our animal spirits. Is that the virtual frontier?
Adam Ozimek:
Yeah. I think that's how people should think about it. I mean, we're in the potential stage, right? So you don't know how far we'll go and what people will make of it. But there are companies today who are entirely remote and they've been built from the ground up entirely remote and they're doing things very differently. I do think of that as being similar to a frontier. It's an entirely new way of working. And when you do that, it opens up possibilities and things we aren't even anticipating yet. I am hopeful that companies are taking these challenging times and the test that they're presenting us as a moment to sort of consider these different ways of working and to consider the possibility there.
Adam Ozimek:
I can tell you that at Upwork, we're a global labor market platform and people come to us for independent professional talent but we've also been helping companies go remote for 20 years. And so we have a lot of big corporations who come to us and say, "Help us do this. How do we work like this? Help us figure it out. What opportunities are we missing? What are the different ways that we can work?" And it's so much bigger than just saying, "I can take the workers I have and let them move out of the city where our headquarters is."
Adam Ozimek:
It's so much bigger than that in terms of totally new ways of working and the dynamism and flexibility that comes from sort of thinking of these totally different ways of working. I hope that there's more of that. I hope that there's more companies who are taking a step back and realizing we've learned a lot from this. This is going a lot better than we thought it would. What else don't we know? What else don't we know about how we can work remotely?
Michael Hendrix:
How can governments take, especially local governments, take a step back, learn from remote work and improve the environment of this new virtual frontier to open up to more people? Should they choose it ... As an example, more cities follow the Tulsa, Oklahoma model of offering remote and self-employed workers $10,000 each cash plus housing plus a desk for relocating. What can policymakers be doing? Also, other than just making it easier to travel on roads and find affordable housing in general?
Adam Ozimek:
I mean, you might think ... I'm from a company, we represent independent professionals working remotely, you might think I'm going to say like, "You should definitely give people $10,000 to find remote work jobs and come work on up work and subsidize that." But I honestly don't think that's the path forward. I don't think that that's going to be the way that this transition happens. I don't think that's going to make the biggest difference. I think, what cities can do, and this is hard at the city level and possibly more done capably at state level or even by private institutions, but we still have a problem with broadband access and we still need more of that and that's an important capability.
Adam Ozimek:
I also think that community colleges, regular four-year colleges and other workforce training institutions should think about how do you increase people's capability of working online? How do you teach them how to do this? Build up a portfolio of remote work, teach them how to find jobs? It's certainly, coming to Upwork, it's a learning experience for workers. You become a small business person. And so how do you be a small business person in the physical space is different from how do you be a small business person in the digital space. So thinking about making digital remote first entrepreneurs, I think is something that all institutions that are thinking about educating people and increasing entrepreneurship should be considering. To the extent that local governments are involved in that, I think that that's an area of potential as well.
Michael Hendrix:
I mean, this seems like an economic development agenda for the 21st century. We're more than just giveaways to corporations, this is something much more expansive and much more people oriented, too.
Adam Ozimek:
Yeah, but there's so much work to be done here. If I had $1 for every time someone came to me and said, "How can you use remote work as an economic development program?" There's so much interest in this, but there aren't as many answers right now. So to the extent that there are people listening out there who can think of like, "Here's the next step we should be taking, here's how we should be helping to spread this opportunity." I'm all ears because I can tell you, there is a lot of demand for those kinds of thinking right now.
Michael Hendrix:
So you're in Lancaster, Pennsylvania. Is that right?
Adam Ozimek:
That's right. Yep.
Michael Hendrix:
All right. So thinking about the future of remote work and in our final minutes here, which city has better prospects today, New York City or Lancaster?
Adam Ozimek:
I think that Lancaster's house prices are going to go up and New York City's house prices are going to go down but that's just one measure of outcomes. So that's just the simplest prediction you can make. The most important thing is that what these places are are varieties and they're different. And that a lot of this reflects different preferences for different lifestyles, different ways of living. A lot of people love the super dense, just totally urban amenity-rich environment, and they're going to still have access to that and they're probably going to have more access to that because it's going to be cheaper and you're not going to be bid out by people who don't really want to live there, but they want the super high paying job.
Adam Ozimek:
Other people, they want the lower cost of living amenities, they want more space, they want bigger houses, they want to be able to hike outside, they want to have yards, they want to be able to see farms, that kind of living, and I think they're going to be more able to do that without having to sacrifice as much either. Not that I'm going to kick the can on this entirely but I do think that we shouldn't think of it in terms of who's going to be a better place in five to 10 years, but that we're going to have more choice in five to 10 years in terms of where we live, as we disconnect that from the choice of what we do.
Michael Hendrix:
And in that optimistic note, Adam, thank you so much for joining us. This has been an excellent discussion. Thank you to our entire audience for tuning in.
Adam Ozimek:
Thanks for having me.
communications@manhattan-institute.org