Is remote work bad for the economy?

Many political thinkers seem to think so. The evidence is shaky at best.

Digital workers do their work, to a first approximation, by thinking about something and typing words into a laptop connected to the internet. This doesn’t describe all knowledge work fully (maybe you do stuff with a mouse, like UX design, or you use the camera on your computer to record something on YouTube, etc) but in broad sweeps it represents the work of a very large portion of the economy, and most white collar labor jobs.

All you need is the right skills and training, a modern laptop, and an internet connection. Thus anything that can be done in an office can also be done at home or on a beach in Miami or on in a ski lodge in Tahoe. And any economic value derived from you doing that work accrues in exactly the same way as it would if you were coming into the office. Theoretically.

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The argument from most critics of remote work is that it’s the externalities of working remotely that cause problems, rather than the remote work itself.

Does working remotely mean fewer customers for restaurants?

The first economic argument against remote work is about what happens to all of the things associated with offices - restaurants that cater lunch to the office, hairdressers that work in the financial district, the drug store with last minute essentials across the street from the Chipotle, etc.

While this argument held during the pandemic, when no-one could go to restaurants, it’s gotten a lot weaker since. Companies don’t pay for real estate they don’t use, so they’ll shrink down to the appropriate office size, and other companies will take advantage of the falling rent to move themselves in to the surplus. It’s true that the marginal restaurant will suffer from lack of business and may perhaps close if their break-even is above current demand but below what restaurant demand used to be.

But it’s unclear whether this marginal restaurant is offset by an equivalent restaurant (or grocery store, or hair dresser) that can now serve the neighborhood that the worker now lives and works in. Indeed, it appears remote workers are more likely to order food delivery in a way that is economically beneficial to not just local restaurants but middle-men like Doordash and other food delivery companies. There is an argument to be made that remote work is actually better for service workers in that it provides more demand for such services, while forcing white collar workers to pay a premium for meals they previously had catered by the company - reversing the economies of scale. That in itself may have some downsides; it may encourage ghost kitchens, and change the restaurant industry in a way that we don’t like. [1] But it’s far from demonstrating a negative economic effect.

Customers fueling the growth in food delivery are paying a sizeable premium over the cost of their average order.

Can remote work create death spirals in the economic growth of midwest American cities?

The main argument is that cities are great engines of economic value, but they’re expensive to build in. If a city gets to a place where the cost of building is more than the value the real estate is worth, it can enter a death spiral. As Matthew Yglesias puts it [2]:

Once a city slips into this zone, bad things happen. Suddenly if you’re a landlord, it doesn’t make sense in cost-benefit terms to do timely repairs on your building. If you’re an owner-occupant, you’re of course going to treat yourself better than a profit-seeking landlord would and so you do the repairs anyway. But that just means your house has become a sinkhole for money and sweat equity. Construction jobs tend to vanish. If a home gets foreclosed on or becomes badly damaged, there’s a tendency for it to become vacant, dealing a blow to the city’s tax base and creating a source of blight. If your home value to replacement cost ratio is really high, then a negative shock to demand just means the city reaches a new more affordable equilibrium. But if it’s already modest, as it was in Chicago pre-pandemic, then you can easily tilt into a cycle of decline.

There’s a real strength to this argument which is hard to refute. It’s clear that the offsetting value of a given worker (who is working in Peoria instead of Chicago, say) is still there, but the engine of the city itself leads to tertiary jobs that cannot be easily replaced. The person building the transit station in Chicago doesn’t get a job in Peoria, even if the restaurants and the shops there prosper. So some economic growth is being left on the table.

The main problem with this argument is that its solution isn’t to force remote workers back to work - the cat is in some ways already out of the bag there. It’s to increase immigration to such a level that the city still has plenty of economic activity and it’s still profitable to build and grow there. As Yglesias puts it:

The only reason that falling relative demand for Chicago is translating into falling absolute demand for Chicago is that overall American population growth has slowed to a crawl as the once-robust flow of immigrants has turned into a trickle and the birthrate has continued to decline. In the longer run, we should be doing much more to support parents and children. But in the shorter term, the country would benefit from significantly more immigration. I’d be thrilled to defer to immigration skeptics about exactly which immigrants we let in and under which terms, but it should be more people. Make them speak English, make them pass some public charge test, make them have college degrees or score over 100 on an IQ test or whatever you want. But it ought to be more people.

The incremental economic value that remote work may provide

I like Eric Hoel’s argument about the value of being able to work remote in terms of the ability to spend time with your family. [3]

So I’ll say it: the primary benefit for remote work for a lot people, if not most of them eventually, is that it makes balancing career with family much easier. Like my sister, who works a high-powered job at Lego from an office in her house with her three kids a couple days a week, and commutes the other times. Does she work during the day when she’s home? Obviously. But if you have kids, you know that one of the biggest issues is just the lack of flexibility and adaptability.

And it turns out there’s a reasonable economic argument to be made that remote work actually adds a lot of value just on the merits of being able to spend more time with young family members.

First, the Center for American Progress has done research on the economic value of providing better childcare options for Americans, with the strongest argument being that women with access to better child care are able to participate in the workforce and create more economic value.

One-third of working parents with part-time hours report that they would ask for more hours at work if they had access to more affordable and reliable child care, indicating that for many, this is the result of an impossible financial position in which parents simply cannot afford to work more hours even though working more would likely boost their income.
This, in turn, can wreak havoc on individual families’ economic security, in addition to having a negative outcome for the overall economy. If women in the United States participated in the labor force at the same rate as women in Canada or Germany—countries that have made greater investments in a whole suite of work-family policies, including paid leave and child care—the result would be an additional 5 million more women in the labor force and more than $500 billion in estimated additional economic activity each year.

So the argument here is pretty simple. If you’re working remotely, you have the ability to spend time with your family, and if you’re spending time with your family, you (or your partner) has more ability to pursue higher paying jobs, in the same way that having easier access to child care enables working mothers to contribute to economic growth.

[1] Ahuja et al. “Ordering in: The rapid evolution of food delivery” https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/ordering-in-the-rapid-evolution-of-food-delivery

[2] Matthew Yglesias. “I’m worried about Chicago”