COVID resurgence means more working from home – but offices still aren’t going away

CHAPEL HILL – At the start of the COVID-19 pandemic, a dramatic shift occurred in the number of people working from home. And with the recent rise of the Delta variant, many employees who had started returning to the office this spring and summer have returned to work from their kitchen tables, garages and home offices to comply with efforts to curb the resurgence of the virus.

Employers and employees have grown accustomed to the new arrangement, with both groups now expecting a permanent increase in homeworking (WFH) after the pandemic ends.1.2

Although COVID-19 has accelerated the shift to WFH, the change has been underway for more than 30 years. From the introduction of affordable PCs in the early 1990s to the further development of email, high-speed internet, smartphones, video conferencing technology and cloud computing, the widespread adoption of technological advancements has allowed us to work ever more efficiently at home.

Our recent research3 examines how widespread acceptance of technology has accelerated the transition from highly skilled workers to working from home. We also explore the productivity gains made by homemakers and what the WFH trend means for homes, offices and municipalities.

We start with a model that uses pre-pandemic data to estimate the elasticity of substitution between WFH and office work. Substitutability, in this case, refers to the extent to which work done in the home (largely through technology) is able to replace similar work done in the context of the office. For example, a video conference can easily replace an in-person meeting in the office.

In our model, highly skilled workers choose how to divide their time between working from home and working in the office. We are measuring to what extent, before the pandemic, workers in the same industries and occupations, but with different commuting times, made different choices about how often to work from home. The rate at which workers choose to work from home as travel costs change is informative about how the WFH is substitutable with office work.

What we are seeing is that the WFH is an imperfect substitute for working in the office. This has important implications for understanding the future of the post-pandemic workplace. If the two aren’t perfect substitutes, most workers in the future will continue to split their time between home and office.

In addition, historical evidence (in this case from the European Union [Fig. 1]) shows that the largest increase in WFH in the years leading up to the pandemic, in which technology improved substitutability, was in the share of workers who sometimes, rather than always, worked from home.

Likewise, a 2021 PwC study4 reports that most employers are planning a post-pandemic hybrid office model in which employees work in the office between one and four days per week, rather than a model in which employees can work entirely remotely or report to the office only a few times a month.

In addition to examining the prevalence of WFH after the pandemic, we also analyzed the impact of the pandemic on the adoption of WFH technology and the implications for worker productivity. Our simulation studies a pre-pandemic period in which workers with a college education work from home less than a full day per week, and a post-pandemic period in which these workers double or triple their working time. home. Finally, we study the pandemic period itself – a period in which we assume that office productivity has declined by 50%, reflecting the impact of social distancing on office productivity.

The model implies that the widespread adoption of WFH technology increased home work productivity relative to office work productivity by 30-50% between the start and end of the pandemic.

For comparison, we also simulate what might have happened if the COVID-19 pandemic had occurred in 1990, before many WFH technologies existed. In this model, workers continue to work in the office at the same pace, but office productivity drops by 50%, just like in the current pandemic. The model suggests that, even though incomes and prices fall, working from home was not a practical alternative to working in the office in 1990, implying that the pandemic would have had more serious consequences for household income and mortality if it had occurred in 1990 than it was. until today.

What does this mean for workers?

As previously reported, the widespread adoption of work-from-home technology increased work-from-home productivity relative to office-work productivity by 30-50% between the start and end of the pandemic. . Because of this increase in productivity, the pandemic will likely result in higher lifetime income for white collar workers. The dilemma is that this will also lead to greater income inequality, as most non-white collar jobs cannot be done from home and these workers will not be able to take advantage of the productivity gains due to the technology.

What does this mean for the office?

Because WFH is an imperfect substitute for office work, office space will not disappear. But we will have to adapt. The higher productivity of the WFH and the subsequent doubling of hours worked from home during the pandemic will persist as the virus becomes controllable, leading to an estimated 15-20% drop in office rents in central business districts (CBD ) in the short and long term, if the supply of office space cannot be reduced from pre-pandemic levels.

Additionally, the model suggests that an increase in hours worked from home will lead to a slight decrease in productivity in the office due to a decrease in agglomeration economies.

What does this mean for cities?

The short-term shock to office productivity will have lasting effects on the structure of the city.

Residential rents will increase in the short term, especially in the inner suburbs, due to increased demand for home offices. As highly skilled workers increasingly move to more remote suburbs, CBD office rents will come down, along with property prices and taxes, straining central city budgets.

The net effect of increasing WFH on sustainability and the environment is less clear. Although workers move less, reducing their carbon footprint, home offices are generally less energy efficient than offices in large, well-constructed buildings.

In conclusion, the switch to the WFH may be permanent, but it will not be exclusive. The office will still be needed for some tasks. And while the increased productivity of the WFH experienced by white-collar workers through the effects of learning and adoption will lead to higher lifetime incomes, workers whose jobs exclude them from the WFH will not gain. the same advantage. Finally, the acceleration of the WFH fueled by the pandemic will have substantial short and long term impacts on housing trends, sustainability and municipal budgets.

(C) Kenan Institute of Private Enterprise

This story is reprinted with permission. It was originally posted at https://kenaninstitute.unc.edu/kenan-insight/dont-shut-the-office-door-yet-why-technology-and-work-from-home-wont-displace-the- workplace /



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