Unexpected Impacts of Work-from-Home
By: Yossi Sheffi
Tags: Remote Working, Supply Chain, Thought Leadership, MIT, Working From Home

The COVID-19 pandemic has upended employment in two vital respects: it has caused a global shift towards telecommuting as well as mass unemployment. How will these trends play out as the crisis evolves and, ultimately, the coronavirus is defeated?

Answers to this question will have a profound effect on where people physically work in the future and their job prospects. In both cases, the short- and long-term outcomes are different, and the outlook for global work patterns is decidedly mixed.

Fallout from the telecommuting wave

One of the “aha” results from the pandemic and the shelter-at-home period is that many can work from home without any decline in their productivity. In many cases, their productivity has improved. One reason is that while going to the office registers a “checkmark” — in other words, showing up is half the job — this is not the case with telecommuting. The only criteria that workers can be judged on while working from home are their results and their productivity. Thus, companies such as Twitter, Facebook, and the financial services provider Square have announced permanent work-from-home policies. Some enterprises, including several tech companies, have delayed their back-to-the office dates by more than six months while considering variations of the work-from-home arrangement.

Moreover, throughout the shelter-at-home period, it has become clear that the Internet is up to the challenge. The ease of use and widespread availability of multiple collaboration, presentation, and constant contract technologies — including Zoom, Webex, Google Hangout, Microsoft Teams, Slack, and Skype — have enabled office workers to transition to telecommuting smoothly. Also, executives have been given a chance to experience these technologies firsthand.

Once the pandemic is over — due to the arrival of a vaccine or an effective therapeutic, or herd immunity — many workers may prefer to continue working from home. A recent Gallup poll revealed that 60% of home-based workers prefer to continue the arrangement and work remotely. An internal poll of Facebook employees found out that 40% prefer working from home (the lower percentage may be a testament to the extras that Facebook gives its employees at work).

One of the first outcomes of this fundamental shift in work patterns is that companies are taking a hard look at their real estate footprint. Downtown office buildings, the pride of large enterprises, are now losing value quickly as companies shed office space. The second change — much discussed but often misunderstood — is the impact on labor globalization, especially job prospects in different parts of the world.

These changes are far from straightforward. Their impacts will be nuanced and change over time.

Short-term office real estate

In the very short term, while the pandemic rages, physical distancing will mean that as companies bring workers back to the office, more workspace will be needed. The amount of space per office worker has been declining as commercial real estate prices trended upwards, and employers densified offices to encourage collaboration and teamwork. By 2017 the average allocation of office space was 151 square feet per worker, down from 225 square feet in 2010.

Thus, the value of office space will not decline greatly in the immediate term, even as a large fraction of office workers will continue to be home-based. As long as the pandemic is a factor in people’s behavior, the need for more space per employee will maintain office real estate values.

Long-term — real estate fall

The availability of efficient telecommuting technology means that even if some workers need to be in the office, some parts of the office may be located in less expensive suburban areas. Consider, for example, MIT, Harvard, and Stanford. All three universities occupy very expensive real estate. While it makes sense for faculty and students to be co-located in university buildings, supporting administrative functions can be relocated to less expensive locales, including a substantial work-from-home component. Similarly, while sales executives need to be close to their customers, they do not have to be co-located with corporate support functions.

Most importantly, employees that can work from home — such as computer programmers, accountants, lawyers, telemarketers, transportation brokers, and financial advisors — may decide to do just that. The consequence of these changes is that office space, especially expensive space in downtown areas, is likely to lose substantial value.

Global workforce — short term

As the US and Europe reel from the coronavirus pandemic and the ongoing recession, there is a growing chorus of voices calling for the reshoring of business. The sentiment intensified when the disastrous lack of personal protective equipment, ventilators, and other medical supplies during the pandemic became evident. Potential shortages of other critical supplies also fuel arguments for self-sufficiency. Furthermore, the large unemployment numbers mean that once current government payments run out, the labor supply will increase without any concomitant increase in pay, making Western workers more attractive to employers.

The ready availability of labor, coupled with political pressure to hire workers, will encourage some companies to balance both their operations and their procurement by making and buying more in their home markets. Even though these actions may be incremental, they will probably get significant media attention and help bring some manufacturing and service jobs back to the United States, Europe, and Japan.

The most important impact, however, will take place in the long term.

Global workforce — long-term

While some manufacturing operations may move back onshore in the near term, over the long term a much larger movement of jobs is likely to take place — but in the opposite direction.

If many office jobs can be performed remotely rather than in a domestic, suburban location, it follows that they can be performed almost anywhere around the globe. Improved communication technology and the lessons learned from the initial waves of offshoring and outsourcing in the 1980s and 1990s (e.g., the flight of manufacturing to the Maquiladoras in Mexico and China’s special economic zones and the offshoring of services to India), will cause firms to rethink reshoring. Companies driven by cost-cutting pressures and a quest to acquire talent are likely to redouble their labor globalization efforts. The end result will be the offshoring of jobs to low-cost countries (e.g., Vietnam, Ecuador) and to countries with strong educational systems (e.g., Israel, South Korea).

As mentioned above, sending jobs overseas to achieve cost savings is not a new practice. However, post-pandemic, some psychological blinders will have been removed. Companies will have realized that productivity need not suffer when jobs are performed remotely. Also, the experience senior executives gained during the shelter-at-home period with the use of online communications will likely open their eyes to the potential of much higher levels of distributed operations. Once operations are distributed, issues of cost and access to talent can become controlling factors, bringing about the next wave of offshoring.

Word of caution

Despite the polls mentioned above that appear to indicate widespread support for home working, the assumptions underlying this analysis are not cast in stone. First, after staying away from the office, paranoia about losing one’s job may take over, and workers may want to be seen by their managers and co-workers. Second, cities have come back from the impact of disasters before. After 9/11, office rents in downtown Manhattan and Washington DC declined. In particular, the rent on low floors in office towers was higher than the rent on the previously coveted top floors. A few year later, this trend disappeared; high-floor and downtown rent came right back. Finally, recall that companies have tried this before (albeit before the ubiquity of current communications technologies). Both British telecommunications company BT and, famously, Yahoo, recalled their working-from-home employees back to the office.

Finally, note that these pandemic-inspired changes to the human supply chain may not be as visible as the changes that are reshaping global supply chains for goods — but they are just as far-reaching. And in many ways, the transition to post-pandemic employment patterns could be more painful. Such a shift could lower the market salaries of stay-at-home American and European workers while subjecting them to a higher cost of living.