Transition to Permanent Remote Work Will Disrupt High-Cost Urban Areas

The pandemic induced a large change in the relative productivity of working at home. This will permanently affect incomes, income inequality, remote work and city structure, according to research done for the National Bureau of Economic Research.

During the start of the pandemic, many high-skill workers started working remotely, withdrawing spending from big city consumer service industries that are dependent on their demand. As a result, low-skill service workers in metropolitan areas have been heavily affected by the pandemic’s economic impact, according to the working paper.

In America's densest cities, around 45% of local jobs can be done remotely, corresponding to 65% of the local payroll, the research found. Remote jobs pay higher wages on average.

Until recently, only 2.4% of U.S. residents worked remotely, less than one in 15 of the 37% of people who could do so in theory. But in May 2020, more than 50% of workers in the densest cities worked remotely, compared to only 20% of workers in the least-dense cities, the paper shows. 

The pandemic has provided some insight into what a transition toward more remote work could look like. If Covid serves as a guide, the transition will be most disruptive in the densest U.S. cities, the researchers found. This means high-income earners will have choices as to where they want to live while endangering low-skill service jobs in big cities, which depend on demand and will be negatively impacted as workers move away.

On the flip side, the transition to remote work could help alleviate the pressure on big cities' housing markets.

To avoid shrinking in size, big cities will have to justify the cost of urban density because proximity to workplaces will no longer be a contributing factor for where many workers live, the researchers contend.

For more information from the report click here.