Congratulations to our Spring 2021 High School Essay Contest winner, Shlok Singh!
SHLOK SINGH – JULY 17TH, 2021
Covid-19 pandemic has impaired the humanity globally, by threatening two of its most paramount fundamentals – life and livelihood. Winning in one, at the cost of the other, is not a wise choice, hence the world has quickly gravitated towards the new ways of working – work from home (WFH). This transition wasn’t an easy one, given the fact that human is a social animal. Compulsion of confinement, fuelled by the velocity of technological advancement, enabled WFH to emerge as a viable alternative. Evidently, 84% of the US labour force has adopted WFH, and with only a quarter of them now willing to return to their workplace, it is loud and clear that WFH that started out as a compulsion, has now become a preference (Anshu Sirupurapu, 2020). Consequently, employers are also actively evaluating the pros and cons associated with WFH, with an open mindset. Likes of Facebook, Google, Microsoft, and Spotify have already gone ahead and offered their employees long-term WFH plans (Courtney, E., 2021)
WFH delivered the expected increase in worker productivity by on average 1.4 days, following the elimination of commuting and operating in the comfort of home and family (Sammi Caramela, 2021). However, this WFH model undermines the benefits of agglomeration economies, involving face-to-face contacts in an environment of high worker density, leading to cross fertilization of knowledge and information, thereby propelling innovation, that ultimately drives economic growth (Kristian Behrens, 2021). WFH therefore, although in near term enhanced productivity, in the long-term may stifle creativity and reduce team cohesion.
With more and more companies now opting for WFH, the need for office infrastructure is expected to shrink. While many businesses see this as a huge opportunity in cutting down their operating costs, it can have far-reaching consequences on the commercial real estate sector. The adverse effects posed by the covid pandemic on office space has surpassed that of the financial crisis, with an anticipated net loss of up to 95 million square feet of unoccupied real estate from Q2 2020 to Q3 2021 (Matthews, K., 2020). Since the real estate infrastructure is already available, commensurate to the current business needs, a plunge in demand will be catastrophic to the real estate sector.
Besides, WFH eliminates the need of daily commuting to office, thereby adversely impacting the transportation ecosystem. Fewer vehicles would also mean lesser fuel, lower toll tax revenue for governments. The transportation infrastructure cost will need to be re-distributed on the reduced number of vehicles, which would increase the net cost burden. Travel restrictions in Brazil are estimated to pose a cost of USD 190 million on the bus operators in daily fare losses (Julia Bird, Sebastian Kriticos and Nick Tsivanidis, 2020)
The long-term implications of WFH would manifest into altering the urban landscape. Big and expensive cities may be faced with mass exodus, as bulk of population would migrate to the cost-effective destinations. Businesses would be in a constant state of evaluation and optimisation of the base location for their workforce, balancing the operating cost and access to right talent pool. This would accelerate offshoring of workforce to affordable countries with sound technological backbone. With preferred base location, talent cost is also likely to become more affordable.
However, WFH is not a feasible option for all the jobs, as some jobs would need physical presence of the workforce. Most of the jobs that cannot be remotely managed are those involving manual or physical work, predominately also with lower pay scale. WFH will therefore polarise the income distribution, widening the gap between the different income groups. It is usually expected that high paying leadership jobs are best performed with intense involvement, however ironically these jobs are also more suited to WFH. Due to the virtual leadership, the on-site workforce may struggle as headless chickens for clear direction and navigation.
The pandemic still far from over, we do not know what we do not know and therefore the governments, businesses and communities at large will need to think on their feet, figuring out the right economic strategies that are dynamic, inclusive, sustainable and last but not the least, respectful of human life.
Disclaimer: The views published in this journal are those of the individual authors or speakers and do not necessarily reflect the position or policy of Berkeley Economic Review staff, the Undergraduate Economics Association, the UC Berkeley Economics Department and faculty, or the University of California, Berkeley in general.