Economist Writing Every Day

A recent conversation with Sadhika Bagga and her research on labor reallocation got me thinking about remote work, about which there is no shortage of forecasts and opinions. Working from home has taken off. Working from home is failing. Working from home is here to stay. Working from home is already over.

Can they all be true? No, but also yes. At least, that’s where my thinking is at the moment. What all of the preceding pieces seem to do is acknowledge the benefits and costs of remote work while also emphasizing any one particular cost or benefit that generates their preferred lede.

Remote workforces bring lower labor efficiency (e.g. more distractions, less monitoring, more shirking) and greater labor flexibility (e.g. larger labor pools to select from, faster labor turnover) to a firm or industry. It gives firms the ability to pay employees in something other than money, such as schedule flexibility and locational choice, capturing some of the rents from those compensating wage differentials for themselves in the form of lower labor costs. It also means firing and hiring people with greater efficiency and lower costs when each subsequent wave of technological obsolescence hits, more effectively curating your labor force to fit the newest technological opportunities and needs.

How this story plays out will be bespoke to every firm, industry, and sector, but one broad trend I’m looking for is how industries separate by technological turnover. Industries differentiate by the historical rate of technological upheaval. Construction is different today than it was 25 years ago, but that amount of change is almost trivial compared to the televison entertainment industry. I expect that firms industries that reward “nimbleness” in the adoption of and adaption to new technologies will embrace work from home in far greater numbers. This will, in turn, shrink the “periodicity” of industry business cycles. Industires with high remote work labor forces will both more quickly collapse to a dominant set of firms when excludable technology gives them and advantage. They will also, however, more quickly reinflate to a more competitive landscape from new firm entry enter as remote work allows rivals to rapidly update their labor force to match the newest technological landscape. I expect applied micro work on remote work preferences and theoretic work on the consequences of search costs for competition to find each other atop the empire state building and yield the kind of policy recommendations that would make Nora Ephron proud.

This is just one of many broad trends to look for as remote work evolves. The complexity of interacting forces makes forecasting both a fool’s errand and palm reading. All of the forecasts will be internally logical, collectively incompatible, partially correct, and completely wrong.