Aug 10, 2020

The Remote Work Revolution Complicates the Fragile Economic Recovery

As the economy struggles back to its feet, office worker spending patterns shift from downtown business districts

The labor market is poised, as if on a knife’s edge, between recovery and an even deeper hole. The recent jobs report showed that temporarily furloughed workers are returning to their jobs as businesses attempt to reopen. The recovery is fragile, however, with 9.2 million more workers still facing the possibility that their furloughs may become permanent.

The increasing embrace of remote work complicates matters, since it carries with it changes in office workers’ spending patterns. These changes will affect the demand for—and employment associated with—products and services ranging from office supplies, business lunches, and janitorial services to dry cleaning, vehicle repairs, and childcare.

The continued recovery is indeed good news, but many commentators seem to be missing the economic revolution right under their noses. Beneath the surface of employment charts, there are fundamental changes taking place in the economy as remote work becomes a longer-term or permanent reality. To paraphrase a line from Shakespeare’s Macbeth, Great Birnam Wood is coming to high Dunsinane Hill, but some economic commentators can’t see the forest for the trees.

Good news on job growth, but the recovery is fragile

Last month 1.8 million jobs were added back to the economy, with much of the increase coming from workers who were temporarily furloughed. It’s promising that businesses are calling workers back, but last month’s flow was a trickle, not the needed torrent;  9.2 million workers are still furloughed.

The first stage of economic recovery will depend on how swiftly businesses and government institutions can develop new measuressuch as stores’ “no mask, no service” rules—so that employees feel safe going back to work and customers are willing to resume shopping and dining activities. Finding safe and effective ways to reopen schools (or similar educational alternatives that provide childcare) will also enable more parents to return to work, making it easier for businesses to open.

The second stage of economic recovery will be more difficult: another 7.2 million workers have permanently left their previous jobs. As we saw during the Great Recession, the search and selection process to connect large numbers of unemployed workers with new jobs can take quite a while. In recent years it became fashionable to exclaim over “the longest-ever period of continuous job growth,” but the beginning of that same period was accompanied by extensive hand-wringing over a “jobless recovery.” Both observations were accurate: employment growth chugged steadily along the entire period, but it had quite a deep hole to climb out of.

The good news is that we’re not quite at the same level of job losses as those experienced during the Great Recession . . . yet. On the surface, the current number of unemployed workers is certainly higher, but that doesn’t tell the whole story. When the labor market downturn from the Great Recession peaked in the fall of 2009, there were 15.4 million officially unemployed workers, with 1.7 million of those on temporary furlough. In comparison, there were 16.3 million officially unemployed workers last month, with 9.2 million of them on temporary furlough. In other words, the number of officially unemployed workers who had permanently left their previous jobs was 13.7 million in 2009, but it’s “only” 7.1 million now.

But there are another 4.7 million workers who abruptly left the labor force after the pandemic started and aren’t officially counted as unemployed (workers aren’t counted as unemployed if they aren’t actively seeking work and currently available to start a job). Adding them into the ranks of those workers who had permanently left their previous jobs increases the total to 11.8 million—close to that of the Great Recession.

It’s helpful, however, to remember that before the pandemic, when the United States was enjoying a 50-year low in the unemployment rate, there were still 5.8 million unemployed workers due to normal job churn. About 800,000 of these were temporarily furloughed, meaning that the net increase since February in officially and unofficially unemployed workers who had permanently left their previous jobs is “only” 6.8 million.

That’s why supporting the businesses that have furloughed workers and ensuring that their employment connections remain strong is so important. It will be hard enough for the economy to generate 6.8 million new jobs to get back to the pre-pandemic level of permanent unemployment; doing so for another 9.2 million furloughed workers would be unthinkably difficult.

The indirect impact of the remote work revolution on employment

Regenerating the economy will be especially complicated because of the changes in office-worker consumption habits brought on by the rise of remote work. The greater adoption of remote work, both full time and part time, creates structural changes in the economy that will end the need for some jobs and create new demand for others. Reports suggest that Manhattan and San Francisco feel like ghost towns. Once-crowded sidewalks are nearly empty, and cafés are shuttered for lack of customers. In short, the revolution in remote work is indirectly adding to job losses.

Furthermore, the extended and indefinite nature of remote work during the pandemic is leading increasing numbers of people to question whether they really want to go back to the day-to-day grind of commuting to and living in high-cost areas, when they might instead be able to take their same paycheck to a lower-cost suburb or rural area with more appealing natural amenities. As more people—especially higher-income office workers—make the decision to move away from cities, their spending will move with them. This will accelerate the job losses in the dining and entertainment industries in urban areas. However, it will also open up new job opportunities in suburban and rural areas, and may help alleviate the cost of urban housing.

The pandemic will reshape America’s economy in many ways. Remote work may prove a boon for rural areas that can capitalize on their desirable amenities, while some urban centers may shrink. But these secondary effects of the remote work revolution will seem insignificant if temporary furloughed workers lose their connection to their jobs. Many of the still-closed businesses can’t resume operations without developing novel ways to prevent the spread of COVID-19. Policymakers need to scrutinize what policies and regulations are holding businesses back from innovating their way to recovery. Doing so will allow businesses to quickly adapt to changing circumstances, helping them to restore and create new jobs.

Photo Credit: Alexi Rosenfeld/Getty Images

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