Adam Ozimek on the Past, Present, and Future of Remote Work in the Face of COVID-19

COVID-19 has completely shifted the dynamics of remote work, and this may have long-lasting effects on the labor market and the broader macro economy.

Adam Ozimek is the chief economist for Upwork, a global remote freelancing platform, and a returning guest to the podcast. Adam rejoins Macro Musings to talk about some of the lasting impacts of the pandemic on businesses; specifically its influence on remote work. David and Adam also discuss the results of the payment protection program, why the prime age employment to population ratio should become the most important employment measure, the economic geography of remote work, and more.

Read the full episode transcript:

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected].

David Beckworth:  Adam, welcome back to the show.

Adam Ozimek: Thanks for having me, David. Glad to be here.

Beckworth:  Glad to have you on. You are a fellow traveler from the great and glorious days of blogging after the last crisis, and like you, we've kind of moved on to other areas. Of course, you were always working with firms during that time. I was at the university. In fact, you were working, I think last week chatted with Moody's, and now you've moved on to Upwork. Is that correct?

Ozimek: Yep. That's right. I'm the chief economist of Upwork now.

Beckworth:  Okay. Well, tell us a little bit about our work and what you do there.

Ozimek: Sure. So, Upwork is a global remote freelancing platform. That's one way to describe it. It's the world's largest freelancing marketplace. Basically what we do is we help businesses and professionals connect, businesses looking to hire someone to do professional services for them. That includes web mobile software, it includes a lot of marketing stuff. Their full range is really wide. It includes like legal advice, financial management, translation, all sorts of stuff like that. Anything you can do for someone remotely as a service you can usually find somebody to do it on Upwork. That's where I'm at now, and I sort of have two hats at the company. One is public facing economists, like explaining our results, what we're doing, writing research about our sort of corner of the labor market, and the labor market more broadly, and then I spend some of my time doing market design stuff too.

Beckworth:  Okay. This firm gives you access to some neat data, correct? To do research and to present some of the papers we're going to talk about later.

Ozimek: Yeah, so we have really truly unique data. The extent of what we know about a labor market contract is so much more detailed than I think basically anywhere else. Not only do we know who got a job and how much they made, but we also know who applied for the job, everyone who applied for it. We know the full platform work experience of all those people. So, it's really a tremendously rich dataset, and I have like a million different studies in my head that I plan on doing, but it's all a matter of time.

Beckworth:  It seems like this would be a good dataset for people interested in labor search theory and applications in the real world, so reach out to Adam if you've got a great idea. We'll have his contact information on the show notes. Now, Adam, you are a chief economist at Upwork, but what's interesting about you, among other things, is you also are an entrepreneur and you have a bowling alley. This bowling alley has been the feature of some other podcasts, so I think it's only fair to give you some airtime here as well. Tell us how an economist also runs a bowling alley.

Ozimek: Well, this is my second small business. That's sort of how it came about. I started an events company with some friends that went really well, and we were making money, and we started to just save the money and say, let's find something else to do with it. What's the next thing? And we saved up money and we thought this was something that the city that we lived in needed, and so we did it. It was a long, hard path to open it up. One of my partners is a marketing and artistic expert. The other one is a restaurant management expert, and I'm just a numbers guy, so we have sort of diverse backgrounds and this felt like a good fit for all of us. Then we had our first year, and very close to our first year anniversary, we were shut down from the pandemic.

Ozimek: So, we had one year. It was a very successful year, our revenues and profits were within two or three percentage points of where we projected them in our initial business plan. If you know anything about small business plans, revenue projections, leisure hospitality, especially when you're doing something where there's not a ton of information, like what's the revenue going to be for an arcade bowling alley restaurant, getting that close is really hard. So, we're very proud of what we did, and then so sort of shut down. We gradually reopened and added what we could and tried to adapt, but it's been a very, very tough road.

Beckworth:  You can truly say you have one foot in the real world as well as one foot in the more theoretical applied type world of an economist. But what's interesting though is this perspective has really enriched your contribution to the discussion we've had over this pandemic. So, you've had a lot of things to say about small businesses and how they're going to survive and endure through the pandemic. So, you had some essays and some things to say about the PPP program, for example. Tell us briefly your thoughts on that. Did that program work or would you have done things differently?

Evaluating the Payment Protection Program

Ozimek: Yes, and yes. I absolutely would have done things differently, but it was very important to have something like that. I guess you could file me under a PPP critic, but I also start from a couple of assumptions. One is that we've never done anything like this before. We've never had to do massive small business relief of this scale as quickly as we had to. So, it was a really big challenge for the government to come up with anything and to execute it, and they did. They executed and they spent a lot of money on it. I do give them credit for doing what they did and they pushed a lot of money out. I do think that it helped prevent the closure of a lot of businesses and continues to help some of them as they're sitting on some of that cash still.

Ozimek: I think it was good and I'm glad that we did it, but it's not enough and it's not the right sort of tool for the job. I favored more larger loans, large zero interest loans, basically take the government's ability to borrow for 30 years at 0% interest and extend that to small businesses. If it comes in the form of a loan, you're able to give them a much larger amount than if you're giving them a cash grant. You also should be more flexible. This idea that we were going to simultaneously bail out these small businesses, but also tie their hands and force them to keep workers on, I think was a huge mistake from the beginning. I think that it's pretty clear now that that didn't make any sense because all those businesses that kept workers on, only because of PPP, they don't have those workers now, right? Because they've been operating for a month or two at their level of demand.

This idea that we were going to simultaneously bail out these small businesses, but also tie their hands and force them to keep workers on, I think was a huge mistake from the beginning.

Ozimek: They would have rehired them by this point and they wouldn't have fired them now if they need them. It's like, we've gotten to this sort of medium term equilibrium, we should've just let firms adjust to that, and then bail out the businesses and bail out the workers separately with more generous UI. I think that was a big part of the mistake. I would have gone with a very simple unrestricted, large, extremely generous long-term loans.

Beckworth:  So, you would have had those loans and also more given towards households directly.

Ozimek: Yeah. I was a big fan of the direct stimulus checks. I was an even bigger fan of the UI payments, I think that that's the way to support workers, is to A, keep their businesses alive is supporting workers. So, even if you don't force the businesses to keep staffing level, just keeping the businesses alive helps them, and then if the business can keep them on, you help them through the more generous UI payments.

I was a big fan of the direct stimulus checks. I was an even bigger fan of the UI payments, I think that that's the way to support workers.

Beckworth:  Well, this experience will certainly be a rich field for research and consideration as we move on and hopefully better preparation for the next time something like this happens. I'm sure there'll be lots of papers and dissertations written about it. Well, let's move from businesses where you have one foot to another area where you have another foot, and that's the Fed. I mean, you think about the Fed a lot in addition to your work at Upwork, you're what I would call a Fed watcher. You're pretty engaged in that discussion, and you've been a big advocate of some of the metrics they've used and changing them, and we'll get to that. But before we do that, I want to ask this question. We all know about the new framework. I've had several shows about it. I don't want to belabor it, but one of the things in this new framework, besides the average inflation target, is the fact that the Fed is going to change its reaction function, or at least change how it responds to labor market conditions by focusing on what they call shortfalls versus deviations, both above and below.

Beckworth:  Before you think of a symmetric response, this sounds like an asymmetric response where there's shortfalls, what does that mean to you, and how do you think the Fed will implement it? Then you can follow up with how you would like to have them implement it.

Fed Reaction Function Changes and Implementation

Ozimek: I think it's a good step forward. Something that I like to see the Fed try to do is kind of set the macro narrative. How do we think about the macro economy? How do we talk about the macro economy? I think they have to be a forceful voice here, because when it comes time to face a challenge, when it comes time to decide, are they going to cut rates? Are they going to raise rates? And it's a controversial position. The wider macro narrative is going to affect their ability to do so, because all the regional Fed bank presidents are going to face local criticism for doing this or not doing that, and they're going to face criticism from macro economists, both inside and outside the Fed for doing this and doing that. I really think the Fed has to play this role in shaping the narrative. Average inflation targeting and this idea of shortfalls is a step forward, because I think it helps move us away from this idea that you have this NAIRU and we spend about as much time above it as below it.

Average inflation targeting and this idea of shortfalls is a step forward, because I think it helps move us away from this idea that you have this NAIRU and we spend about as much time above it as below it.

Ozimek: And we just, we're up above NAIRU we're below NAIRU. Because I think that there's this sort of naive macroeconomics that happens where people look at the actual unemployment rate, they look at NAIRU, and they see that you go below NAIRU, and then if you do that for a little bit, unemployment goes up. They create a mechanism in their heads out of this. Like, oh, if you overshoot, then you're going to have to correct. That's just the nature of how NAIRU is estimated. If you make it a long-run average, you're going to end up below it sometimes, and then like, when you have your sessions, you're going to go above it. That's not really how the macro economy works. I see this switching to the shortfalls perspective as really sort of taking a step away from that.

Ozimek: You can't overheat because then you're going to correct. I've seen this idea of overheating and correcting, and the problem of that, and letting the labor market get too far. I've seen that be like a poison in the macro narrative over the recovery from the Great Recession. You'd see it come up again and again and again. I think it's important that the Fed lean against that, but I don't think that goes nearly far enough in changing the macro narrative in terms of, what should we be aiming for? How should we think about full employment, and how far away from it we are. It's a good step forward, but it's not enough steps forward.

Beckworth:  Yeah. Both of us today were listening to the president of the San Francisco Fed, Mary Daly talk about some of these issues, and you had a question about, how will we know when there's a shortfall? What would you be looking at? She mentioned a dashboard of indicators, looking at a dashboard, and you weren't really satisfied with the answer why.

Ozimek: I thought that was very telling. What I'm looking for from the Fed and from members of the FOMC, and also economists in general is, I'm looking for signs that their thinking has really changed and that we're not going to end up with the same mistakes we did before. Simply moving to average inflation targeting and simply saying that unemployment could fall farther than we thought, those are not actually the changes in the way that they're thinking that I think we need to see in order to prevent future problems. When Mary Daly said that, oh, I look at a dashboard of indicators, and I've done that ever since the financial crisis, my thinking is like, okay, so your plan is to do the thing that you did last time to look at the dashboard of indicators, and you're telling us now, this is what you did last time.

I'm looking for signs that their thinking has really changed and that we're not going to end up with the same mistakes we did before. Simply moving to average inflation targeting and simply saying that unemployment could fall farther than we thought, those are not actually the changes...I think we need to see in order to prevent future problems.

Ozimek: That doesn't sound like a good plan. I think that people talk about this dashboard approach as if like averaging together all the measures is somehow more rigorous. This was a mistake that a lot of people made in the recovery from the Great Recession. They thought averaging things together and taking a whole bunch of things was really the best way. This is the motivation behind the sort of principal components approach to estimating wage growth. It's like, take a statistician's view of the world and say, well, we don't know which of these is right. So, surely like the variance preserving average across these will be the one that is the righter one. It's just not the case. What you need is the best measures. Focus on the best measures, not the average of measures, but like all the measures.

Ozimek: That's what I would like to hear. I would like to hear the FOMC and economists in general, talk more about the best measures. David, you know what I think the best measures are. I think the best measures are the employment cost index and the prime age employment rate. In my mind, they told us where we were, those measures. They told us where they were through the recession, they told us where we're going, how far we had to go. Now, after having been proved right by the data, despite all the criticisms, all along the way, the out of sample forecast working, now we're at a place where everyone's like, well, I guess we can't know. It's like, they've replaced. They admit that they were wrong, but the conclusion they draw is, well, it's impossible to know, rather than perhaps those who weren't wrong. We can learn something from them.

I think the best measures are the employment cost index and the prime age employment rate.

Beckworth:  Speaking of those indicators that did tell the right story and been proven correct, do you feel vindicated over this past decade? You had a pretty prominent article with Moody's about how many potential jobs are lost because they tightened too soon. Then lo and behold, we now have Fed officials saying, if we had this framework today back then, we wouldn't have tightened in 2015 and beyond. In fact Charlie Evans had kind of a counterfactual scenario role-play he did. So, do you have a trophy you're carrying around saying, see, I was right? Do you feel vindicated?

Ozimek: Well, I haven't gotten a trophy and I don't think any of the other commentators of whom I'm ... there are many who got it right. I don't think anyone got the trophy in the mail yet, but maybe we should. Maybe there should be a mug or something for everyone who got it right. What I would rather what I would rather just hear is everyone get it right now, then I feel like they've only taken one step in that direction. It's about settling macroeconomic history. It's about having the correct macroeconomic history, and the perspective and average inflation targeting is only part of the way there. We need people to say, look, this widest measure of labor market slack is cracked. As far as we know, we can get back to the late 1990s level of labor utilization. That's the narrative we should have. That's the target we should be aiming for.

Ozimek: It doesn't mean we can't do better than that. We'll know as we approach it, but I'm concerned that when the next recession ... when this recession ends and we start getting closer to full employment, people aren't really going to ignore U-3 like they say. They're not really going to not use Taylor rules. Everyone has a Taylor rule in their brain. Everyone has U-3 in their brain that they think makes sense, and you're never going to not have that kind of view. You can't promise to ignore it, so we need have a better version of it. Don't get rid of Taylor rules, don't get rid of NAIRU, because they're always going to be part of every serious economist’s macro model, in their mind. We can't get rid of it, do better. Do better with prime EPOP 1990s level labor market slack. Put those in a Taylor rule. They work just fine.

We need people to say, look, this widest measure of labor market slack is cracked. As far as we know, we can get back to the late 1990s level of labor utilization. That's the narrative we should have. That's the target we should be aiming for.

Beckworth:  I know most of our listeners know what EPOP means, but for those who don't, and just to reiterate it in case some of the Fed officials are listening right now, and I know some do, why don't you explain for us, what is EPOP and why is it so much better?

The Basics and Reasoning Behind Using an EPOP Measure

Ozimek: Sure. Early on in the session ... well, let me start with what people traditionally think. People traditionally think U-3 is the most relevant measure of labor market slack, and what U-3 is, is everyone who says they want a job and is actively looking for work. So, we think of those as being traditionally important divides between people who are relevant to the labor market and not relevant. On the non-relevant side, we look at people who have given up looking for work basically. If you're not actively looking for work, you're not really relevant to the labor market. You're not really someone who could potentially be hired as we get closer to full employment. Now, as the great recession marched on, the recovery from it, we started to learn that more and more people who we typically thought of, of being irrelevant to the labor market, were actually relevant.

Ozimek: They would work and could work under the right macroeconomic circumstances. First, you broaden this scope a little bit and you say, well, what if we look at people who are ... they've looked in the last 12 weeks, maybe not the last four weeks, and they've looked in the last 12 weeks and they say that they're not working because they're discouraged? That's taking a slightly broader view. Then you say, well, what if we just look at everyone who says they want a job? That's a really broad view. Forget whether they're searching or not, whether they want a job, but the longer the recovery went and the deeper people were pulled in from outside of the labor force, it became clear and clear that a lot of these things that we thought of as statuses, which determined your relevance, whether you want a job and whether you're searching, they were actually endogenous to the labor market itself.

Ozimek: Whether someone says they want the job, it turns out, it's not very relevant for whether they're labor market slack. Whether you want the job, depends on labor market conditions. You have to stop looking at behaviors and you have to stop looking at what people say they want or say they're doing and just focus on the demographic that is traditionally working, and that's age 25 to 54, what we call prime working age, and just look at whether they're working or not. Forget about what they tell you why, just whether they're working or not, and that's the broadest view you can take, and it's one that has worked the best in terms of gauging where we are in the recovery and also tying the closest to wage growth.

You have to stop looking at behaviors and you have to stop looking at what people say they want or say they're doing and just focus on the demographic that is traditionally working, and that's age 25 to 54, what we call prime working age.

Beckworth:  Yeah. So, EPOP is a catchy title that economists use. I like Jordan Weissmann, he's put it as the working age employment rate. I think that's a very accessible term for someone you could tell on the streets that makes sense, but it encapsulates everything you just said, so I think it is a useful measure. It'll be interesting to see what happens going forward. As you know, the Summary of Economic Projections still has the U-3, the regular unemployment rate measure in it. I think, most people will say it's kind of a placeholder there for now, but it certainly doesn't help. I mean, your point you were making earlier that people implicitly have something in their mind, some kind of measure of a natural rate of unemployment. If they put U-3 there, it's framing the conversation and you would like them to have something different in the SEP, is that fair?

Ozimek: Yeah. I would like to see them put the working age employment rate in the SEP, because frankly, I want to see each of them put in whatever it is that they're using. If someone is still using U-3, put U-3 in, but if they're using ... they should be using the working age employment rate and then they should put it in there. I want to see that full change in mentality. I think it's really important that they do put those things in there, because if they're not telling you what their assumptions are, then it's going to be harder to hold them accountable when their assumptions prove false.

Beckworth:  So, Adam, speaking of employment, proper measures of work and labor participation, I want to use that as a segue to get into what's going to be the biggest part of our conversation today, and that is remote work and what has happened to it during the pandemic. I think most listeners will be aware that a lot of people did work from home, an inflection point, maybe a catalyst, maybe a new path, a new trajectory as you argue in your papers, and we'll get to all that and the numbers and the details. But before we do that, maybe you could define for us, what is remote work? How do you understand it?

The Basics of Remote Work

Ozimek: Yeah. That's actually a very important question in the literature. Knowing what you're looking at is exactly, what does someone mean by remote work? Because there's a wide range of estimates of how many people were working remotely before the pandemic, and definitions are part of the challenge. Also the universe you're looking at is part of the challenge. So, a lot of people, when they talk about remote work, when they're actually framing the question, they're asking people about working from home. If you just ask people about working from home, you're going to miss people who are working in coffee shops, who are working in co-working spaces, who might have a private office at their house that's separate from their overall office. There's a lot of different ways of teleworking is another way to think of it.

Ozimek: That's one dimension of the definition. The other is, how often are they working from home? If you look at people who were working strictly from home 100% of the time, that's obviously a much smaller share than the people who are working from home even most of the time or some of the time. Those are sort of two dimensions that it moves in. Where are you working? How much are you working there? Then the third example is, who are you asking this to? One of the most prominent estimates is from the BLS, they think about just over 2% were working from home all the time in 2018. But what they're missing is they're looking at wage and salary workers, so they're not looking at the self-employed, and the self-employed have a much higher share of working from home. That's another nuance that you have to take into consideration. There's no right answer here. It's just important to understand exactly who you're talking about, what kind of work you're talking about and where they're working.

Beckworth:  Okay. We're going to get to your findings, as I mentioned, and you note in your findings, one thing that we'll look at closer is that many managers have been pleasantly surprised at the productivity and the amount of work that did get done at home. I want to bring that up now, because one of the maybe critiques or reasons we don't remote work prior to the pandemic on a large scale, this is the argument that was made, is that there's these agglomeration economies. If you're all working together in an office, there's spillover ideas, you feed off of each other, there's water cooler discussion. What has been the critique and maybe the hesitancy to move towards remote work prior to the pandemic?

Pre-Pandemic Remote Work Critiques

Ozimek: Yeah, so it's really funny to look at the literature on remote work prior to the pandemic. It's very slim and it's fairly negative. The most prominent study that was done part of the pandemic was Alan Blinder did a study on offshore ability. He saw this kind of technological change. He did this back in 2007, 2004 to 2007, he wrote a few papers, and he saw this technological change coming. He saw this growth in working remotely, and he saw the potential here. His immediate conclusion, he took to be very pessimistic, which was that, well, if people can work anywhere, then all these service jobs are just going to be "offshored," and they're just immediately going to go sort of overseas, and you're going to have this sort of China shock type phenomenon, except that it's going to come for service sector workers.

Ozimek: I wrote a sort of rebuttal or a follow-up to this paper last year before the pandemic happened, I was already working on remote work. What I found was that his rankings of offshore ability didn't correlate with job loss at all, future job loss a decade later. What they correlated with was working from home. It was a very thin literature, and to the extent that the literature existed, it was pessimistic. I still see this pessimism in the field towards remote work. I think it is a lot of it concentrated in what you're talking about this. We have this idea in economics of agglomeration and of sort of working in close proximity to other people both in our offices and outside of our offices generates all these spillovers that are important contributions to productivity, growth and innovation.

Ozimek: The idea is this is one of the reasons that people sort of cluster. They cluster in big offices, they cluster in big cities. It's why they gather together, and economists view this as being very powerful driver of productivity and productivity growth and innovation, both inside and outside the firm. The concern is that remote work is going to be a risk to this, that remote work is going to lead to less agglomeration, less spillovers, less sort of interactions that are so important for innovation. I think that that is something that's motivating a lot of the fears and the criticisms, where sort of that, and then there was the initial offshoring fear, but I think all of this, it's just way too pessimistic.

Beckworth:  Yeah. Maybe an argument can be made that a reason we haven't seen a higher degree of remote work prior to the pandemic was simply path dependency. It's hard to get out of the way, you've been doing business, doing work for so long, and maybe you needed a shock like the pandemic to really open our eyes and see that things can be done differently. Plus we have the ability, the technology that allows us to do it. That would be one argument in favor of you, but the other argument is agglomeration economies, and you've made the case on Twitter, we had this discussion earlier, that there are also agglomeration effects online. There's technology. I mean, the fact that you and I can have conversations with hundreds, thousands of other people online about Fed policy, that wasn't possible many years ago.

Beckworth:  I'll give another example. I worked at a state university, several different state universities, regional state universities, maybe had one or two other macro economists in my department. There weren't a lot of other macro economists to talk to. But when blogging came along, man, it opened my world. I could always go to conferences. I was corresponding with coauthors doing that whole thing, but when blogging came along, I met so many more. My productivity went up. I was exposed to more ideas, more original thinking, and Twitter's just kind of taken that to the next level. I see what I think would be the equivalent of these externalities, these increasing returns to scale on these social media platforms, if used, of course appropriately, what are your thoughts?

The Positive Externalities of Social Media

Ozimek: Yeah, I think that's absolutely true, and I think that the profession is behind the curve in terms of thinking of this intellectually. Right now, it's just like a fun thing. It doesn't show up in papers. It's not something we talk about as being an important source of productivity and innovation. But I think of it as digital agglomeration. I find it very funny because, first [inaudible] these social medias aren't serious. This isn't a serious thing. It isn't a serious conversation. It's just like chatting or whatever. When you then read economists talk about outside the firm agglomeration, the so-called spillovers that are generated from being in a knowledge hub. So, not like you and your office mates running into each other, but you and the guy at Dell, and the guy at HP running into each other at a coffee shop, if I can take an example, that's like twenty-five years outdated.

Ozimek: Okay, so the guy at Google and the guy at Instagram running into each other, if I can only go five years outdated, running into each other at a coffee shop and talking about sort of their mutual overlapping areas like, that's not very serious either. This story of outside of the firm agglomeration due to like what Alfred Marshall called ‘something in the air,’ that's not very serious either. It's certainly no more serious than what's happening in social media. Even inside the firm, people are like, what about popping into someone's office? What about ... they’re so casual. The story they tell are very casual, like they'll pop in the office, or you'll see them in the cooler, you'll see them in the lunchroom. It's like, those aren't very serious things either.

Ozimek: But we see that as being such a crucial ingredient to economic growth and economic theory. It's so important because it's like at the heart of agglomeration. We talk a lot about it, but then social media, which demonstrates, I think just as much potential for these sorts of spillovers and chance encounters and agglomeration, it's just totally not serious. It's ignored. I think there's a real asymmetry in the seriousness with which we grant the agglomeration story and the unseriousness with which we think about social media. The other thing I would say is that, when we talk about productivity inside the firm, sorry, I'm just not worried about that because you know what? Firms are going to figure that out. They're not going to go remote if it kills their productivity.

I think there's a real asymmetry in the seriousness with which we grant the agglomeration story and the unseriousness with which we think about social media.

Ozimek: That's not for the economist to say like, "Oh, all these firms they're going to go remote and then their productivity will die, then the economy will have less productivity." No, I think they're going to figure out where their productivity is highest. Frankly, if only a fraction of them say a third of firms find that productivity is higher working remote, and two thirds of firms find that productivity is lower while working remote, is that negative for productivity in the aggregate? It's not because people will select. They will self-select the thing that works. It doesn't matter for us as economist to identify the average treatment effect of going to remote work. There is a selection process here, where those who work productively will go remote, and those who don't, don't. With firm productivity, I'm really not that worried about it at all. Frankly, the survey that we've done shows that more people find the productivity is going up, then it's gone down, and that's with an average treatment effect, not a select and treatment effect.

Beckworth:  Yeah, very interesting. I think you're right. Just again, my own experience, and my world has been dramatically opened up and I've gotten more that feedback, that interaction through things like Twitter that I wouldn't have had in its absence. Maybe there's some environments you can't replicate with that, but it opens up the doors for a lot of other people who aren't in those rich environments. I think, just my casual reasoning here is the net effect has to be a big, big, positive. Well, let's go to your papers though, and let's look closely at your work. I want to begin the article titled *The Future of Remote Work.* Let me read the introductory paragraph, and then I'm going to go through your seven key findings and you can explain them to us, but let me read your introductory paragraph here.

Beckworth:  You say, “The impact of COVID-19 on the way that we work, arguably represents the most drastic and rapid shift to the global workforce that we've seen since World War II. In a matter of weeks, America's social distancing practices and rapid economic shutdown have pushed large swaths of the workforce out of the office and into the home. In fact, a recent survey estimates that the share of remote workers in the US has quadrupled to nearly 50% of the nation's workforce. While businesses and workers have been gradually shifting to remote work over time, the sudden shock of COVID-19 represents an unexpected and massive trial run for many workers and companies." I would argue, arguably it's a tipping point, not just trial run, but a tipping point. It might be what it was needed to break that path dependency, the old model going downtown to the office and working.

Beckworth:  Let's chew on that, and let's do that by looking at this article, and in this article, well, you survey both in November, 2019, so before the pandemic, and you did a survey after in April, 2020, so kind of a nice before and after look. You can see the changes involved, and you have seven key findings, so I'm going to state them to you and then you can flesh them out for me. The first one is remote work has risen rapidly as a result of the pandemic with more than half of the American workforce currently working from home. Tell us more about that. What type of workers are working from home that make up such a large group?

Inside Remote Work: The Key Findings

Ozimek: Yeah, so this is consistent with other research. I did a paper with Erik Brynjolfsson and John Horton, where we did a Google consumer survey. This is close to the order of magnitude, we saw people who were working from home, similar to Gallup as well, found this. It was higher than the percent that people thought even could work from home. So, if you look at occupational characteristics, like what do people do with their job, Dingel and Neiman had a great paper where they're like, all right, how many people can probably work from home? And they came up with an answer that was smaller than this. So, it's really interesting how many occupations managed to adapt so quickly and rapidly to conditions that, for many of them, it was almost surprising that they could work from home.

Beckworth:  Then point number two, you say 56% of hiring managers feel that the shift for remote work has gone better than expected. What does that mean? Productivity, getting work done?

Ozimek: Yeah. This was a really purposeful phrasing of the question, because I really wanted to get at that sort of path dependency type issue that you raised. I could have said good or bad, but that doesn't explain changes in behavior, whereas changes relative to expectation, tell you something about what has been learned. Most of them, it's gone better than expected. Only one out of 10 has it gone worse than expected. This tells you something about why they weren't doing it before, and it's because they thought it was going to go worse than it went, and now that it's gone better than expected, I think that that's a positive indicator for this being kind of sticky going forward, and people not just reverting back to the way things used to be.

Beckworth:  Yeah. Again, I think this might be an important inflection point, and we see examples of this in the news. Firms are allowing people to permanently move away to relocate to remote locations. One story of course, it's kind of ironic, the story of Stripe, you probably know where I'm going to go with this. "Stripe," I'm reading this news story here, "plans to make a one-time payment of 20,000 to employees who opt to move out of San Francisco, New York and Seattle," so high cost of living areas. But then they're also going to cut their base salary as much as 10%. Is that becoming more common, seeing firms allowing maybe even encourage workers to permanently relocate?

Ozimek: Yeah, I mean, there's certainly been a lot of anecdotes of this happening. You hear about it in big companies and then small companies too, and we certainly hear from a lot of our clients on Upwork about this greater comfort of remote work. Our sales team, when they go out and they try to explain to people the value of freelancing and hiring remote freelancers, what they find is one of the big hurdles is the remote work hurdle. This has historically been the case. You're going to work with flexible talent, that's one different way of learning to work remotely, that's another different way of learning to work, and now they're finding that the remote work hurdle has just gone. Everyone knows they can do it now, and so you certainly see it. I think, in the big anecdotes and in the small company anecdotes, that there is this greater willingness to stick it out.

Beckworth:  Number three, you ask and you list what were some of the perceived benefits, and you include a lack of commute, fewer unnecessary meetings, reduced distractions at the office, and 40% or more of them agreed to this. I want to focus in on the lack of commute, so I want to make this concrete. You have another paper, and we'll come back to the one we're on, *The Future of Remote Work* paper, but I want to go to your other paper to kind of flesh out this point that the lack of commute could be significant. It's not just a trivial thing. For many people, commute is maybe the worst part of their day. Going into the big city, coming back out. So, you have another article titled, *Where Remote Work Saves Commuters Most.*

Beckworth:  You have some interesting statistics I just want to share with our listeners in this paper. And listeners, we'll provide a link to this and other papers that we're discussing, but this paper here looks at the commuting costs that will be saved by remote work. Adam, you begin by noting that the average time, I guess, across all of the US, people spend, commuting is 49, almost 50 minutes. Is that right?

The Importance of Commuting Costs

Ozimek: It's gone up. It's 54.2 minutes a day. We're talking about, the 54.2 is for the US overall. The 49 minutes is for people who have stopped commuting because they work remote.

Beckworth:  Okay, and that's per day, correct?

Ozimek: Yeah, so that's huge. That's almost 10 days a year people spend commuting. That's a very serious economic cost. There have been plenty of studies talking about the negative effects of this kind of commuting on mental health, whatnot. I really think that, one of the things that happens here is that you kind of get used to it and you take it as a necessity. You sort of become more accustomed to it, and then if you don't have it, you're like, oh my gosh, I can't believe how much of my life I was giving away there. That's my experience speaking anecdotally. I think that people are ... not only are people saving all this time now, but they're seeing what life is like without that time. I think that that is going to have an impact as well.

Not only are people saving all this time now, but they're seeing what life is like without that time. I think that that is going to have an impact as well.

Beckworth:  Yeah. That's an average. It's not evenly distributed. So, you actually mentioned, in your paper, you have a list of time saved per different metropolitan area, which is interesting by itself. But imagine some large cities, it's much greater than just that 50 minutes. Right? You might spend an hour coming in, an hour going out.

Ozimek: Yeah. There's 21 cities where the commute is over an hour total, the daily commute. So, it gets really high. The highest is East Stroudsburg, Pennsylvania, which is ... it's like a bedroom community in Pennsylvania. It's a bedroom community for New York City. It's an 83.6 minute commuting per day, so that's a lot of time spent in the car, and New York City's number two, DC, and then San Francisco's up at the top. So, it is these places that you think of or places near those places is having these agglomeration benefits, and commuting is one of the taxes that people pay to access these agglomeration benefits. Obviously the other one is the high housing costs and it's just you see people incurring these massive costs to get access to these labor markets.

Commuting is one of the taxes that people pay to access these agglomeration benefits.

Beckworth:  Yeah. I mean, that's a whole other discussion, the whole upzoning, getting more urban density, which would be another solution, a way to get away from the commutes. But given that they exist, it's remarkable. Again, you have, number one being 83.6, the mean savings per day for commuters from East Stroudsburg, Pennsylvania. But again, I just know anecdotally, and this isn't representative of people who spend at least an hour on the train coming into New York, and then they spend an hour going home, that's two hours of their day. Now, of course, they can use that time productively. They can pull their laptops out, they can read, they can do other things, but it would be better if you had the choice of how to use those two hours rather than being forced to do it.

Beckworth:  The other thing that's interesting in this paper that focuses just on the commuting angle of remote work, you estimate costs, and there are some pretty staggering costs. There's this, the direct costs, the externality costs, the value of time, and you come up with per day, $758 million per day that would be saved, or at least that's the cost, is that right?

Ozimek: Yeah. That's a total savings of 90 billion since the onset of the pandemic.

Beckworth:  Wow. That's pretty staggering. It's hard to understate the benefit of reducing the commute in our day in lives.

Ozimek: Yeah. I think people understand this in like other contexts. If you were to have a conversation with someone about how bad driving is for the environment, everyone's gets that, and everyone gets how many people die every year in car accidents and the cost of crashes and stuff like that. You just have to keep in mind that this is part of the remote work story. This is one of the benefits we're going to get, is a lot less of all that bad stuff that comes every time people get in the car and drive somewhere.

You just have to keep in mind that this is part of the remote work story. This is one of the benefits we're going to get, is a lot less of all that bad stuff that comes every time people get in the car and drive somewhere.

Beckworth:  Okay. You mentioned all the benefits. We talked about them, reduce commute time, fewer unnecessary meetings, reduced distractions at the office. There are also some drawbacks to working remotely. In fact, we just experienced one of them. Our podcast was interrupted by some technological issues. Listeners won't have to experience it, but Adam and I had to. There's an example right there. Number two, in your list though is actually number one on my list. You have a table, table three, where you through the biggest issues people have, and this is increased distractions at home. I can speak as a father of three with two pets. There's a lot of distractions here, too. I have a dedicated office, but I do miss being able to break away some times. It just takes structure and discipline to work and be focused at home. But on whole, I still see this as a benefit.

Potential Drawbacks of Working Remotely

Ozimek: So, 32% said increased distractions at home were one the problems. That's substantial, but I think it's important to not conflate, and I see this happen in articles all the time, problems with the greater COVID pandemic with problems with remote work. In normal times, your kids would be in school.

Ozimek: What we're seeing is not a problem with working or remote per se. It's a short-run problem that comes with working remote during the pandemic. That's what I thought was so fascinating about the problems list. A lot of these things are just ... they're short run things like technological issues, those things are going to go down over time. People were thrown feet first into this remote working experiment. They’re learning to… how do you collaborate with your team? How do you draw limits on your time? It's like, you need to evolve to learn how to work this way. Our clients, it takes them time to learn how to work this way, is something that salespeople have told me. There's going to be an adaptation, and there's also going to be innovation as well, which I think is really important.

Ozimek: The market for remote work technologies has obviously just exploded. Do we really think that what we're doing it right now is as good as it's going to get given that the size of the market has just gone up five, six, seven, eight, nine, 10 times? You can actually see this in the data. Nick Bloom has this great paper where he looks at patent data mentioning remote work telework, and you can see, since COVID pandemic, there's been a massive increase in patent technologies related to remote work. I've seen all these really cool ideas put out there where we're going to turn Zoom ... We're going to turn everyone into basically their own little newscasters with their Zoom window, and you can have your charts floating beside you and do these cool little presentations.

Ozimek: It's going to get better because technology will get better, because we'll get used to technology, and because kids are going to go back to school. All the problems, I think are going to ... They're not all going to go away, but the biggest ones that we see on our list for the most part are going to get less problematic.

It's going to get better because technology will get better, because we'll get used to technology, and because kids are going to go back to school. All the problems... They're not all going to go away, but the biggest ones that we see on our list for the most part are going to get less problematic.

Beckworth:  Well, this is the beauty of capitalism. There's a market that will ... it can handle these innovations. We've crossed that threshold. There's enough people working from home where we will see these gains. I'm excited about the prospects. Let's move on in your list. Number five, a third of the hiring managers found that productivity had increased as a result of remote work. Number six, as a result of their experience during COVID-19, 62% of hiring managers say their workforce will be more remote going forward. That's almost two thirds. Almost two thirds said, hey, let's do this. This is not just a pandemic experience. Let's make this full-time. That was probably the most staggering thing on this list here you have. Then number seven, the expected growth rate of full-time remote work over the next five years has doubled from 30% to 65%. There is a sea change going on here, something big. It's not just a trial run, it's an inflection point. I think you're right. We have maybe not yet fully grasp it and its significance

Ozimek: Yeah, I totally agree. I think all the conversations have been far too short-term focused, far too pessimistic. The other thing is this is just firms who are, themselves, going to choose to work remote. That's not the end of the story. Equilibrium is determined by more than just innovation, but also competition. Just because one company says, you know what? We don't like working remote, all the workers come back to the office, that doesn't mean that the current market share that they have in their industry is going to be staying unremote forever, because a few things are going to be happening now. One, they're going to be remote first startups and you're going to have to compete with them. So, you're going to not only have to prove that remote work doesn't work for you, but that not working remote gives you the competitive advantage.

Ozimek: The second is, of course, that firms who do go remote are going to be trying to grab your market share too. Just because remote work doesn't work with some businesses' cultures, doesn't mean that that's the end of the story as to what's going to happen to their workers. Their workers, in the long-run, may end up working for their competitors who do manage to figure out how to make remote work, work.

Beckworth: Alright, Adam, let's segue from this paper, which we will place on the website too, to another paper that's also on remote work, but it looks at something different and something I think very fascinating, and this deals with the different amount of economic opportunities available based on geography. As we all know, there's these superstar cities, San Francisco, New York, increasing returns to scale, all the things we've been talking about. As a result, there's huge differences between those big, important cities in some rural areas and some cities in the Midwest have been bleeding. In fact, I just had Matthew Yglesias on the show. We talked about his book, *One Billion Americans*, really loved it. Loved his argument.

Beckworth:  Talked about, for example, how Detroit went from like 1.8 million down to 300,000. It's a huge depopulation going on in certain parts of our country, and as a result, they're suffering economically. Many of these regions are trapped in these declining populations. Young people don't want to live there. They move to the superstar cities, but this might be one way out for them. There's other proposals. In fact, you have another proposal, Heartland Visas, I believe you called them, but this would be just another way to open up opportunities for these areas that are struggling. Right?

The Economy Geography of Remote Work: Population Dispersion

Ozimek: Yeah. I think that that's a really important context to think about remote work in is these diverging opportunities and diverging economic fortunes between superstar cities and basically the rest of the country. For the last few decades, we've had economic opportunities really been concentrated in the handful of superstar cities. At the same time, those cities have marginally restricted housing supply via regulations. So, what you have is house prices have gone up massively. What this means is productivity and innovation and the opportunity have clustered in a handful of places, and in those handful of places, there's monopoly power over the land supply that generates economic rents. I think that's a macro story, is that our economy is increasingly handing over a share of income to holders of economic rents, which is the land and property in these superstar cities.

Ozimek: I think that, that's, from a strictly positivist standpoint, that's not good, and it's also a tax on innovation because right now, or before remote work, if your company wanted to grow, in a lot of places, occupations industries, relatively constrained to these superstar cities, and you have to pay workers more because their cost of living goes up and you have to pay more for office space because the place is getting more crowded and it doesn't ... they're not increasing housing supply. I think that, rather than think of remote work as disrupting this really rosy equilibrium that we were in, I think you should think about it as disrupting a lot of problems that have been accumulating in the economy over the last few decades.

Ozimek: But I think that it will help to sort of lean against these things and to help spread labor demand more evenly across the country, help to let workers locate where they want to live and not just feel like, to have the most opportunity, they have to pay this expensive ticket, either via super expensive housing or a long commute in order to get access to one of the few good labor markets in the country. I see this as being like very geographic opportunity spreading potential.

A really important context to think about remote work in is these diverging opportunities and diverging economic fortunes between superstar cities and basically the rest of the country...I think that's a macro story, is that our economy is increasingly handing over a share of income to holders of economic rents, which is the land and property in these superstar cities. I think that, that's, from a strictly positivist standpoint, that's not good, and it's also a tax on innovation...

Beckworth:  That's a great point. So, it's one way for the market to innovate around the rigidities in these superstar cities that prevents everyone from participating. Do we have any evidence that that's happening yet?

Ozimek: I think you can see it in prices right now. You can see it in that the most expensive cities have seen the most dramatic decreases in rents. That's very suggestive that that these places are seeing the biggest shocks to demand. I think you can also see, the fact that people are working remote, we don't know quite yet what their moving intentions are, but I think we'll have some on that pretty soon.

Beckworth:  Yeah. Well, I remember you, I mean, just your own personal anecdotal stories, you've talked about people who moved out to where you live, from New York City. They were living actually in New York City, now they're way out in Pennsylvania near you because of remote work possibilities. Correct?

Ozimek: Yeah. That's another place. So, they call them Zoom towns. I wouldn't count Lancaster as a Zoom town quite, but there are where we've seen some people doing that here. I sold my house recently and all three offers on it were from out-of-state, two from New York City, one from New Jersey. One of them specifically mentioned in their offer letter that they were able to move to Lancaster out of New York City because both husband and wife were able to work remote now. That's one anecdote for you. You could also look at places like resort towns, mountain towns of Poconos and see really strong demand in the housing markets there. A lot of people now, they don't have to think of the dual maximization problem of wages and amenities. They can just think about amenities and live somewhere where they want to live.

Beckworth:  Yeah. Well, what do you think about Stripe? I mentioned earlier, they're going to cut the pay for those who do leave. Of course, they're going to pay them $20,000 to make that move, but any thoughts on that decision?

Ozimek: I have done some work on this looking at Upwork data and combining with BLS data, and what we find is that, when clients in high cost of living places, when they work with professionals in low cost of living places, the wages tend to be in between the two. Think about the land rents as driving a wedge in between the wage labor markets of those two places, both sides sort of have the chance to win from the decline of that wedge. Now, equilibrium, the land rent should come down and wage growth should equalize more across the country. So, it should become less of an important question over time, to some extent. Of course, amenities will always drive cost of living differences in places as well. But I think that for now, what we're going to see is in general, that both sides tend to win, and in the equilibrium, there'll be less of a gap to make up as opportunities sort of increases outside of the superstar cities.

Beckworth:  Well, this is an exciting topic and we look forward to seeing this continue to emerge and develop over the next few years. Thank you, Adam, today for coming on the show to discuss it.

Ozimek: Yeah. Thanks so much for having me.

Photo by Alexi Rosenfeld via Getty Images

About Macro Musings

Hosted by Senior Research Fellow David Beckworth, the Macro Musings podcast pulls back the curtain on the important macroeconomic issues of the past, present, and future.