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Written by Hamish McRae

October, 2020

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Homeworking cannot work for everyone

Zoom meetings are here to stay, but there is reason to believe that over the long term, a return to the office will have material benefits for all.

Working from home appears effective in the short term where everyone knows each other, but it may not work so well in the long run.

We can see all too well the short-term damage to the world economy caused by Covid-19, and the winners and losers from the massive structural changes that the virus has set in track. However, we are only beginning to sense the extent to which those structural changes will stick. In a couple of years, it may not be business as normal, but it will be much more normal than it is now.

The general rule when there is an economic shock is that it will speed up changes that were already taking place, but will have little long-term impact when it runs counter to established trends.

The best example of the first is the shift to online shopping. The UK is interesting because prior to Covid-19 it already had the highest proportion of online retail sales of any major economy, 20% in January. That proportion had been rising by about one percentage point a year. It shot up to nearly 33% in May, before falling back to 28% in August. We do not know yet where it will settle but it would be surprising if come next January it is not at least 25%. We will have had five years of structural change in one year. The changes that were already happening to our high streets – the shift from shopping to other services and accommodation – will take place all the faster.

The best example of the second reaction to a shock is the foreign holiday market. It collapsed during the summer for all the obvious reasons. But international tourism had been rising strongly through the previous decade, and 2021 looks like being a bumper year. Tui, the largest tourist operator in the world, reported in August that bookings for 2021 were up 145% on the level for the previous year.

None of this is certain, of course. The shift to e-commerce may plateau and the growth of international travel may go into reverse, but at least we have some data to guide us. For the most radical shift brought about by Covid-19, the move to working from home, we have very little real feeling for what will happen.

We have opinion surveys, which suggest that most people able to do so prefer it. We have companies planning to cut back on expensive office space because they envisage that their people will be able to spend at least part of their time at home. And there are reports that productivity has, on balance, risen.

But we should take all this with a pinch of salt. Working from home appears effective in the short term where everyone knows each other, but it may not work so well in the long run. Employers will have to learn how to train new staff who cannot sit alongside others and get that informal guidance that office culture brings. Younger workers seem to find it tougher than older ones. For many, particularly those with limited space at home, WFH in practice means SITO – sleeping in the office.

This issue is massively important for cities. If their centres become moribund and the offices that drive their economies are run down that will have huge knock-on effects on entire economies. Maybe less dense conurbations, such as Los Angeles and London will fare better than the likes of New York and Paris, but all cities will be in danger of becoming burdens on the wider economy rather than drivers of wealth creation.

How many office workers will go back? Estimates range that on a day-to-day basis the proportion of staff in at any one time will be 50% to 80% of the pre-Covid level. I have not found a single suggestion that it will be 100%. Inevitably there will be a loss of business – and a loss of vibrancy – in city centres, with all the implications for property values, jobs and tax revenue. That will be offset by a rise in activity in the suburbs, but this is unlikely to compensate fully for the losses at the core.

Ultimately, what will determine future work patterns is efficiency. If it turns out that working from home really is more efficient then it will stay. If, on the other hand, firms that allow or encourage it start losing their edge, then we will gradually revert to office culture. As for the staff themselves, people who work from home may find they are edged out by more ambitious colleagues who show up in the office. Before the Covid blow there was a modest shift for people to work from home. This has been evident for at least 25 years – the home becoming the factory, the office being the club. That shift speeded up as communications technology has leapt forward. Some of the present practices, such as the ubiquitous Zoom conference, will remain because they are more efficient than a physical meeting. Greater efficiency will be one of the lasting benefits of the crisis, but I suspect that the office culture will be more durable than many think. People do not commute into offices every day because it is their lifestyle choice. They do so because it gets the work done.

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