We can’t overlook the economic fallout of working from home

It’s been a little over a year since many employees started working from home. With a second wave of the covid pandemic now in evidence, this phenomenon is likely to continue.

The interesting thing is that the work-from-home model might continue even after the pandemic ends. This might happen if firms are looking to cut costs or offer more flexibility to their employees, or simply because it is possible to do so now.

When the last big pandemic, the Spanish flu, ended around 100 years ago, people did not have an option of working from home. As Fareed Zakaria writes in Ten Lessons for a Post-Pandemic World: “In the 1920s, people went back to their farms, factories, and offices because there was no alternative. To work, you had to be at work.”

But this might very well change now. The rise of the internet and availability of cheap broadband has ensured that the need to have all hands on the deck is no longer there.

Of course, this does not mean that everyone can work from home. As Scott Galloway writes in Post Corona: From Crisis to Opportunity: “Most working-class people… can’t do their jobs at home, since they are tied to the store, warehouse, factory, or other place of work.”

People working in factories, hotels, bank branches, hospitals, real estate projects, mom and pop shops, emergency services, delivery services, etc., or driving cabs for that matter, need to turn up at their places of work and job sites every day.

Also, extended working from home will end up having other major economic consequences. Other than permanent employees, every office has office-maintenance jobs that are not on the rolls of the company. Most large offices have canteens run by a contractor. Some companies offer pick-up and drop facilities to their employees.

This is how service companies create low-skilled and semi-skilled jobs. Around many large office complexes, there are vendors selling tea, coffee and food. Further, drivers of app-hailed cabs and yellow-top taxis have seen their business go down.

Working from home has already hit people in these professions hard. If it becomes the post-pandemic norm, there are other second-order effects that need to be considered.

While difficult to quantify, it will have a definite impact on automobile sales. Without the need to go to office every day, people can use the services of app cab companies whenever they need to get somewhere. This will also lead to a drop in demand for drivers, a go-to job for many young Indian men.

Also, people travelling less and a decline in automobile sales will have an impact on the demand of petrol and diesel. Given this, the government will end up earning a lower amount of tax, unless it increases rates.

Over a period of time, working from home will also lead to less demand for commercial real estate. With a large chunk of employees working from home, many companies may not need to operate the large offices that they currently have.

They may also not need new office space, leading to real estate companies having a weaker incentive to construct new office blocks. This will have an impact on a whole host of sectors which feed the construction industry. It will also mean fewer jobs for the semi-skilled and low-skilled, which the building of real estate creates in large volumes.

As far as residential real estate is concerned, builders have been trying to sell the story of people shifting to bigger homes in order to have more space to work from home. There will be a few people who will do this, but most people will try and make do with what they have, given that these are difficult economic times, and buying a bigger house will need a huge investment.

The other story going around is that with work-from-home becoming the norm, people will move away from bigger cities and live closer to their hometowns or in places like Goa.

While this has been true over the past year, it is difficult to see this trend continuing to play out, for the simple reason that companies may not move to a 100% work-from-home model. As Galloway writes: “Ideas need to flirt and fight with one another, and that happens best in person… Presence is also great for accountability—visual cues help build trust.”

In order to ensure this, companies will require people to turn up at office now and then. What this means is that people will have to continue living in cities where their jobs are.

Of course, these effects remain difficult to quantify.

On the positive side, less burning of fossil fuels will impact the environment positively. Further, as Galloway writes, working from home should benefit women: “Part of our ability to create the same career trajectory for women with kids is to create more options and flexibility around where they work from.” For something like this to happen, the organization needs to have such a vision as well.

To conclude, as the English expression that is claimed to be a translation of an old Chinese curse, goes: “May you live in interesting times”. Interesting times are upon us.

Vivek Kaul is the author of ‘Bad Money’