Economic Geography and the Rise of Remote Work

Beginning with the Industrial Revolution in the late 1700s and early 1800s, economic power rapidly consolidated in large cities where factories could use mass manpower and flowing water to operate heavy equipment.  This shifting economic geography had major implications for political movements, wars, and culture as rural areas lost economic power and urban areas gained and increased economic power.  Up through World War II, power steadily shifted from rural areas to urban areas thanks to industrialization and factories.

In the 1950s, however, the post-World War II economic boom began to shift economic geography again.  This time, power shifted from city centers to suburbs as middle class families desired to move out of crowded urban areas.  While factories remained in urban hubs, many white collar office jobs began moving to suburbs.  New communications technology allowed a distance of separation between factory and office, with information instantly transferable between the two locations.  

The Rise of Remote Work

Remote work was first theorized in the 1970s, but only became practical with the emergence of high-speed Internet in the late 1990s and early 2000s.  With high-speed Internet and cellular phones, white collar workers could complete their digital tasks from virtually anywhere.  However, remote work increased only slowly (but steadily) during this two-decade period due to lack of widespread wireless Internet (WiFi) and cultural preferences for “going to the office.”  Essentially, a critical mass of social forces kept most workers at the office prior to the Covid pandemic of 2020-21, even when technology to work remotely was widely available.

As most people recall, it was the Covid pandemic that erupted in 2020 that caused most white collar workers to begin working remotely.  Many went remote because their employers required it, while others were allowed to work remotely due to pressure on employers from the Great Resignation that occurred immediately after the pandemic.  Today, approximately 22 percent of U.S. workers are remote, compared to only about 6 percent prior to the Covid pandemic.  However, many employers are now dissatisfied with remote work and want their employees back in the office - at least some of the time.

Economic Impacts of Remote Work

Impact on Workers

Remote work is often praised as economically beneficial to workers by eliminating the costs of commuting, which can be substantial in expensive urban areas.  The time saved on commuting can improve workers’ mental health, leading to health-related economic benefits.  Being able to apply for remote jobs around the country also benefits digital workers in lower-wage areas, allowing them to take advantage of the urban wage premium.  Prior to the rise of remote work, citizens in rural areas typically had to accept white collar jobs with lower pay than their urban counterparts.  

Office workers typically spend more money during business hours than remote workers, such as on meals, pet care, and child care.  Remote workers are often able to save on these costs, though some might question the ethics of taking care of one’s child while being “on the job” digitally.  Interestingly, remote workers may spend considerably more money on housing in order to have a dedicated home office room.  Although this might be seen as erasing the economic gains from not having to commute to work, remote workers may be able to recoup their entire home office investment when they sell those larger houses. 

Impact on Employers

Remote work has had more of a mixed economic impact on employers.  It widens the labor pool, allowing employers to source digital workers from across the country, or even beyond, but also allows existing employees more opportunities to jump ship.  These two counteracting forces have led to only a slight increase in wages for remote workers since 2021, after an initial period of substantial growth during the pandemic.  

Employers are more likely to have seen a significant change in office rental costs due to remote work.  Overall, demand for office space has fallen considerably since 2020, though it appears to have stabilized somewhat over the past year.  Many employers have been put in the difficult position of deciding whether or not to downsize to smaller leases if many of their workers are remote.  Arguably, leasing costs and a desire to not have to give up existing leases are two of the strongest influences behind employers wanting to issue return to office mandates.  

Impact on Economic Geography

Remote work has been beneficial for rural areas and small towns, with many well-paid white collar workers choosing to leave expensive urban areas and suburbs for places with lower costs of living.  Rural areas near nature-related tourist attractions, such as national parks, received the most growth from remote workers during and after the Covid pandemic.  This shift has been seen in most developed countries, with remote workers seeking not only lower costs of living but also cleaner air, lower crime rates, and better climates.  Some governments have jumped on the trend and contributed grants to help small towns and rural areas develop the infrastructure to sustain an influx of remote workers…or attract remote workers to bring in consumer spending.

White collar workers moving from big cities and suburbs to small towns has caused some shifts in economic geography, with desirable small towns and cities seeing rising costs from increased consumer demand.  Not all small towns benefit equally, leading to spikes in housing costs in some towns due to an influx of new residents.  Simultaneously, many small businesses that cater to office workers in big cities and suburbs have suffered due to fewer people commuting.  Small towns that are considered picturesque have become highly desirable, perhaps leading to high inflation, while city centers and suburban office parks have become “hollowed out” due to less demand for office space.

Policy Changes in the Wake of the Remote Work Boom

Several policy changes are likely to emerge out of necessity.  Some remote employers may begin cutting their urban wage premium to save money, arguing that former urban employees no longer need the higher wages to cover commuting costs now that they live in lower-cost areas.  This may lead to some worker unrest, and critics argue that it will lead to decreased productivity as workers feel undervalued.  However, employers will likely chafe at continuing to pay Manhattan, D.C., or San Francisco wages for workers who now live in Nebraska or Kansas.

Governments will likely have to adjust tax policies due to shifts in worker living and spending due to remote work.  Cities facing an exodus of workers may have to lower taxes or offer more tax credits and subsidies to attract new businesses, while small towns facing an influx of workers may have to raise taxes to build new infrastructure, such as roads and schools.  Small towns not receiving an influx of workers may offer tax credits and subsidies to attract them, wagering that they will benefit economically in the long run as each family attracted will spend many times their tax cut in stimulating local businesses.

Cities and towns hoping to keep remote workers are likely to increase their investment in amenities like parks, community centers, libraries, and other common areas.  Previously, these sorts of investments may have seemed unnecessary, but the flexibility afforded by remote work means more families are likely to seek out these amenities throughout the year.  Cities cannot allow parks, green spaces, community centers, and sports venues to be unkempt or stagnant during parts of the year - remote work families are more free to visit these places year-round.  This will create new challenges for many communities, especially commuter towns or bedroom communities, where people own homes but spend relatively little time during daylight hours due to long commutes.