The Economics of Remote Work Geography

For decades after World War II, there was a relative balance of opportunity costs and trade-offs when it came to deciding where to live.  Those living in large cities had more job opportunities, consumption options, and cultural experiences, but also more pollution, crime, and crowded conditions.  Those living in rural areas had less pollution, crime, and living expenses, but also fewer job and consumption possibilities.  In between were the suburbs, which could offer a desirable blend of lower crime, lower pollution, and relatively convenient access to good jobs and consumption options…but for higher costs.  

A primary determinant of where people ended up, geographically speaking, was related to employment.  Rural areas and small towns lost significant populations (out-migration) between 1950 and 2010, much of it driven by young adults migrating to cities for jobs.  Then, the Covid pandemic hit in early 2020 and forced the rapid spread and maturation of remote work technology.  Almost overnight, white collar workers shifted from working on computers in offices, schools, and laboratories to doing the same digital work from their homes, aided by high-speed wireless Internet and camera-savvy communications programs like Zoom and Google Meets.

Remote Work and Effects on Migration

The rise of remote work has significantly affected migration patterns of Western workers.  Some estimates claim up to a 50 percent increase in interstate migration in the United States in the early 2020s compared to 2019.  The largest cities saw the greatest exodus of workers, with more remote workers leaving these cities than moving in.  Some large cities, however, increased in population during the Covid pandemic, especially Austin, Texas and Denver, Colorado.  Thus, the migration of remote workers has not uniformly been urban-to-rural; many moved from one urban area to another.

Removing Trade-Offs From Remote Work

Remote work has been very popular with employees because it provides tremendous flexibility, reducing opportunity costs compared to traditional nine-to-five white collar office jobs.  Prior to the 2010s and the rise of modern remote work, securing the stability and benefits of a full-time, white collar job meant giving up lots of freedom.  Workers almost always had to live in a city or suburb, as opposed to a rural area, and dedicate hours a day in an office setting.

Thanks to edit-in-real-time software and relatively lag-free digital communications, many white collar workers can now write reports, crunch numbers, or edit presentations from anywhere.  The stability and benefits of white collar jobs no longer require sacrificing geographic flexibility or one’s daily schedule.  This has reduced the relative benefits of living in cities, where the cost of living, crime, and pollution are typically higher.  The opportunity costs of living in a picturesque small town are reduced, as residents no longer have to forego the higher salaries of their city-dwelling white collar peers.

Long-Term Economic Effects of Remote Work Geography

The reduced opportunity costs of living in picturesque villages, towns, and small cities have led to a surge in popularity of these locations.  Now, white collar workers can get the proverbial best of both worlds: urban center pay with rural charm and health benefits.  During the pandemic, there was a rush of urban white collar workers to pretty towns in the Midwest, especially nature hot spots like Colorado and Montana.  This led to controversies caused by sudden overcrowding, with longtime residents confronted with soaring property values (leading to higher property taxes) and competition for services and amenities due to the influx of transplants.

Competition for Remote Workers: Healthy or Unhealthy?

An influx of white collar remote workers from the city can be a strain on infrastructure and resources, but also deliver much-needed cash and population to aging small towns.  Small towns, counties, and even rural states began offering economic incentives to lure remote workers who could provide evidence of out-of-state income.  These workers are seen as a net profit, for they bring in more consumer spending than the tax credits they enjoy.  If they bring their families, the increase in population can even warrant additional tax dollars and services from the state, providing a compounded economic benefit.

However, not all towns are likely to be successful in attracting remote workers.  Therefore, the rise of remote work may primarily benefit only picturesque towns and small cities, leaving the “unattractive” areas continuing to decline.  Towns that offer overly generous economic incentives to lure remote workers may face budget crises if the math does not pan out, such as not attracting a critical mass of new residents to make up for the increase in government services required.  For example, a town may offer huge tax cuts and infrastructure investments to attract newcomers, but face budget deficits (government debt) when only a few white collar workers go through with the relocation.  

Struggling small towns may feel compelled to compete with nearby rivals to attract white collar remote workers, ultimately offering more generous financial incentives than can reasonably be supported.  

Return-to-Office Mandates Are Returning Remote Work Geography to Pre-Pandemic Status

Despite a rough Covid year in 2020, large cities have mostly rebounded in subsequent years, with population increases occurring by 2023 for many cities with populations just below behemoths like New York, Los Angeles, and Chicago.  This suggests that many remote workers are moving from one city to another rather than to small towns.  Furthermore, it may signal that the trade-offs of small town life are struggling to compete with the amenities of cities.  The return of white collar workers to cities may also be due to increasing return-to-office (RTO) mandates, which have picked up steam over the past year.  

Controversially, many large companies are requiring remote workers to return to the office, at least for a few days a week.  The rationale is that remote workers are underperforming their in-office peers, at least when it comes to group work and collaboration.  Some critics argue that companies are demanding workers return to offices to make use of expensive leases on office space.  Whatever the purpose for the RTO mandates, they are drawing many workers back “home” from the small towns to which they moved during the pandemic.  

Sadly, these mandates may hurt many small towns and rural areas by preventing them from realizing the long-term financial gains from remote worker spending, meaning they spent the money up-front on infrastructure improvements and will not see the increased tax revenue to pay them off!