• February 4, 2023

When people retreated from cities to the suburbs due to COVID, low-skilled workers left behind paid the price

People who can do their jobs remotely fled US cities during the pandemic, and the low-skilled workers left behind bore the brunt of the economic fallout – but this trend came with a silver lining.

These are the findings of a recent working paper on “The Geography of Remote Work” that was circulated by the National Bureau of Economic Research and co-authored by researchers from the Universities of Princeton, Georgetown and Columbia and the University of California, San Diego.

The researchers found that businesses backed by these workers’ expenses suffered tangible financial damage as highly skilled, highly paid employees left their jobs – and in some cases, their homes – in densely populated cities such as New York City and San Francisco . and so do their employees.

At the same time, this population shift had a side effect on the urban housing markets. When highly skilled workers left their townhouses permanently during the pandemic, the cities with the highest proportions of these workers saw the hottest Decline in local rents. This decline in rental prices continued throughout 2020 and through January 2021, the researchers found.

“The poorly qualified service staff in these districts suffered”

The researchers tracked people’s movements and their spending habits in zip codes in the United States using data from cell phones, Zillow
Z, -1.42%,
Surveys from the US Census Bureau, Facebook
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and Affinity Solutions, a company that tracks credit and debit card spending.

Areas with the largest proportion of highly skilled workers saw the largest decreases in visits to local consumer service companies and the largest decreases in spending in those companies, which included such establishments as restaurants, cafes, bars and hairdressing salons.

“The flight of highly qualified service workers to their homes and to places outside large, dense cities had detrimental consequences for the abandoned urban economy,” the authors write.

For example, in New York City, affluent areas of Manhattan and Brooklyn, where high-skilled workers live, saw twice the drop in visits to local consumer service companies compared to zip codes in parts of the Bronx and Brooklyn, where fewer high-skilled workers lived.

“The low-skilled service workers in these neighborhoods suffered from this change in consumer behavior: low-skilled service consumers in large cities lost more hours per worker than their rural counterparts and were hardest hit by the economic consequences of the pandemic,” the researchers wrote.

While these highly skilled workers can now become more flexible about where they live, “low-skilled service workers will suffer from their dependence on local demand in a freer world”.

– from NBER. working paper circulated

Cities could lose workers in the future

The results could anticipate the wider implications of the proliferation of teleworking in the American workplace, the researchers concluded. Now that highly skilled workers don’t see a need to live near their offices, the most populated U.S. cities could experience the greatest disruption, losing and shrinking sections of their workforce, the paper concluded.

While these highly skilled workers are now more flexible about where they live, “low-skilled service workers will suffer from their dependence on local demand in a freer world,” the authors found. “As a result, major cities may lose not only their highly skilled service workers, but also the local consumer service economies that support those workers.”

A more “hopeful” implication

However, the researchers also highlighted a “more hopeful” implication that “the move to remote working could ease pressures on major cities’ housing markets”. Highly skilled workers showed both the willingness and ability to move during the pandemic, and rents in major cities fell as a result.

“Encouraging some of these workers to move more permanently could help lower rents in the city centers,” they concluded.

The research comes as major city-based companies try to formulate plans to return to the office while the Delta variant has caused a surge in COVID-19 cases. Some executives, like JPMorgan Chase’s
JPM, -1.15%
Managing Director, Jamie Dimon, have insisted that their employees return to work in person.

Remote work “doesn’t work for people who want to get hectic, doesn’t work for culture, doesn’t work for generating ideas,” Dimon told Delta in May at a Wall Street Journal CEO Council event became the predominant form of SARS-CoV-2 in the USA “By September it will look like it did before.” He added, “We get a setback when we come back internally, but that’s life.”

Other companies including Google
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have said that if employees want to work in areas where the cost of living is lower, they do shouldn’t be surprised if their salaries go down. “Our compensation packages have always been determined by location, and we always pay at the top of the local market based on where an employee works,” a Google spokesman told Reuters.

With this in mind, some job seekers say that being able to work from home is more important to them than getting paid, and around four in ten workers say they would rather quit their jobs than return to the office full-time, according to a recent poll.

Before the pandemic, about 2.4% of the American workforce was working remotely, which is less than one in 15 of the 37% who could theoretically work remotely, the paper found. At the height of the pandemic-related shutdowns in spring 2020, around 50% of employees were working from home.

Meanwhile, many low-skilled workers who cannot work remotely face double burdens: many work in sectors such as restaurants and hospitality, where layoffs are rampant, and have jobs where they interact with the public, which is what they do a higher risk of contracting COVID-19.

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