Working from home and realising what matters

The shift to remote work is also a teachable moment, in at least two ways

By Paul Krugman

Published: Wed 24 May 2023, 9:37 PM

The US economy has experienced a remarkable recovery from the Covid recession of 2020. The much-feared scarring effects of the pandemic never materialised: Employment, labour force participation and gross domestic product are right back in line with projections made before the pandemic struck.

We’re still waiting to see whether House Republicans will squander that achievement by pushing America into a completely gratuitous debt crisis. But today I thought I’d take a break from the anxiety and talk about one important way in which the US economy is doing even better than the standard numbers suggest. One silver lining of the Covid-19 crisis has been a major change in the way Americans work; we’re wasting a lot less time and fewer resources on commuting.

A few days ago, my colleague Farhad Manjoo wrote an excellent article about the benefits of reduced commuting, which inspired me to take a deeper dive into the issue. Although it has its downsides — what doesn’t? — the shift to remote and hybrid work is, overall, a very good thing, even if (or maybe especially if) Elon Musk hates it.

The shift to remote work is also a teachable moment, in at least two ways. First, it’s an object lesson in the fact that taking advantage of new technological possibilities often requires major changes in how business operates. Second, it’s a reminder that economic numbers like GDP, while useful, can sometimes be misleading indicators of what really matters in life.

First things first: The reduction in commuting time is a seriously big deal. Before the pandemic, the average American adult spent about 0.28 hours per day, or more than 100 hours a year, on work-related travel. (Since not all adults are employed, the number for workers was considerably higher.) By 2021, that number had fallen by about one-quarter.

Putting a dollar value on the benefits from reduced commuting is tricky. You can’t simply multiply the time saved by average wages, because people probably don’t view time spent on the road (yes, most people drive to work) as fully lost. On the other hand, there are many other expenses, from fuel to wear and tear to psychological strain, associated with commuting. On the third hand, the option of remote or hybrid work tends to be available mainly to highly educated workers with above-average wages and hence a high value associated with their time.

But it’s not hard to make the case that the overall benefits from not commuting every day are equivalent to a gain in national income of at least one and maybe several percentage points. That’s a lot: There are very few policy proposals likely to produce gains on that scale. And yes, these are real benefits. CEOs may rant about lazy or (per Musk) “immoral” workers who don’t want to go back into their cubicles, but the purpose of an economy is not to make bosses happy.

What’s interesting is that this transformation of the way many Americans work wasn’t driven by new technology. True, it wouldn’t have been possible if many people didn’t have fast Internet connections, but the big surge in home broadband took place from 2000 to 2010, then levelled off. It was only under the pressure of the pandemic that businesses learned to take advantage of the technological possibility of remote work.

The thing is, while the pandemic economy is now behind us, the change in how we work is looking permanent. Overall, work from home looks like a classic example of an infant industry — an initially uncompetitive industry given a temporary boost (typically provided by tariffs or subsidies but in this case by a virus) that learns by doing and remains competitive even after the support is removed.

If the rise in remote work does turn out to be permanent, it will have profound economic effects, with some losers (such as commercial real estate and the tax bases of many cities) but many winners. One thing it won’t do, however, is show up as a rise in measured GDP: The time Americans waste in traffic jams isn’t subtracted from national income, and the time they spend with their families isn’t added.

I’m not one of those critics who say that GDP is a useless number; it’s an informative statistic and not easily replaced. But it can be misleading when societies make different choices. Anyone who does international comparisons knows that America has higher GDP per capita than European countries but that a large part of the difference doesn’t reflect higher US productivity; it reflects the fact that Europeans get a lot of vacation time, while we’re the “no-vacation nation.” So are we better off? Are you sure?

Now we’re seeing major gains at home that aren’t captured in GDP. True, these gains are accruing largely to higher-income workers, which is unfortunate; however, we’ve also seen large wage gains at the bottom, somewhat alleviating the unfairness.

And one implication is that if we look at what an economy is for — namely, to serve human needs, not generate favourable statistics — America’s bounce back from the pandemic has been even more impressive than you may realize.

This article originally appeared in The New York Times.

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