The Great Migration: Remote Work’s Role in Redefining the Economy

A policy brief designed for CEOs and local government leaders, providing strategic insights into adapting to the economic changes brought by the rise in remote work.

Executive Summary

The economic repercussions of the shift to remote work are profound and widespread, resulting in the decline of urban centers, issues in the real estate sector, and significant changes in rural communities. As companies explore return-to-office policies, tensions have grown between corporate initiatives and the preferences of their workforce. This policy brief advocates for a nuanced adoption of hybrid work models that acknowledges the diversity of employee needs and advocates for strategic adaptability. The call to action extends to local governments to proactively support urban economies through financial incentives, ensuring they remain hubs of innovation and commerce without displacing existing community members. Meanwhile, it is equally imperative to aid rural areas by enhancing their infrastructure, allowing for sustainable growth. If executed effectively, these strategies have the potential to revitalize city centers, preserve the character of rural communities, and establish a necessary balance between workers and employers as we navigate the ever-changing landscape of work.

The Divide — Balancing Remote Work and Office Culture

The rapid transition to remote work has resulted in a divide between employer expectations for in-office engagement and employees’ newfound preference for the flexibility of working from home. Employers are calling for a return to the office, citing the collaboration and innovation that occurs in such a setting. This imbalance is largely rooted in the shift of power between employers and workers. A prime example of this is currently being seen at tech giant SAP. CEO Christian Klein recently called for a return to in-person work at least three days per week beginning in April, as “like many executives, Klein’s view has changed as labor market dynamics have tilted toward employers having the upper hand. After the company reported strong earnings last month, Klein expressed frustration with remote work’s effects on SAP’s culture. ‘I’m not a big believer that on a video conference platform you can understand our culture, you can get educated, and you can get enabled to do your job best,” Klein said (Grant). SAP is not the only massive company cracking down on remote work: Amazon and Disney, among others, have recently announced similar policies. Yet, they have all been met with backlash and even threats to resign from a considerable proportion of its employees. Many complaints stem from workers that were initially offered full remote work, only for the arrangement to be reversed. One such employee at Farmers Insurance says that “I sold my house and moved closer to my grandkids. So sad that I made a huge financial decision based on a lie.” Others claim similar accounts of betrayal, citing selling their cars or investing in their home offices under the impression that their positions would remain permanently remote. The sense of betrayal arises from the misalignment of objectives between workers, employers, and the government. This policy brief delves into the heart of this tension, evaluating the economic ramifications of remote work, such as local spending patterns, real estate dynamics, and the risk of rural gentrification. It seeks to create a way forward that not only supports the interests of businesses, but also respects the significant life changes employees have made in the remote work era. We stand at a pivotal juncture, and the choices made today will shape the economic landscape for years to come.

Remote Work is Here to Stay… In Some Capacity

The proliferation of the internet in the mid-1990s revolutionized global communication, allowing for instant collaboration between people anywhere in the world. The later advent of smartphones further enabled professionals to work effectively from varied locations, from homes to public spaces, ushering in a new era of workplace flexibility. Thus, the idea of working remotely was not entirely unfamiliar when the COVID-19 pandemic began in early 2020. Initially a forced adaptation, remote work has established itself as a new norm. Despite certain corporate mandates advocating for a return to traditional office environments, the prevailing trend indicates that a hybrid work model is likely to be entrenched across numerous sectors. For instance, notable corporations such as Amazon, Farmers Insurance, and SAP have faced pushback against their policies that required employees to spend as little as three days per week in person, demonstrating that even a partial return to office is contentious. Supporting this trend, a Harvard Business Review survey of executives predicts a sustained rise in hybrid and remote work arrangements, suggesting a lasting transformation in organizational structures:

In some capacity, remote work is here to stay. What does this mean?

What’s All the Fuss About?

For employees, the benefits of remote work are clear. Less time spent commuting and the convenience of not preparing for a traditional office day frequently result in increased morale. A paper in the Association for Psychological Science found that “The benefits of asynchronous work have also helped us prioritize self-care and mental health. We have been able to spend more time outdoors, get more exercise, find time to relax, and eat a healthier diet, thanks to more flexibility for meal planning.” This improved mental and physical well-being can lead to increased productivity among teams. Moreover, remote work enables businesses to tap into the global talent pool, overcoming previous location-based limitations. Offering remote positions makes a company more appealing in sectors where expert talent is coveted. It allows them to attract leading professionals globally and circumvent skill gaps that may be present in their physical location. Granting employees the autonomy to select their working environments and hours promotes a more balanced personal and professional life. This enhanced balance has shown to result in increased job satisfaction and higher employee retention rates (Peters). The flexibility afforded by remote work allows individuals more time to engage in hobbies and personal interests, contributing to a more fulfilling and balanced life. This can be particularly beneficial for parents with young children, who can better manage their parental responsibilities without sacrificing career advancement. The ability to integrate work with personal life can reduce stress and increase overall happiness. This not only cultivates a positive work culture but also solidifies the bond between employees and their organizations, fostering a more cohesive and motivated team. However, while the shift towards remote work offers numerous clear benefits, it also brings with it a set of challenges and unintended consequences.

Beyond the Screen: Remote Work’s Economic Ripple Effects

As the world leans into the digital age, remote work has emerged as a force in the global economy. Still, its overall impact on the economic landscape comes with drawbacks. Urban areas, responsible for over 80% of global GDP (World Bank), are witnessing a decline in demand for commercial real estate and as well as a reduction in local spending. Foot traffic in major American cities has plummeted post-pandemic:

The activity of urban commerce is intrinsically linked to the presence of workers who fuel the economy through day-to-day activities. With a reduced physical presence in urban environments, businesses ranging from restaurants to retail stores are facing reduced revenue. Even in New York City, which the graphic shows has rebounded better than most major cities, this remains true. A study from the Center for an Urban Future found a “a 3.1% decrease in chain stores across the five boroughs in the past year. This represents the second largest single-year decline in chain stores since CUF began tracking chain retailers in 2008, with the first year of the COVID-19 pandemic being the only year with a larger decrease.” Local businesses are facing cuts to staff or even permanent closure. This not only affects the economic landscape of urban centers, but also takes away from part of the character of city life that once attracted people in the first place.

Given the nature of hybrid/remote work, it is unsurprising that office values and occupancy rates have declined since the pandemic. The U.S. office vacancy rate rose to 18.3% in 2023. In addition, a study from NYU found that office values fell 45 percent in 2020, contributing to a potential $453 billion drop in property values. Property taxes constitute the largest share of public funds in New York City, contributing one-third of the city’s tax revenue. The decrease in market value of Manhattan’s primary office districts alone resulted in a revenue loss of $5.24 billion for the city (CommercialEdge).

Similar repercussions ripple through the broader urban economy as it becomes less of a hub of activity. The associated drop in local spending also reduces income from sales tax, public transportation, and other municipal services. With diminished funding, cities may face tough decisions, such as reducing infrastructure projects, cutting educational programs, or laying off city employees. Due to tax revenue shortfall, Los Angeles is facing a budget deficit between $350 and $400 million for the coming fiscal year and “will be forced to cut hiring for the thousands of currently vacant city job positions and in future budgets. City services will inevitably suffer as a result” (Pascoe).

As the need for daily commutes to office buildings diminishes, people are relocating farther from cities. A Bankrate study revealed that affluent urban workers are shifting to rural areas, and they “are willing to spend more, since they’ll be both working and living in the home they buy, which drives up the cost of housing in their favorite places to live. And locals who earn less are being priced out of their own communities” (Taylor). The graph above illustrates a marked increase in the sales price of newly built rural homes, evidence of an increase in demand in these areas. As the workforce becomes increasingly decentralized, affluent professionals are opting for the tranquility of rural life and can afford higher housing and general living costs. This trend risks inflating property values to a point where long-standing residents may find themselves priced out.

Given all the complexities of the modern workforce and the transformative power of remote work, it’s crucial to recognize that shifts in workplace dynamics call for innovative policymaking. With the landscape of work forever altered, governments and organizations must navigate a delicate balance between economic vitality and the well-being of the community. The following policy recommendations aim to construct a framework that supports sustainable development while remaining responsive to the evolving needs of both businesses and workers.

Policy Recommendations

Re-Thinking Return Initiatives

Companies are on the right track by looking to implement return to office policies, and more should follow suit if they haven’t yet. Yet, the matter is often more complex than assigning a set number of in-office days for every employee. It is important to adopt a nuanced hybrid model that caters to the diverse needs and circumstances of the workforce. The solution is not a one-fits-all approach. Organizations can establish general company-wide policies, but must recognize the lifestyle changes employees have undergone, especially those who were hired or guaranteed remote or hybrid work options. Scenarios like these require an individualized approach regarding return expectations. The following details how this should work:

Organizations will create a Remote Work Eligibility Committee. This will comprise of the three senior HR members, a member from management of the employee’s team, and a representative of the employee’s choosing. This committee will assess applications against a detailed rubric that considers the nature of the employee’s work, performance history, and individual life circumstances. The committee will also oversee a bi-annual review process for remote work decisions, ensuring the employee’s current arrangement is optimizing his/her performance. This will also provide a clear channel for employee appeals and suggestions. Every employee will have the opportunity to discuss their hybrid work model, should they choose. The committee may accept, reject, or propose a counteroffer for applications. Should an employee not apply, he/she will abide by the general company-wide policy.

This process, designed to be transparent and equitable, ensures that decisions regarding remote work privileges are based on objective criteria rather than subjective preferences. Adopting this approach is the optimal strategy for organizations to achieve their strategic goals and maintain the well-being of their workforce, ensuring high morale and cohesion among employees without room for doubt or unfairness.

Supporting Impacted Urban Areas

Local governments play a pivotal role in assisting city centers adversely influenced by the onset of remote work. Providing tax breaks for companies that decide to stay or move operations to metropolitan areas can help reverse the rise in office vacancy rates. Austin, Texas has demonstrated a successful model for using tax incentives to attract companies and stimulate economic development. In 2020 during the pandemic, 154 companies that announced plans to either relocate or expand in Austin. Laura Huffman, president and CEO of the Austin Chamber of Commerce, said that “2020 proved to be the best year for attracting new jobs and new businesses to Austin” (Gruca). How was this possible during such challenging times? The solution lies in its incentives. It explored property tax rebates reaching up to $805 million, alongside various other incentives including wage reimbursement (Gruca). The city’s proactive approach proved to be a resounding success during a time of global crisis. In a study on how major cities recovered from the pandemic, the Bay Area Council Economic Institute found that Austin “ranked first (100/100) on 6 metrics: job growth, “knowledge worker” growth, population growth, labor force growth, net absorption, and new housing units per capita” (Dawid). In addition, the city’s 2023 office occupancy rates were well above the national average and even above its own pre-pandemic rates (Linares). Austin’s approach offers a template for how cities can use tax incentives to counteract the effects of increased remote work and maintain their appeal as vibrant centers for business and culture.

If the initial tax incentives prove inadequate, governments could pivot to converting empty office spaces into housing through zoning updates. This approach could also help mitigate potential housing shortages. An August 2023 study found that vacant offices could currently be repurposed into 400,000 new apartments nationwide (Van Nieuwerburgh). Finally, providing subsidies to small businesses, restaurants, and chains in urban areas that have experienced revenue declines due to decreases in foot traffic can serve as a crucial lifeline. This financial support can help sustain them through the transitional period until broader return-to-office policies take effect and physical presence in cities rises. These subsidies would not only help keep these establishments afloat but also preserve the character of city centers, ensuring they remain attractive places for work, leisure, and living. This holistic approach aims to revitalize city centers, ensuring their role as vibrant hubs of economic activity and culture. Addressing both short-term and long-term needs will benefit all stakeholders involved.

Rural Development Programs

While prior policy suggestions hold value, the reality is that since workers do not have to be in the office every day, they are moving away from urban centers. Many find it advantageous to reside in rural areas, considering they only need to commute, for example, three days a week instead of five. The United States Department of Agriculture found that “A sharp increase in net migration (the number of people moving in minus the number of people moving out) was the source of the growth. Migration to rural areas was 0.47 percent and 0.45 percent in 2020–21 and 2021–22, respectively, compared with 0.01 percent in the period before the pandemic,” and data from last year shows a continuation of the trend. This movement introduces potential for growth and rural revitalization, but also introduces the risk of rising prices and community displacement. Addressing these shifts requires a multifaceted approach to rural development. The Center for American Progress notes that “Promising neighborhood stabilization policies include community land trusts, right of first refusal, renter protections, and rent control.” In addition, improving transportation networks is essential for ensuring that these areas are accessible and connected, both for new residents and already existing community members for everyday needs and the commute to increasingly in-person work. 68% of America’s road miles are in rural areas, yet the roads in this area face high motor vehicle fatalities rates and poor infrastructure condition (U.S. Department of Transportation). Expanding healthcare facilities and educational services is also critical to meet the growing demand.

These initiatives are essential to counteract the risk of rural gentrification. It’s imperative to preserve housing affordability and local pricing to prevent pricing out long-standing residents. Programs should strive for inclusive growth that equally benefits all residents, ensuring a balance between the necessities of newcomers and the rights of established community members.

Summary of Recommendations

· Companies should implement nuanced hybrid models for return-to-office policies, considering individual employee needs through a Remote Work Eligibility Committee.

· Provide tax incentives to businesses in urban centers, repurpose offices that are still vacant for residential use, and offer subsidies to local businesses.

· Develop comprehensive rural development programs focusing on improving infrastructure and services, while preventing displacement of locals.

Balance Is Key

The overarching theme of this policy brief is to support a return to in-person work within a framework that recognizes the changed landscape. Businesses and governments must work together to create an environment where employees feel valued and supported in their transition back to the office. This balanced approach acknowledges the critical role a satisfied workforce plays in the success of businesses and the prosperity of the economy, striving for solutions that benefit all stakeholders in the post-pandemic world.