The Economics of Remote Work In America

Many have taken advantage of the current pandemic and made a shift to remote work. This has come as no surprise. However, it is the economics of this new dynamic that is of real interest.

The pandemic in 2020 has accelerated a shift in people working from home, similar to how the sharing economy disrupted the hotel and tax industries. Now, with employees unable to come into the office, many employers are realizing that having people work from home is just as productive.

Some companies are able to save on office space by having part of their workforce at home. Many employees save both time and money on their daily commute. There is also the potential for people to work from home as a freelancer. The options and benefits are numerous.

Freelancing, for one, has opened up opportunities across the board. It has given many the luxury of choice and flexibility. By the same token, employers are able to take advantage of a wide range of skills now available by these online professionals.

Smaller and Larger Cities

Larger cities mean larger property prices. The increased demand for property means that city prices create smaller square footage for the same dollar spent. This creates an effect on the labor market as both employers and employees try to compete. For the seasoned worker who is capable of doing at least part of their job from home, it becomes an easier choice to move further away from the city.

Even if they are spending a few days per week in the workplace, the opportunity for larger living areas or a lower mortgage makes it an easier decision for some. For the employee trying to get into the housing market or start a family, this can make working remotely or even from a smaller city more attractive.

When it comes to an economic downturn, such as what has been discovered during this Covid-19 era, larger cities also tend to spring back to normal quicker than smaller urban centers.

In a time when many companies are trying to reduce costs, it can be worthwhile employing people who are in less-populated areas. With smaller housing prices and costs of living, a smaller remuneration could attract similar talent to what is found in the larger cities.

Salary and Geography

It is no secret that remuneration often varies depending on where people live. Human resource professionals have struggled for many years to come up with models to reconcile the variation in geography with how people are getting paid. This can potentially work in either the favor of the employee or the employer.

Salary is not only a function of the cost of living within that city. It is also a function of the availability or scarcity of that type of work in that area. For example, a plumber in a city that has one plumber per 10,000 people will get more than the plumber in the city with one plumber per 1,000 or 100 residents. When it comes to salary, supply and demand are key factors.

Differences in salary across geographical considerations are more than a simple cost of living adjustment. It also needs to take into account the local wage conditions if an employee is required in that area.

The Tech Industry

Not surprisingly, those in the tech industry are thriving with the shift to remote working. Multi-skilled programmers perform tasks from different timezones, and despite language barriers. Those who work in technology are also more likely to embrace innovative ideas such as working remotely.

This can pose some disadvantage to the traditional employee though, given that many companies find it attractive to give below-market pay to overseas workers; taking advantage of the regional pay differential. However, it also creates a niche for many stay-at-home programmers who have a strong work ethic and solid communication skills.

Closing Thoughts

Simultaneously, the best and worst shift from the industrial revolution was the forty-hour work-week. It shifted the employee’s understanding of getting paid per task performed, to the actual monetization of their time.

The shift to remote working has meant the opportunity to exercise choice and flexibility. The strict nine to five can be dispensed with, and in many cases working from home has freed up workers’ time and money.

By the same means, many employers have been able to take advantage of more competitive wages. Employers have also utilized freelancer experience and expertise to add nuance and vigor to certain projects. However, it may be incumbent upon government regulation to ensure American employees are not adversary affected. Innovation in all its forms should benefit and not eat away at the American economy.

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