The economic consequences of working from home that no-one is talking about

September 20, 2021 â€" 12.00am

The work from home revolution is in full swing and there are some big benefits available to anyone able to tune in to their job remotely - including saving money. But there are also some underappreciated economic consequences of widespread working from home we need to consider.

Each week worked from home during lockdown this year has saved me more than $60-a-week in both travel and food expenses. I also gain more than two hours a day in time that would normally have been spent commuting. If this was a permanent arrangement I would be saving perhaps $3000 a year and getting about 100 hours of extra time back in my schedule. So what would happen if I continue to make those savings, every year, and so did many other office workers across the country?

Working from home could mean some big savings but this has knock-on effects for major industries.

Working from home could mean some big savings but this has knock-on effects for major industries.Credit:iStock

PwC Australia future of work lead Ben Hamer said the firm’s research into the shift to remote work found three quarters of Australians want a hybrid of home and office working post-pandemic. Only one in 10 wanted to return to working five days a week in an office environment.

“Between 40 to 50 per cent of the labour market are looking to leave their employer in the next 12 months and, with 100,000 more jobs in Australia than pre-COVID alongside record high vacancies and historically low unemployment, we are on the precipice of The Great Resignation,” Hamer said. “We are about to see a massive exodus of workers ... And there is no going back to the way things were.”

Some employers will also benefit from making working from home an ongoing proposition, able to reduce their office floor space and all the associated costs that come with renting or owning premises, widen their available talent pool and, presumably, have a more attractive working environment for staff wanting a work-life balance.

This all sounds like a major win. But there are some serious consequences for the economy if we give up our office space for good and individually realise all these savings.

The Productivity Commission last week released a report into the working from home phenomenon and, while acknowledging its potential, raised some concerns. This included diminished physical activity and potentially more loneliness for those not in an office environment as well as the potential loss of opportunities for collaboration and connection.

The Commission also warned about rising inequality between those able to work from home, who are more likely to be well paid and highly educated, and those who are in jobs requiring face-to-fact contact or who do not have the space, resources or ability to work remotely. It’s possible a shift to working from home could segregate society and make life even more unfair. On the other hand, the report said remote work would better open up opportunities for those less able to leave their home to work, such as carers and parents, and those living in regional areas.

However, one issue not getting enough attention is what happens to the businesses who have previously benefited from all the office-related spending from staff packed into high rises and central business districts.

The Commission says the shift to working from home might see “some businesses that require high foot-traffic in order to be viable â€" such as cafés and hairdressers â€" [choosing] to locate in suburbs rather than in city centres”.

This is plausible. But what if some people never return to their old spending habits again?

Here is where the “paradox of thrift” may kick in. Economists generally agree that an individual’s decision to increase their personal savings may benefit them upfront, but this would be detrimental for the economy as a whole due to decreased activity (particularly if lots of people chose to save more than usual). This is then bad for that individual and everyone overall.

Ultimately, the extra savings many are benefiting from during the lockdown is money that usually would’ve been spent back into the economy at cafés, restaurants and dry cleaners. This is money those businesses no longer receive and are no longer able to use to pay staff.

It’s possible some people will choose to spend their money with as much abandon as they used to but now in their local area instead. As the Commission theorises, some businesses will benefit from relocating from the city to the suburbs and perhaps serving morning coffee to workers in those locales.

But it’s also possible some of this spending will change for good. Some people will be fine making their coffees for themselves in the morning if the convenience of having a coffee made by someone else requires the inconvenience of needing to leave the house when you otherwise do not need to.

There are also fewer barriers to making your lunch rather than ordering it when your pantry and fridge are right in front of you. The wider ramifications of this on a more permanent basis could extend to sustained drop in demand for a range of other goods and services, such as corporate attire, catering, dry cleaning and transport, that will not find enough customers even if they move location.

This may mean more saving and debt reduction on an individual level, and it could also mean the shrinking of major industries that have served as the lifeblood of business parks and CBDs across the country. It might also lead to the creation of new industries and new businesses to take advantage of this extra cash no longer being spent on things like lattes and takeout.

The office exodus might just spark a spending renaissance too.

How much do you save working from home?

Everyone’s cost profile is different. This is a rough calculation of my weekly savings.

Food:

  • $4.20 soy latte (home: instant and soy milk at home for about 40 cents a cup)
  • $8 on fruit salad and snack (home: apple and pear at 60 cents each and a snack for 50 cents) 
  • Savings estimate: $25.30
  • Transport:

  • 65km one-way commute (4.5km/L in a hybrid vehicle, with E10 fuel at about $1.38/L)
  • Extra 80km round trip required weekly to nearest supermarket. 
  • Not including wear and tear on the car.
  • Savings estimate: $35
  • Ross Gittins is on annual leave

    Jennifer Duke is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra.Connect via Twitter or email.

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