Yet upward trends are masking a spotty recovery, with small businesses — the backbone of the U.S. economy — bearing the brunt. And at least some of the reasons have to do with remote work, a topic the Morning Brief has been exploring with increasing regularity, and for very important reasons.
Two full years into the pandemic, legions of office workers are still camped out in makeshift home offices. It’s forcing employers to completely rethink the nature of the workplace, and how to attract and retain talent. But the status quo comes with downsides for public transportation, small biz and hourly wage workers in key service sector jobs, all of which deserve more consideration than they get.
The impact is particularly acute in big coastal cities, and it's pushing small businesses to the brink. In an interview with Goldman Sachs this week, Yahoo Finance’s Dani Romero reported that the sector is being hit by a “triple whammy” of labor shortages, rising prices, and of course COVID-19.
It ties into something investor Whitney Tilson pointed out in a recent newsletter. The hedge fund veteran observed that in New York City, “the midtown office buildings normally filled with hundreds of thousands of high-earning (and high-tax-paying) professionals (bankers, hedge fund managers, lawyers, accountants, consultants, etc.) remain eerily empty."
He added: “The city cannot recover economically until these people move back to the city and come back to the office (at least part time).”
An undeniable piece of that puzzle is working from home. Corporate America’s aggressive embrace of hybrid work arrangements comes with increasingly clear, and negative, economic externalities that are getting harder to ignore.
The Omicron variant, while less debilitating than other COVID-19 mutations, is far more transmissible. It’s scrambled return-to-office plans, which has a trickle-down impact on small businesses that rely on traffic from the professional class.
Well-paid knowledge workers can basically work from anywhere, but that has downsides for public transportation, housing inflation, and wage earners in service industries like retail, leisure and restaurants.
A lack of ridership threatens the solvency of commuter rails, and raises the specter of higher taxes on everyone — even if they don’t commute. Meanwhile, digital nomads with the financial means are driving up rents and housing prices in hot markets, exacerbating the shortage of affordable stock. And small businesses in empty office districts are suffering from the lack of traffic.
Subway ridership, in part undermined by a crime surge (more on that topic next week), has plunged anew since Omicron infections spiked — meaning that potential fare hikes are almost certain to be in the offing. Taxpayers — whether working from home or not — are increasingly likely to be called upon to pay higher taxes and fees in an effort to prop up a flagging system.
Of course, the new normal is great for a certain class of knowledge workers — and companies like Airbnb (ABNB). Last week, CEO Brian Chesky told Yahoo Finance’s Akiko Fujita that remote work has created an entirely new category of long-term travel, and that’s allowed him to become a digital nomad himself.
“I think that we're living through probably the biggest change to travel since the advent of commercial flying, because the entire identity of travel is evolving,” Chesky told Yahoo Finance Live. “I think you'd figure, if millions of people are joining this trend, I should too."
But his comments underscore remote work's under-appreciated impact on housing costs. Doug Duncan, chief economist at Fannie Mae, explained to Yahoo Finance’s Ines Ferre that inflation (spurred by high demand, a big chunk of which emanates from knowledge workers) is keeping housing prices frothy.
Remote work also has downsides for those who benefit from it the most: work-from-home employees themselves. A study by human resources firm TINYpulse found that employees in hybrid work arrangements “desire even more social and cultural connection than those who prefer fully in-person and fully remote work”
“Surprisingly, those who preferred hybrid work desired the most social connection. This difference was statistically meaningful,” the study found. “Those with a preference for remote work desired as much social/cultural connection as those who preferred in-person work.”
The era of office cubicle culture is clearly a thing of the past. But employees, companies and governments clearly have to acknowledge the longer-term fallout from indefinite hybrid/remote work.
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