An economics professor at Stanford University says working from home could be part of the solution to the meagre productivity growth facing New Zealand and many other countries.
Prime Minister Christopher Luxon’s overarching policy goal is to transform NZ into a highly productive economy, which can support higher living standards and better public services.
But the Treasury has warned that global productivity growth has been slow in recent years and is only expected to get slower. It published a long list of possible culprits in May.
Despite the Coalition Government’s scepticism of working-from-home arrangements, Stanford economist Nicholas Bloom argues it could be part of the productivity puzzle.
“In my lifetime as an economist I have never seen a change that is so broadly beneficial,” he wrote in an article for the IMF.
“The 2020 surge in working from home has helped offset the pre-pandemic productivity slowdown overall and is boosting present and future growth.”
Bloom believes working from home will improve productivity by creating a more inclusive labour market and freeing up capital to be reinvested in more impactful places.
Labour boon
His theory is that remote and hybrid working has brought millions of people into the global workforce who previously felt it wasn’t worth having a job.
This includes people who have childcare responsibilities, physical disabilities, or who live in rural areas. It may also include semi-retired workers who still want to contribute in some way.
Bloom’s example was that two million people with disabilities entered the workforce in the United States following the pandemic. These people are capable of being productive workers but struggle with long commutes and may need a customised work environment.
Having a work-from-home policy may mean being able to hire a top-tier candidate with a physical disability, instead of a mediocre candidate who is comfortable on the rush-hour bus.
New Zealand had 82,500 people receiving Jobseeker Support due to having a health condition or disability in June this year. WFH could help some find manageable jobs.
Another example Bloom offers are prime working-age women, who often drop out of the labour force to do the heavy lifting on childcare. Flexible working arrangements makes it much easier for productive parents to share childcare responsibilities and both re-enter the workforce sooner.
Increasing the number of the people in the workforce would grow the economy but not necessarily productivity — which is measured per hour worked.
Bloom says the productivity boost would come from the ability for employers to better match workers with jobs. Flexible work allows the best candidate to take a role regardless of their location, physical abilities, or competing responsibilities.
Capital allocation
The other possible productivity booster may be more efficient use of capital. New Zealanders have huge amounts of their capital buried in residential homes which sit empty half the day.
If employees were based at these homes a couple of days a week, society would need less office space and expensive transport infrastructure.
“More intensive use of our home capital—the space and equipment in our houses and apartments—can allow society to save on the use of transportation and office capital, which can be redeployed to other uses,” Bloom wrote.
Cheaper commercial space may make some new kinds of businesses more viable, and generate new activities. It may also reduce the cost of housing by freeing up space in urban centres, and creating opportunities in rural areas which were previously too far to commute.
All these savings could mean higher productivity if businesses and governments choose to reinvest the spare capital in technology and equipment, or higher wages and lower taxes.
“Collectively, these capital contributions could also raise output a few percent over the coming decades,” Bloom said.
Pros and cons
Of course, workers clocking in from their homes in the suburbs has caused a shift away from consumption in central business districts. Those businesses are losers in the short-term, although this should eventually be offset by more affordable housing replacing city offices.
Bloom pointed out that many essential in-person workers—such as firefighters, teachers, and bus drivers—had been priced out of cities by office workers who could be located elsewhere.
“Cutting the amount of space for office use in city centres and converting it to residential use would make housing more affordable for these essential workers,” he wrote.
Working-from-home has been a hot topic lately due to the Coalition Government’s direction for the public service to cut back on its flexibility.
But Bloom’s analysis was not specific to public sector work. It took a view of employment across entire economies without distinguishing between public and private.
He also didn’t claim WFH had any productivity benefits for individuals. Early research suggests any benefit of a quiet work environment was offset by less contact with teammates.
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