With increased home working forecast post-pandemic, expensive and overcrowded cities like London may momentarily lose their lustre. In theory, this could disperse jobs and wealth away from the core. But in practice, this is unlikely.
In the months before the pandemic hit, the economist Philip McCann described the UK as ‘one of the most interregionally unequal countries in the industrialised world’. In part, this is the consequence of what economists call the agglomeration effect. In short, working in the vicinity of others in the same industry benefits individual and company productivity and profits. However, for a year now, social distancing caused by COVID-19 has put an end to that physical proximity; yet broadly, knowledge work has remained productive.
Addressing interregional inequality is core to the Government’s levelling up agenda. Moving whole organisations or departments from London to other parts of the UK is one way of achieving this. But increased home working could have a similar effect too, as people take the opportunity to live elsewhere. Indeed, as the FT journalist Sarah O’Connor argued, big ‘cities will not die, but their benefits could become more diffuse, with well-paid workers spread further into the rest of the country’.
This is what we wanted to test in our new report, Escaping the City? How COVID-19 might affect the UK’s economic geography. At Nesta, we’ve already given some thought to how remote working might be made to benefit employees, so the aim of this report was to see what effect the decoupling of work and place could have on Britain’s cities and regions. Hypothetically, dispersing highly paid work around the UK could boost local economies. By making it possible to apply for jobs irrespective of where you live it could also help reduce skills mismatches, an area of exploration in our Sustainable Future mission.
To explore the effect of remote working on UK economies, we used a technique called scenario mapping. We looked at two elements, called axes of uncertainty: first, the speed at which the pandemic recedes and the economy opens up; and second, whether it is firms or workers who capture the benefits of remote working. The first was chosen because it indicates how choices and behaviours generated by the pandemic become embedded into people’s lives. The second was selected as a measure of the material benefits that employees gain from working remotely. This affects the motivation for employees to relocate, as well as their potential to put money into the places they might move to.
We used these axes to create four potential future scenarios, in which we examined the possible effects on high and low paid knowledge workers as well as employees in the service sector.
The aim of such a scenario mapping exercise is not to predict the future, but rather to identify probable trends in the way futures might unfold to develop policy and other responses. Our findings suggest that changes to preferred living locations are an inevitable consequence of new expectations around when we should go into the office - but a remote working revolution that disperses workers around the UK with meaningful effects on levelling up is unlikely.
For better paid knowledge workers, a protracted return to normal might embed a new fully remote way of working and encourage some moves away from London. If firms capture the benefits of remote working, in that they save money on office space which they don’t pass on to their employees, this group will have a need for a home working space but lack the money to pay for it. Provincial cities are the likely recipients of this mobile group where their relatively high salary advantages them in local property markets.
If firms pass the savings on office space on to their workers, however, we might expect those highly paid workers to move to London’s suburbs or to the commuter belt, where they improve their quality of life but still retain access to the city’s facilities. For lower paid workers, there is a tangible benefit to leaving London too, though again they would be expected to move to existing thriving cities where they can.
In this scenario, a speedy return to normal prevents new behaviours embedding. A hybrid approach to work emerges, where home and office are mixed. This allows some new freedoms, particularly for the most well off, such as working from a second home or from a holiday location. However, the necessity for most to be on site one or two days a week means there is little permanent relocation from London.
This scenario is perhaps the most damaging overall. Though firms are capturing the benefits of remote working, the bargaining power of higher paid workers allows them to maintain relatively good conditions. For lower paid knowledge workers, fully remote working is foreseen. If firms are satisfied with the work of lower paid employees when working remotely, they might choose not to invite them back into offices, with office access a perk available only to the higher paid. Obviously, social and familial upheaval impacts this group too, but the individual economic benefits of leaving London are more significant given their lower pay.
Overall, unless managed well, a move to increased remote working could have negative consequences for employees. Remote working can lead workers to take on costs that would normally be borne by employers. While the highest paid might be able to absorb these costs and prefer to do so for the quality of life advantages, for others the increased costs become a de facto salary reduction. At worst, remote working could act as a blueprint for offshoring knowledge work altogether. Moreover, while remote working might disperse some highly paid jobs from London, the vast majority of recipient places will be those places that are already doing well.
While our findings suggest that new ways of working post-pandemic are unlikely to meaningfully contribute to a leveling up effect, they add weight to the wider conversation that home working is likely to grow in prevalence. As such, we make broad calls for the protection of remote workers’ rights and wellbeing, particularly for those who are lower paid. We also identify a need for improved connectivity infrastructure, as well as access to skills for those whose jobs do become fully remote. Finally, if remote working does substantially increase in prevalence, we foresee a need for new approaches to local economic policy which focus on attracting remote workers over the present attention to anchor institutions.
Escaping the city? How COVID-19 might affect the UK's economic geography
Read our new report on how the rise of remote working post-pandemic could impact regional economies