Covid Will Spice up The Economic system, And It Can Additionally Spice up Your Occupation—Says Economist Matthew E. Kahn

I recently had a chance to interview the highly productive and widely respected Matthew Kahn, an urban economist and Provost Professor of Economics at Southern California University. Our meeting anticipated the publication of his new book, Going Remote: How The Flexible Work Economy Can Improve Our Lives And Our Cities. Renowned Harvard economist and city pundit Edward Glaeser describes the book as a “tour of the future” around the social, environmental and economic consequences of telecommuting. It’s a pathbreaking book, rich in clear economic argument relevant to every career owner on the planet. Moreover, as you will see, Kahn is a master at highlighting the overall message his book conveys.

Michael B. Arthur: It’s very nice to talk with you. Where would you like to begin?

Matthew E. Kahn: I start the book with the recently opened Apple Headquarters. They have built this mother ship, and I asked my book editor “If Apple had a second chance, would it have built the same circular spaceship that it did, or would it have built a different, smaller ship?” We are locked into several decisions that will play out over decades, including where and why companies will build their headquarters, with a range of implications for how and where people will work and what career opportunities they will experience.

Arthur: So with the mother ship as a reference point, how would you like to proceed?

Kahn: I would like to talk about three main topics, the short-run impact on eligible Work-From-Home (WFH) workers; the medium-term impact for women, their managers and their spouses; and the long-term impact in extending opportunities for African Americans and other disadvantaged workers. All of these have parallel implications for the cities where work is hosted, and for people who deliver that work—including people living in different cities. In our discussion I will try to look three years ahead of where we are today.

Arthur: So can we take those three topics in turn?

Kahn: Gaming Short-Run Impact I once calculated that my father spent two full years on the commuter train, going from Scarsdale, New York, to the New York University Hospital where he worked. Going forward, for WFH-eligible workers who have the green light from their bosses to do much of their work from home, commuting times will fall substantially.

You can’t be a WFH dentist, but for those lucky individuals who can now work from home they can use the surplus time gained to attend their childrens’ events at school, take care of a sick relative, take more exercise, or pursue hobbies . Or, they can use the time to improve their mental health or help them build social capital in their communities. Ask yourself, if the Lord granted you one or more hours a week away from work, what would you do with those hours? We are talking about a windfall of less switching.

A further point that urban economists were making before Covid hit concerns low commuter speeds. Rush hour congestion dictated average commuter speeds of 30 miles per hour, which meant you had to live and work in or around the same city space. If you love the opera in New York City, then living downtown is fine. But what if you love to ski or surf and want to unbundle where you live and work? Or, what if you have a sick mother in Charlotte, North Carolina and want to work for Amazon’s second headquarters soon to be opened in Arlington, Virginia, 400 miles away? Those kinds of combinations become much more accessible in a WFH economy.

Arthur: Can you turn to the next topic and build on what you’ve said?

Kahn: Absolutely. Medium-Term Impact relates to what I’ve already said but the effects will take longer to play out. Several years ago, a University of Chicago Study showed that when men and women graduated from the Business School their earnings were the same, but eight years later the men were clearly out-earning the women. My explanation for that was the women, on average, were dropping out at higher rates than men. Senior managers were also likely to stop mentoring young women because the managers anticipated the women would drop out. This created an unfortunate self-fulfilling prophecy, and an enduring female-male earnings gap.

However, I anticipate that WFH will change this dynamic. If young women from the University of Chicago’s Business School anticipate that they can keep working, even with a young child, they will be much more likely to do that. It will lead in turn to a new equilibrium where senior managers will need to invest in these women, because they see the women will re-integrate with the firm as WFH employees. Moreover, there will be more continuity in the women’s careers, and a benefit for the firm in retaining valuable talent as well as saving on recruitment and training costs.

This reinforces the observation of my mentor Gary Becker, that if young women anticipate in college that they can have continuity in their careers, it will affect their choice of the skills they invest in. Think of it the way people think about dynamic programming, or a chess game. The further you look ahead, the more that will influence the early moves that you make. Women and men will both be more likely to take a long-term view of their careers. This raises an interesting likelihood of “chore wars,” where either one of a couple can work from home, so they face off about who does what to keep the home going. That’s an issue gay couples will be facing, too.

Arthur: On to the third main topic?

Kahn: That’s the one about Long-Term Impact. I spent two years in Baltimore on the faculty of Johns Hopkins University. While I can’t claim to be an expert on Baltimore, my discussions with the people I met there suggest the following. There are many talented youths in Baltimore, but there’s a perception that there aren’t many jobs in Baltimore. This can lead to teenagers, many of whom are African American, not paying much attention in school because they don’t see a payoff in developing the skills they’re being taught.

I met with the present mayor of Baltimore, Brandon Scott, and he agreed that in a WFH economy Baltimore gains from its proximity to Washington, DC. House prices are low in Baltimore, although there’s great culture and history there. Also, in a WFH economy after Amazon opens up its HQ 2 in Arlington, Virginia, there are new possibilities for African Americans to live in Baltimore while working at Amazon. There are more possibilities for people to live in Baltimore and work not only in Washington, DC but also in Philadelphia, PA, both of which are relatively close to Baltimore, and accessible for intermittent meetings.

Then there’s that unbundling point again. Baltimore will benefit by the unbundling of the place of work from the place of residence. Any person, regardless of race or gender, might work from their Baltimore home three or three and a half weeks a month, but go to the mother ship for face-to-face interactions. Moreover, the quality of those interactions will be far higher than the quality of everyday interactions before Covid.

Kahn: May I carry on to a fourth topic? I call it Musical Chairs, which I played with as part of the title for my book. I continue to be optimistic about the success of superstar cities like San Francisco and New York City. However, those cities have become extremely expensive in terms of real estate prices, so that WFH people who can’t afford a family home will want to work for superstar firms without living in the same city. Those people will “suburbanize” adjacent cities and take advantage of available WFH opportunities, while young people may prefer more crowded accommodation around the supercity center. Moreover, there will be a knock-on effect since there will be new work in those cities – especially in services – for people who actually want to live and work in the same city.

Kahn: A final topic I’d like to talk about concerns the future of Smaller Cities. This is about the potential for smaller cities – for example, Boise, Idaho; Boseman, Montana; or Santa Barbara, California, to benefit from a WFH economy. These are high amenity places that in the past haven’t had a lot of jobs. Going forward, those beautiful and rural parts of America will attract WFH workers who have cultural roots from there, or have leisure hobbies tied to there. I think we’re going to see successful people moving to these cities as long as the cities allow for real estate development to accommodate these people.

My editor has worried that work from home is not available to everyone. It is true that a high school graduate has much less access to WFH jobs than a college graduate. However, if smaller cities attract WFH workers who want to live there it will also create a knock-on effect of a new service sector in which local people can earn money. For example, if I love to ski, I can work in a local microbrewery that serves beer to the people that now live in this new residential WFH community.

Arthur: So the rise of the WFH workforce creates an immediate benefit in the windfall of less commuting, alongside a range of opportunities for career owners to make use of that windfall. It also sets in motion medium-term effects where women are more likely to anticipate largely uninterrupted careers around the birth of children, attracting more long-term mentoring and closing the female-male earnings gap. It gives rise in turn for cities without supercity status to benefit from keeping or attracting relatively successful wage earners, as well as creating expanded service sector work for local workers. Should we be grateful for all that the Covid pandemic has taught us?

Kahn: I firmly believe we should be grateful.

Arthur: Thank you for your time – and for your insights!

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