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Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues
Oct 14, 2022

Remote Work, High-Skill Migration and Our Changing Cities

COVID-19 and the subsequent rise in work-from-home policies by firms have changed the landscape of skilled labor in the United States. The Survey of Working Arrangements and Attitudes finds that 15% of employees are working from home full time, as of September 2022.1 This dramatic increase in remote work has led to an equally dramatic physical migration of workers across the U.S. Census data shows a sharp decline in populations of the largest U.S. cities and increases among midsize cities and smaller metro areas. For example, from 2020 to 2021, the counties of Manhattan (New York County) and San Francisco both saw a decline in their population of 25- to 54-year-olds by nearly 10%.2

While these large population shifts will have important implications for the geographic distribution of labor, many questions remain as to what effects will ensue. For example: What percentage of these movers do high-skilled workers make up? And what occupations are seeing the greatest geographic reshuffling? Early signs suggest that this work-from-home reallocation is not even across skill and industries. For example, we know college-educated Americans are more likely to be able to work remotely, as well as employees in information, finance, and professional and business services.3

Traditionally, high-skill jobs have been concentrated in superstar cities, such as San Francisco and New York – cities associated with high-level amenities but also high costs of living and long commutes. Those with flexibility to work from home, however, are reconsidering the trade-offs and potentially migrating away from superstar cities to midsize cities and smaller metro areas. 

What Happens Next? 

The most recent estimates from the U.S. census capture migration shifts as of July 2021. That was a little more than a year ago, and yet even in that short time a great deal has changed. Firms have announced a return to the office – and then had to cancel or delay that return as COVID variants surged.4 More recent data suggest that, so far, these trends may be slowing down but are not reversing. Markerr, a real estate company, using change-of-address data as of July 2022, finds that major cities such as New York City and San Francisco continue to see negative net migration.5 And midsize cities such as Austin, Jacksonville, Raleigh and Charlotte continue to see large increases in net migration.   

What Are Employers Going To Do?

According to the Survey of Working Arrangements and Attitudes, employers plan to allow an average of 2.3 to 2.4 work-from-home days a week after the pandemic ends. Importantly, the same survey finds that workers would like to work 2.8 days a week from home, on average, suggesting a slight gulf between the demands by employers and the desires of labor. Employers seem to want more of their staff back in office, but achieving these goals, especially with the backdrop of a historically strong labor market, has been tricky. When an average of 4 million Americans are quitting their jobs each month, firms are reluctant to push too hard on a return to the office.6

Even though the labor market remains strong for now, recent evidence indicates that it is starting to cool, which will likely shift the relative balance of power toward employers. However, there are reasons to believe that work from home is here to stay. For one, it is always hard to roll back benefits once they have been extended. Second, even if the labor market cools significantly, some segments will remain tight. In particular, high-skill workers are likely to continue to have significant bargaining power, and I expect talented workers with strong preferences to remain remote will continue to find remote jobs.  Finally, research has shown that working from home can increase worker productivity suggesting firms that can achieve such benefits will stick with those policies.   

What Do Workers Want?

Affordable housing is clearly an important driver. According to Zillow, the median home price in San Francisco was $1.4 million in August, a figure that is often unaffordable even among high-skill employees. But there is likely to be a limit to this housing-cost-based exodus from the largest U.S. cities.  Negative net migration should bring down the cost of living in these cities which, in turn, should encourage more workers to move back. And, in turn, the midsize cities such as Austin that have seen their populations expand have also felt the growing pains of increased housing costs. It remains to be seen, then, if the migratory patterns from the first two years of the remote work boom will lead to permanent changes in the population distribution.

And What Does This Mean for Superstar Cities?

Superstar cities are likely to continue to remain vibrant due to agglomeration benefits from the geographic clustering of high-skill workers and firms. Traditionally these forces have led to large productivity gains there. The increase in work from home can weaken these agglomeration benefits as more of the high-skill employees who were previously employed locally move elsewhere, resulting in fewer informal knowledge transfers that were dependent on physical proximity. However, it is too early to forecast the death of superstar cities. In fact, firms in these cities could actually become even more productive with work from home as now they can draw labor talent from all over the U.S. and even globally. 

The Kenan Institute’s new American Growth Project, to debut Oct. 18 on our website, is designed to explore issues such as shifting demographics and implications for local firms and productivity. The project’s ability to provide more current estimates of localized economic growth will allow us to analyze trends in near real time. In addition, we’ll look at the nature of this growth under a fine lens, analyzing the specific sectors and areas that are changing – and what this means for U.S. firms and workers alike.

1 Barrero, Jose Maria, Nicholas Bloom, and Steven J. Davis, 2021. “Why working from home will stick,” National Bureau of Economic Research Working Paper 28731.

2 https://www.washingtonpost.com/business/2022/08/19/remote-work-hybrid-employment-revolution/

3 https://eig.org/the-uneven-geography-of-remote-work/

4 https://www.wsj.com/articles/surging-covid-19-puts-an-end-to-projected-return-to-office-dates-11641906003

5 https://markerr.com/migration-july-2022/

6 https://www.bls.gov/news.release/jolts.nr0.htm

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