Working remotely isn’t necessarily a cost-saver for workers; business leaders, take note

The topic of remote work continues to gain momentum in academia and the mainstream media as employers gauge the future of their workplaces post-COVID-19. Some of the more common headlines highlight the big moves being made by business to take advantage of the benefits of remote work, including an increase in worker productivity and lower real estate costs for employers.

Another headline gaining momentum is initial efforts by businesses to cut wages for workers that take the opportunity afforded by remote work to move to less expensive cities. On its face, the trade-off seems to make sense. Employers headquartered in expensive cities like San Francisco have to pay a salary premium for their workers to live in one of the hottest and most over-priced real estate markets in the world. If an employee moves out of the Bay Area to cheaper climes, the logic goes, they should give back the wage premium required to pay for pricey homes in commuting distance of their old offices. As a matter of math, this makes sense: The company saves money, and the employee’s standard of living is unaffected.  

Via REUTERS

New data, however, has called into question the idea that working remotely is a big cost-saver for workers. An NBER working paper published by Christopher Stanton and Pratyush Tiwari compared the percent of income spent on housing costs between remote workers and their non-remote peers between 2013 and 2017. They found that “the expenditure share on housing was more than 7 percent higher for remote households compared to similar non-remote households in the same commuting zone.” What’s going on here?

According to Stanton and Tiwari, remote workers end up paying for housing with more rooms to accommodate their workspace and often pay a higher price per room. Breaking things down further, they found that renters who worked remotely spent around 7 percent more of their income on housing than non-remote renters, and homeowners working remotely spent roughly 9 percent more than non-remote homeowners. In effect, during the study period businesses shed real-estate costs from their offices, and employees absorbed increased housing costs to the tune of about $15 billion dollars annually, with lower-wage workers hit hardest.

2013 to 2017 was a temblor for remote work; the pandemic is more a mega-quake, and it is going to take some time for the dust to clear. Market forces will be more in play in the post-COVID environment when the race for talent will help insulate workers from cost-shifts as more companies compete in a work-from-anywhere economy. This will call for some rethinking for workers and employers who will have to negotiate not just salary and benefits, but the dollar value associated with work flexibility and the cost of building and maintaining a home office.