{"id":5964,"date":"2024-12-19T17:56:50","date_gmt":"2024-12-19T16:56:50","guid":{"rendered":"https:\/\/www.rivistaeco.com\/?p=5964"},"modified":"2024-12-19T17:56:50","modified_gmt":"2024-12-19T16:56:50","slug":"how-remote-work-is-changing-cities","status":"publish","type":"post","link":"https:\/\/www.rivistaeco.com\/en\/2024\/12\/19\/how-remote-work-is-changing-cities\/","title":{"rendered":"How Remote Work is Changing Cities"},"content":{"rendered":"

More than the internet and communication technologies, remote work is transforming the geography of cities. Residential areas near city centers emptied out during the pandemic. However, the “Zoom cities” many had anticipated did not emerge. This is because people did not entirely abandon offices and in-person relationships with colleagues. As a result, they did not move far from their workplaces, leaving cities shaped like donuts.<\/span><\/i><\/p>\n

In 2004, New York Times journalist Thomas Friedman visited Bangalore, India. During a visit to the Infosys campus, one of the country’s leading IT companies, CEO Nandan Nilekani explained that thanks to the internet, millions of talented engineers in India, earning a fraction of their American counterparts\u2019 salaries, could now compete on equal footing online. They could interact with Wall Street bankers and Asian manufacturers, serving global markets as efficiently as anyone else. “The world is flat,” Friedman concluded after the meeting. Or so it seemed.<\/span><\/p>\n

Fifteen years later, the world appeared steeper than ever. Software and the internet had made communication more accessible and cheaper but also increased the value of close collaborations\u2014those that enable the transfer of tacit knowledge, which distance tends to compromise. Knowledge clusters, from San Francisco to Beijing, thrived, as did the services\u2014ethnic restaurants, nightlife\u2014that multiplied in these cities, attracting new residents and driving up property prices.<\/span><\/p>\n

Donut-Shaped Cities<\/b><\/h3>\n

It took the largest pandemic since the Spanish flu to once again declare that the world was flat. In March 2020, COVID-19 pushed people out of cities and made remote work a permanent feature of modern life. Drastic conclusions were quickly drawn. “The next Silicon Valley is everywhere,” wrote Derek Thompson in <\/span>The Atlantic<\/span><\/i>. Skeptics, however, predicted that cities would soon recover, returning to pre-pandemic levels.<\/span><\/p>\n

Today, we find ourselves somewhere between these two extremes. Our research, based on Mastercard consumer spending data for over 100 global cities, shows that although urban areas remained unstable for several years after the pandemic, they have now taken on a new configuration. We call this the “donut effect,” as urban centers have lost ground to the suburbs, taking on a ring-like shape. In numbers, we observed an average 15-percentage-point difference between consumer spending in city centers and suburban areas of major cities worldwide.<\/span><\/p>\n

Not all donuts, however, are shaped the same. Large cities with high remote work rates were more affected by this phenomenon, while smaller cities saw minimal changes. Did people simply pack up and move to other parts of the country or even the world? Partly, yes. In the United States, for example, significant relocations occurred (moving from California to Texas became a common choice), and a post-pandemic migration wave took place globally. However, our data indicates that three-fifths of those who left major American cities during the pandemic’s peak remained within the metropolitan area. It is likely that the same happened in other countries. This occurs because most people adopt a “hybrid” work model, requiring them to visit the office at least a few times a week, keeping them relatively close to their workplace.<\/span><\/p>\n

Cities Transform, Technology by Technology<\/b><\/h3>\n

New technologies have always had significant consequences for economic geography. In the 18th and 19th centuries, working from home was common; in the U.S., an early 19th-century survey showed that 40% of workers operated this way. The system involved bringing raw materials, such as textiles, to workers\u2019 homes to be transformed into finished products. Cities existed but were far less crowded than today\u2019s standards.<\/span><\/p>\n

As industrial production and office work grew, so did the benefits of agglomeration and, consequently, cities. Shipping and railroads enabled long-distance trade. Specialized industrial districts used advanced technologies to achieve economies of scale and export globally. In the 20th century, container shipping encouraged production fragmentation, while cars and mass transit systems were crucial for suburban development.<\/span><\/p>\n

And what about the internet and software? Edward Leamer and Michael Storper, in a famous 2001 article, highlighted that modern technology exerts opposing forces on the geographic distribution of economic activity. On one hand, it simplifies tasks. For example, many manufactured products rely on standardized components, enabling scattered production. The iPhone, for instance, is made of parts sourced from over 40 countries. On the other hand, when production becomes more specialized, tasks grow more complex, and coordinating between phases becomes harder, promoting greater concentration.<\/span><\/p>\n

Internet and software amplified both dynamics. From one perspective, the world seemed genuinely “flat”: global trade in goods and services increased from 25% of GDP in 1970 to 57% in 2010. However, “superstar cities” dominated the scene.<\/span><\/p>\n

The End of Superstar Cities?<\/b><\/h3>\n

The novelty of remote work emerges within this context. Before the pandemic, only 5% of working days in the United States were spent at home. Today, that figure stands at around 30% and has remained stable over the past two years. However, about three-quarters of workers involved follow a hybrid model. Thus, while knowledge-based jobs have partially shifted, they still require in-person collaboration to be productive.<\/span><\/p>\n

Even a partial return to the office for a few days a week can significantly change urban areas. Our data shows that since the pandemic began, nearly 5% of the population living in downtown areas of America\u2019s top twelve cities left. This phenomenon occurred in cities like New York and San Francisco, where a high proportion of knowledge workers can perform their roles remotely. These are also expensive cities, prompting workers to seize opportunities to move to areas farther from the center, where housing is more affordable. Conversely, smaller cities like Indianapolis in the American Midwest saw little change. During this period, much was made of the growth of so-called “Zoom towns”\u2014small cities that were expected to attract digital nomads\u2014but few materialized. Most people who left major cities stayed within the same metropolitan area.<\/span><\/p>\n

Not all large cities are alike: globally, the most significant changes occurred in those with high percentages of remote workers. For example, San Francisco experienced a more pronounced “donut effect” compared to Paris, which maintains a stronger office culture.<\/span><\/p>\n

Looking Ahead<\/b><\/h3>\n

New technologies will continue to reshape the geography of work. In their 2001 article, Leamer and Storper observed that “the problem with the internet” is that “it is a tool for maintaining relationships but not for creating deep and complex connections.” Yet patent applications for remote work support technologies are rising sharply. Augmented and virtual reality, though still immature today, may one day advance to the point where even a few days in the office become unnecessary, reducing urban density. Artificial intelligence already seems to lower the skill level required for many tasks, such as software development, potentially promoting greater decentralization of economic activities (see Edward Glaeser\u2019s article in this issue for more on this topic).<\/span><\/p>\n

However, like the internet, AI could create new types of jobs and increasingly complex tasks that are harder to perform remotely. It is worth noting that cutting-edge AI research remains concentrated in just three cities: San Francisco, London, and Beijing. Furthermore, urban centers are not only about coordinating work. People spend time and money on services like restaurants and sporting events, which are more enjoyable when shared and cheaper when concentrated in cities. Thus, while the function of cities may change, their relevance remains assured.<\/span><\/p>\n

Nicholas (Nick) Bloom is the William Eberle Professor of Economics at Stanford University. His research focuses on remote work, management practices, and uncertainty. He is a fellow of the American Academy of Arts and Sciences.<\/span><\/em><\/p>\n

Arjun Ramani is a Ph.D. student in economics at MIT. He was an economics and global business correspondent for <\/span>The Economist<\/span> and was shortlisted for the 2024 Wincott Foundation British Business Journalist of the Year award.<\/span><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

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