Home economics

‘Working from home, previously often seen as a luxury to which not many workers had the right, has suddenly become the new normal. With workers across sectors grappling to be productive in the face of the new challenges, the impacts of the new work model are beginning to crystallise’

Time spent on “typical” workday by men and women working from home in April 2020. (Adams-Prassl, A., Boneva, T., Golin, M., & Rauh, C., 2020, “Inequality in the impact of the coronavirus shock: Evidence from real time surveys”)

Before the coronavirus hit, the labour market was already going through two major changes: the rise of the gig economy and the replacement of workers by robots and algorithms. The gig economy, hailed for its flexibility, has been exposed during the pandemic due to its lack of protection during downturns. Automation, on the other hand, was considered more of a long-term threat leading to the emergence of policy proposals such as universal basic income, passionately advocated by Andrew Yang until he dropped out of the Democratic candidate’s race in the US.

When the coronavirus pandemic swept across the world, there was a third major change to the labour market. Workers fled their office buildings to install themselves in their home offices. In the US, for instance, before the crisis, fewer than one in ten workers worked from home regularly. Under lockdown measures more than a third of the workforce began doing so. What was previously often seen as a luxury to which not many workers had the right has suddenly become the new normal. With workers across sectors grappling to be productive in the face of the new challenges, the impacts of the new work model are beginning to crystallise.

One of the largest challenges of working from home is likely to be temporary. With schools and nurseries shut, fathers and mothers have been struggling to balance putting in enough hours for their job while at the same time not only taking care of their children, but also home schooling them. The burden, however, seems not to have been shared equally. The figure displays the average amount of hours mothers and fathers working from home reported spending on childcare and home schooling on a weekday in the US, the UK, and Germany. In all three countries, women might not be completely surprised to learn, working women spend more time not only caring for their children, but also home schooling them.

Not only have women been more likely to lose their jobs during the pandemic, but they also have been more likely to be furloughed in the UK. Actually, anybody with children, irrespective of gender, has been more likely to be furloughed. At first glance, the possibility of stalled career progression for the furloughed might seem less concerning as the idea behind the scheme is that the furloughed employee returns to work once reopening progresses and the economy recovers. This optimism might, however, be unfounded. It might turn out that many furloughed workers never return to their jobs, which would also defeat the purpose of the scheme in the first place. Furloughing might be the first step out the door.

Some schools have already begun reopening and others will follow. Does that mean we can forget about the inequalities that came with this interim episode of hardship? Unfortunately, the answer is no. Being out of work leaves permanent scarring on workers’ careers. During “idle” time one does not learn on the job and misses out on promotions. As a consequence, working less is associated with lower earnings and employment for the rest of one’s life and these impacts increase with the time spent out of work. Therefore, the current pandemic puts advancements in women’s labour force participation and reductions in the gender pay gap, which have been achieved over the last decades, at risk. If women now face lower wages and fewer job opportunities, the current crisis is threatening to become the great reversal.

For those who are lucky enough to still be in employment, working from home is likely to become a more permanent feature of their routines. Having experienced how much can be delegated to telework, some firms have already announced that they want to permanently rotate part of their workforce coming into the office so that they can cut down on costly office space. Of course, some jobs simply cannot be done from home. It is hard to imagine how, for instance, a retail clerk can provide their services from their living room. But for other jobs one can picture a large share of the tasks being done without coming in to the office. An architect, for example, can design a blueprint and discuss details by phone and email from home. And maybe one day, site inspections will be done by drone.

Share of workers that can do all tasks from home by occupation. (Adams-Prassl, A., Boneva, T., Golin, M., & Rauh, C., 2020, “Work That Can Be Done from Home: Evidence on Variation within and across Occupations and Industries”)

These changes are already happening in the short run. It appears that during the pandemic, over the short period of two months from March until May, in some occupations more workers reported being able to do all of their tasks from home. These increases are largest in those jobs in which already many workers reported being able to do all of their tasks from home. This is important for two reasons. Firstly, workers are learning how to adapt to the new challenges, and firms are making investments and putting the infrastructure in place for workers to be able to adapt. Secondly, this process of learning and adapting does not seem to be possible for all jobs. Moving forward we are likely to see polarisation in the job market between the jobs that can be done from home and the jobs that cannot. The fact that the former tend to be more in the possession of the highly educated shows a dimension along which this crisis will continue to shape inequality moving forward.

With so many people out of work and jobs disappearing, new jobs will have to be created or we will face persistently low rates of employment. Automation was already making some workers obsolete before the crisis. There are multiple reasons for firms to accelerate the process of replacing humans with robots and algorithms in the near future. Robots and computers do not need to adhere to social distancing rules. They do not require sick-pay leave and other job protection schemes, all of which gained traction during this pandemic and proved costly. And one major cost component of shifting to automation is the firing cost of the workers one wants to replace. Many firms already have paid this cost and thereby paved the way for machines to take over. Of course robots and algorithms need to be programmed and monitored but these are highly specialised jobs and will only be a drop in the ocean compared to the jobs lost. The transition will expose a skill-mismatch leaving many new university graduates without jobs.

Any new jobs that will be created will suffer from a tension between what firms want to offer and what workers are hoping for. On the one hand, traumatised by the crisis, workers will fear job insecurity and lack of contractual protection. On the other, firms will be reluctant to hand out permanent contracts given the uncertainty ahead. Many European economies will face great challenges given the stark distinction between temporary and permanent contracts. The well-intended protective motive of a permanent contract might become a gatekeeper for those looking for jobs. The consequences can be counterproductive for both workers and the economy as a whole.  Workers, in particular young ones, might get caught in a loop of temporary jobs leading to many disruptions in their career progression.

The economy as a whole can suffer if the massive reallocation of talent is distorted. The most able and creative minds might put all their efforts into securing public sector jobs as has been happening in Spain and Italy since the Great Recession, as these jobs are perceived as a safe haven in difficult times. Other workers will be reluctant to switch jobs because a new job can feature an initial period in which it is costless for an employer to terminate the contract. Similarly, firms might shy away from hiring women if they fear having to chip in during maternity leave. In good economic times these fears might create less frictions. In hard times, cost-cutting becomes a mantra. The mismatch in the willingness to take on risk by firms and workers should put pressure on policymakers to think about more gradual transitions between temporary and permanent contracts. The binary nature is not up to the challenge.

The US economy presents the other extreme. A permanent contract provides little job protection which led many firms to shed workers very quickly at low costs. The flip side is that during the recovery, firms will be more willing to advertise permanent positions as these do not tie the employers’ hands. We should, more than ever, be thinking about how to provide job security and public insurance. With the tectonic shifts happening in the job market, we need both firms and workers to take on risk.

Relying solely on the market would force governments to respond with improvised policies during severe downturns as we are seeing now. The additional unemployment benefits the US rolled out are disincentivising the jobless to take up work and the furloughing scheme in the UK is forbidding capable workers from partially producing and serving customers. Both of these examples were probably well-intended policies and did manage to address some urgent issues at stake. But anything plucked out of thin air rarely ends up being optimal. Once in place, these generous benefits are hard to withdraw and their removal will bring disruptions with them.

In the long run, neither an excessively generous social safety net nor a cutthroat market economy will motivate firms and workers to take the big leaps of uncertainty that the much needed reallocation requires. Too much safety will make firms and workers complacent, while too much risk exposure will make them apprehensive. This recession proves once more that we need well-designed policies crafted with foresight, rather than reactive patchwork-policies, to address the challenges of the changing landscape of work.