The economic impact of returning to the office

The last 6 months have been turbulent to say the least, and it appears that this turbulence will remain with us for the foreseeable future. The prevailing narrative around the COVID-19 pandemic seems to be quite a negative one; this is particularly true of the financial impact of the pandemic with words like ‘recession’ making frequent appearances in the media. Measuring the true economic impact may not be possible at this stage, however PricewaterhouseCoopers (PwC) recently published a report summarising some of the key financial implications of working from home and returning to the workplace. Following is a brief outline of some of the main points raised in the report, you can download the full report by following the link at the bottom of this page.

COVID-19 has uprooted workers from the office to their homes

 

– Almost overnight, COVID-19 transformed the working patterns of UK workers, with almost half of all people in employment in the UK doing some work from home in April 2020.

 

– The service sector, which accounts for approximately 80% of UK GDP, had to suddenly adapt to empty offices with nearly four out of five employees working from home in powerhouse sectors, such as professional services.

Key findings

 

 

– Compared to a scenario in which office-based workers eventually return to working in the office (WIO), a scenario in which they continue to be universally advised to work from home (WFH) could see the UK’s GDP being £15.3bn lower per year. This could be attributed to:

 

     – lower spending on goods and services when working from home both directly, through supply chains (‘indirect impact’) and through lower incomes for workers in affected sectors (‘induced impact’)

 

     – loss of clustering benefits between businesses and between workers.

 

 

– PwC also estimates that the negative impact on hours worked is equivalent to 250,000 jobs per year in full time equivalent (FTE) terms.

 

– However, the shift to WFH could have positive implications for labour productivity and the ‘levelling up’ agenda. Workers who used to work in inner-city offices can bring more economic activities to the suburbs and rural areas. Cities that heavily rely on office workers may need to diversify and adapt.

 

– Flexible working is important. Existing research suggests that workers and firms are most productive when they are given flexibility to choose the most suitable working style that meets their individual needs given critical factors such as home-working environment, children, privacy, age and job seniority.

 

While research shows that mandatory working from home initiatives has had a negative impact on the UK economy, some studies in specific sectors and workplaces show that having the option of working from home could boost overall productivity. Research also highlights that some workers, having experienced working from home, favour the greater flexibility and improved work-life balance it offers, but some others have struggled with loneliness from the lack of social interaction with colleagues. In the long term, a flexible model would also allow businesses to benefit from lower operating costs, though at the expense of any gains from employees being on-site.

Working from home spending

 

While research suggests that working from home has a negative impact on the UK economy, some studies in specific sectors and workplaces show that having the option of working from home could boost overall productivity. We also observe that some workers, having experienced working from home, favour the greater flexibility and improved work-life balance it offers, but some others have struggled with loneliness from the lack of social interaction with colleagues. In the long term, a flexible model would also allow businesses to benefit from lower operating costs, though at the expense of any gains from employees being on-site.

 

Office workers reported that their weekly spending is lower when working from home compared to their own estimates when working in the office. This matters for ancillary workers (such as cleaners, security guards and restaurant workers), whose jobs rely on office workers being physically present in the office. We found that lower spending that is associated with a persistent shift to working from home could have a negative impact on UK GDP of around £12bn and on hours worked that is equivalent to 250,000 jobs (FTE) per year.

 

Office workers plan to reduce their spending most in the sectors that have the largest impact on UK jobs and GDP. Retail, hospitality and leisure are the sectors that are expected to see the greatest reduction in spending compared to February. For instance, annualised spending on retail trade was around £2.2bn less in August and September than it was in February. Retail has a very UK-based value chain and labour force: if this situation is projected over a longer term, UK GDP could be £2.6bn lower per year. Lower retail spending could also put the equivalent of 64,000 jobs (FTE) at risk.

Potential productivity benefits from WFH


Working from home removes the need for employees to travel to the workplace which not only reduces travel costs, but can increase the number of hours employees work if they spend the time
they would have otherwise spent on travelling, on work. A number of studies have also found that employees report getting more work done from home.


According to a 2014 report by the Centre for Economics and Business Research (Cebr), a shift to a flexible working environment could potentially add an extra £11.5bn per year to the UK economy through the more productive use of available working hours, the equivalent of 0.7% of GDP.


Working from home and flexible working cultures may also have the potential to encourage economically inactive or unemployed individuals to return to employment, which could potentially boost GDP by up to 4.7%, according to Cebr.


There are potential indirect impacts on productivity from working from home. A number of surveys have found that at least 40% of respondents feel that working from home has allowed them to achieve a good work-life balance and be more flexible with their time. This can have knock-on effects on productivity with research showing that higher employee wellbeing is associated with higher productivity.

 

Similarly, the lifestyle benefits that can stem from working from home and a flexible working culture can increase job satisfaction and employee engagement which, in turn, can improv performance at work and reduce attrition

Looking to the future…


Businesses will need to be agile to maximise the benefits from both home and office working. COVID-19 has ushered in new and permanent ways of working. Capitalising on the benefits of any shift to working from home will involve putting employees at the heart of business plans. Moving to new ways of working will be disruptive for regions that rely on office workers being physically present. But there are likewise substantial gains to be made from returning to the office. Understanding the benefits of both home and office working will allow policymakers and businesses to make informed decisions about the future of work. 

One of the lasting effects of COVID-19 is that working patterns will become more flexible, particularly for office workers.
Seven in ten professionals would prefer to work at most two days a week in the office going forward, but only a quarter would want to do so full time. Employees will expect businesses to allow for continued home working as well as the option to work in an office

One of the biggest gains to employees of working from home is the time saved commuting. The average commuter would save 47 days per year from working from home, of which they would work on average an extra 21 days. As well as having extra time to work, employees are more productive if they have a good work-life balance. But employers should be aware of newer employees who have the most to gain from being physically present in an office.

The shift to greater working from home has the potential to redistribute economic activity away from cities and suburban and rural areas. Regions that are targets of the government’s levelling up agenda have the most to gain. Cities that heavily rely on office workers will need to diversify and adapt to more remote working patterns. 

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