A recurring theme in the good debate that has been had since the launch of our Office Politics report last week has been the question of whether it’s right for the Government to interfere with the choices of individual workers. As is the case with any economic problem, this comes down to whether there is a wider impact, positive or negative, from the actions of individuals that policy needs to deal with. And in the case of office working, research suggests the answer is yes.
There are two issues for policy to act upon. The first is the ‘positive externality’ that arises from workers in knowledge-based industries interacting face-to-face. This sharing of ideas and information boosts creativity, innovation and on-the-job learning. While the evidence of the impact hybrid working as a result of the pandemic is in its infancy, there is some emerging work to suggest that the shift to much greater remote working is having the negative impact the long established literature would suggest.
The second is a coordination failure between businesses. If there is a productivity hit from fully remote and hybrid working, then businesses should want their workers back in the office. There have though been few businesses that have been outspoken on this, with the belief being that, while employers do want workers back, bosses are unwilling to rock the boat in a tight jobs market.
These two reasons mean policymakers should take a more active position on the great return to the office debate, and not passively let a public health emergency turn into a longer-term negative impact on the economy. But what should they do about it?
Firstly, they should be very cautious of policy being overly influenced by the short-term nature of the debate on home working, as this could come at the cost of longer-term prosperity by inadvertently undermining agglomeration benefits. One area is the belief that demand for public transport will be forever lower because of hybrid working. But delaying long-term decisions on further investment today in the belief based on short term evidence that demand will be permanently lower stores up problems for tomorrow. Another area is how land is used in city centres. A rush to convert commercial to residential space, or a refusal to build new commercial space, in the belief that demand for commercial space will be permanently lower will be very hard to reverse if this does not come to pass (and the data to date suggests this to be the case).
There are a number of decisions to be made to make an immediate impact too, and there should be two strands to the approach taken by those who, we hope, read our report. The first is to boost the benefits of agglomeration by helping to overcome the coordination problem between businesses that is reducing in person conversations. To do this, both the national government and – in the Capital’s instance – the Mayor of London should now work with businesses to encourage an increase of the minimum number of days expected in the office. Specifically, the Mayor launching an equivalent to his ‘Let’s Do London’ post-lockdown campaign to encourage workers back to the office more frequently. Alongside this, the Mayor of London should also establish a Productivity Advisory Council (akin to the Chancellor’s Economic Advisory Council) made up of businesses to feed in the impact of hybrid working and other issues on the productivity of the Capital.
The second strand should aim to minimise the costs to the worker of going to work, with the clearest way to do this being through transport. There are two things that can be done:
- Local and national government should maintain the frequency of existing services during peak hours so as not to extend commuting times. This includes bringing the on-going industrial action on the railways to a conclusion.
- Reduce fares. The scope to do this is likely to be limited given the impact of the pandemic on transport revenues. But an option in London would be to temporarily remove peak morning fares on a Friday, the quietest day of the working week. In order to reduce the chance of workers simply swapping their days rather than commuting more this discount should apply to only those people who have travelled during peak time at least 3 days already that week. If this caused a substantial increase in ridership it could ultimately boost revenues, rather than costing money.
For knowledge jobs in particular, workers who share a physical space have a positive impact on one another by helping each other to do their jobs. This externality means that there is a role for policy in encouraging a further return to the office. And because of the probable productivity impacts of not doing so, it is a role it should now actively take up.
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