Ontarians on the Move #7 — Telecommuting Could Help Ontario Workers and Communities… It Could Also Destroy Them.

PREVIOUS ENTRY: Ontarians on the Move #6 — Somewhere Jobs, Anywhere Jobs, Rise of Metros and Coronavirus.

TL;DR version: A telecommuting boom could bring talent back to the mid-sized cities of Ontario, as families flock to those communities in search of more affordable housing. But there are several other potential futures, including an exodus of white-collar jobs offshore, similar to what the province has experienced in manufacturing. Instead of strengthening middle-class families and communities, telecommuting could hollow them out.

I’m grateful for all the attention my previous piece, on Somewhere Jobs, Anywhere Jobs, Rise of Metros and Coronavirus received. Emails, tweets, media interviews — it’s been absolutely wonderful. So many of us are looking for reasons for optimism for Southwestern Ontario, and the piece provided it.

In case you missed it, here’s the basic argument of the piece:

• There’s always been “somewhere” jobs — the kinds of jobs that need to be performed in a specific location. That’s not new.
• But this is new: The types of “somewhere” industries that have been growing for the last couple of decades — finance, tech, etc. require a large pool of talented workers. So they tend to be located in large cities of a million-plus people. (Think places with NHL teams). So workers in those industries have to live in those cities.
• That effect is amplified by the fact that typically it isn’t people but rather families that make location decisions. Doors have been opening for women (albeit far too slowly) in “somewhere” occupations.
• As long as one member of a couple has a “somewhere” job, they end up living in a big city. Across Canada, the United States and parts of Europe, this has caused a migration of talent to large cities, at the expense of mid-sized and smaller communities (so long as they aren’t next door to a big city).
• A telecommuting boom could change all that, turning “somewhere” jobs into jobs that could be done anywhere. This could cause families to move out of big cities and to smaller communities, in search of more affordable real estate.

I can see why the idea is so attractive to people — there’s a whole lot to like about that scenario. Congestion pressures are reducing in our biggest cities. Talent is better spread out across the province. Real estate pressures diminish in Toronto, making housing more affordable for the people who wish to stay. Commuting times are diminished, if not eliminated, giving people more time to spend with their families. Traffic and pollution (including GHG emissions) are reduced… though if people are routinely driving long distances to Toronto now to go to Raptors games, that might be offset somewhat. Not everyone wins in this scenario; I’d hate to own commercial real estate in this world. Some of the benefits are likely captured by firms, who can offer lower wages now they have access to a larger pool of talent, but that still could be a good deal for families, as reduced wage growth is more than off-set by a lower cost of living. And as Jim Stanford points out, there’s all kinds of workplace safety and work-life balance issues to sort out. But, overall, it’s an attractive scenario.

I worry, though, that people took the piece to be a prediction. It isn’t — I’m not in the forecasting business. It’s only one possible future of many. In fact, I’d wager that we’re more likely to see some other future emerge (but, again, I’m not in the forecasting business). The reason is simple: There’s a bunch of other potential futures, and I don’t think any of them individually has a 50%+ chance of occurring.

Here are a few other potential futures — this is not an exhaustive list, so if you have any I’d love to hear from you.

Potential Future #1: Telecommuting never really catches on.

This is an obvious potential future. We’re undergoing a massive worldwide experiment in telecommuting right now. But it’s an uncontrolled one, with a bunch of other changes occurring at the same time. Productivity levels for companies are almost certainly down, but how much of that is due to the loss of childcare? 50%? 100%? 150%? I don’t see how we’ll disentangle the impact of each.

I suspect people’s belief about the likelihood of telecommuting catching on is proportional to their ability to be productive during this crisis. I’m desperate to get back to the office, which is no doubt affecting my thinking that there’s a good chance the new normal looks a lot like the old normal.

Potential Future #2: Telecommuting does catch on, but it turns out to be a bad idea for firms.

It’s been a while since I took a general management class, but there’s two things I remember well:

1. Most new ways of doing things end up being failures.

For every change that enhances productivity, like the assembly line, there are dozens that are tried and discarded because they simply didn’t work in practice. That’s the nature of innovation.

2. Bad ideas can persist in the business world for a surprisingly long time.

Open-plan office spaces almost certainly reduce productivity and firm profits. But they’ve been widely adopted for decades.

So this scenario, at a macro level, doesn’t look that much different than a scenario where telecommuting helps companies. At a micro level, things look much different, with the practice being widely adopted despite being harmful to profits, as a form of herd behaviour. (see A Simple Model of Herd Behavior). Those that can buck the trend in this potential future are better off.

(Again, a reminder, these are not predictions — I don’t know if telecommuting will increase or decrease firm profitability, these are just possible potential futures.)

Potential Future #3: The nightmare scenario. Anywhere actually means anywhere.

Working from home seems nice, but a bit boring. If I can work from home, why I can’t I work from a café in Paris or a beach in Thailand?

Which then leads to the terrifying conclusion: If I can do my work from a beach in Thailand, could it not be performed by someone who has never left Bangkok?

If we think teleworking is going to really catch on, we had better have some really good answers to that question.

The obvious answer is “quality of work”. The history of manufacturing of offshoring in manufacturing is instructive here. The first stuff to be offshored (or be challenged by foreign competition) was typically the forms of manufacturing that required the least amount of training and capital. A learning-by-doing process emerged, and workforces became able to perform more complex tasks and move to higher value-added forms of manufacturing.

How confident are you that companies won’t move jobs to countries where wages are 1/10th the Canadian level and labour laws are far more lax?

Since the 1950s, globalization has seen blue-collar job activities (including forms of pink-collar manufacturing, like textiles) shift from high-wage to low-wage countries. The impacts of this can (and has) filled a book, but in summary:

• Reduced bargaining power for blue-collar labour in developed countries, which has reduced the clout of private-sector unions and put downward pressure on wages. In the United States, real wages for men have been unchanged since 1970, and for lower education levels, has fallen.
• Increased profits and power for corporations, as they have the ability to location-shop and play governments off of one another.
• Increased inequality in most developed countries.
• Decreased global inequality, as wages in less developed countries rise. Some countries have been able to use this process to become developed countries. South Korea is a prime example.
• Downward pressure on the price of manufacturing goods. Televisions are a whole lot cheaper than they were in 1970.

It’s not that manufacturing has disappeared in developed countries. It’s still quite robust in Canada, but it’s far more specialized than it was 30 or 20 years ago. But it’s employment footprint and size (as a percentage of GDP) is far smaller.

Why wouldn’t we expect the same offshoring process to take place for white-collar jobs that we saw for blue-collar jobs, with teleworking helping escalate that process?

Occasionally, I’ll hear someone suggest “time-zones”. But isn’t one of the benefits of teleworking that people can work more flexible hours? And are we sure if we went to bookkeepers in Chennai and asked “we’ll double the salary you’re making now, but you have to work the night-shift” that nobody would take that offer?

In short, it may be that teleworking helps moves jobs to Delhi, India rather than Delhi, Ontario.

That said, there is another, more optimistic scenario.

Potential Future #4: The optimistic scenario. Anywhere doesn’t actually mean anywhere.

The basic argument goes like this: That “pure-play” telecommuting models are unlikely, but rather hybrid approaches where people work from home (or from local WeWork-type setups), but people would still need to go in the office from time to time for meetings and to work on specific projects. The at-location visits could be once a month, once a week, or once every other day. But they occur often enough to make offshoring those jobs a non-starter.

This strikes me as a highly plausible (though not necessarily likely) potential future. I think we’d have to think through why a hybrid approach would be needed, and what are the tasks that require in-person interaction. This has big implications for the type of office space needed — if the in-person interactions are mostly meetings, then a model could emerge where companies are largely virtual and rent out meeting space on a as-needed basis. The answer, of course, would likely differ from industry to industry.

This looks a fair bit like the potential future described in on Somewhere Jobs, Anywhere Jobs, Rise of Metros and Coronavirus, though people can’t move too far away if they’re regularly commuting in. Office locations would still need to be in a central location (which likely means near big cities), but with a workforce spread throughout a region, downtown offices become less attractive and those near highways become more attractive. The environmental gains are reduced, if not eliminated, as workers are choosing to live quite far from work and taking long commutes when needed. But downtowns of big cities become less congested and real estate becomes somewhat more affordable.

So there’s four potential futures. I’m sure there’s more. I’m not in the predictions business, so I can’t say which one will happen. But we should be prepared for each, as any one of them would be transformative for Canadian society.