Sunday, January 09, 2022
How WFH averted a bigger economic catastrophe
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt. Not to be reproduced without permission.

We have reached an interesting point in the pandemic, with huge case numbers and a high proportion of infected people in the population, though alongside more reassuring data on the most seriously ill with Covid.

We have also reached the point where one of the most important economic and practical impacts is absenteeism as a result of illness or positive tests. Covid is not flu, but this calls to mind previous flu pandemics, such as the Hong Kong flu which hit the UK in the late 1960s and early 1970s.

That flu pandemic was serious, killing up to four million people worldwide and many tens of thousands in the UK. But one of its most notable effects was on the workforce. When you contracted the flu it was not possible to work, so bus and train timetables had to be reduced to accommodate driver shortages, deliveries were delayed and the NHS had to cope with flu admissions with many of its own clinical staff laid up with it.

There were no lockdowns in flu pandemics, including Hong Kong flu, and the absenteeism it caused did not register in the economic data for the period, unlike Covid-19, which broke statistical records, including the extent of the slump in the economy when it first hit in the spring of 2020.

Fifty years ago, when we were grappling with a nasty flu pandemic, a workplace was a workplace for the vast majority of people, whether it was in a factory, office, shop, building site or train cab. Working from home was unusual and would probably have been regarded as a euphemism for skiving. Some older folk have not moved beyond such attitudes.

Not everybody can work from home even now. The Office for National Statistics suggested that the proportion got close to 50 per cent in periods of 2020 and 2021 but never beyond it.

People have mixed attitudes to working from home. Some people got heartily sick of it. Those running sandwich shops, cafes, wine bars, restaurants and dry cleaners in city centres, as well as public transport operators, cannot wait to see the back of it, though I suspect that now the box has been opened it will not easily be closed.

We are not in lockdown in the UK and I am sticking to my pre-Omicron and pre-Tory rebellion forecast that we will not see another one. We are, however, in “Plan B” in England, with slightly different restrictions elsewhere in the UK, and part of that plan is that people should work from home when they can. As I know from personal experience, some people are working from home even when they have tested positive for Covid. The extended Christmas and New Year break clouds the data but the evidence from rail and Tube use, both of which dropped sharply after the government moved to Plan B, is that many people have adopted the official guidance.

A new research paper points out that, despite its drawbacks, working from home has been of significant economic benefit. The economic declines of 2020 were massive, but they would have been bigger, in some cases much bigger, in the absence of working from home.

The paper, ‘”Potential Capital” - Working from Home, and Economic Resilience’, by Janice Eberly. Jonathan Haskel and Paul Mizen, is published by America’s National Bureau of Economic Research (NBER), and highlighted in its latest research digest. Haskel is a member of the Bank of England’s monetary policy committee.

“The Covid-19 pandemic caused a widespread decline in recorded GDP [gross domestic product],” the paper says. “Yet, as catastrophic as the collapse was, it was buffered by an unprecedented and spontaneous deployment of what we call “Potential Capital,” the dwelling/residential capital and connective technologies used alongside working from home.”

People had homes from which they could work, in other words, their “residential capital”, and they also had home computers and laptops and broadband, which enabled them to carry on working. In most cases, certainly in the early stages of the pandemic, this equipment was provided not by employers but by workers themselves, having been acquired for non-work purposes such as entertainment, online shopping, or children’s homework. Had this not been the case, and we were still living in a pre-broadband world, much working from home would have been difficult, if not impossible.

The concept of potential capital is an interesting one. Before the pandemic and working from home, much of the equipment we have at home was under-used. A classic example of under-used capital is the private car, which spends most of the time parked, and is typically used for only 5 per cent of the time.

As it was, the effects of using this potential capital by working from home were dramatic. The paper examines America, the UK, Germany, France, Japan, Spain and Italy. The biggest negative effects of the pandemic were in the second quarter of 2020. In the case of America, working from home almost halved the drop in GDP, with similar effects in several other countries. In the UK, the record 19 per cent fall in recorded GDP in the second quarter of 2020 would have been at least a third larger without home-working.

In the spring of 2020, when lockdowns were new and very strange, we were just finding our feet when it came to working from home. We got better at it, the technology improved, including improved ability to hold online meetings and conferences, and firms moved to fill the technology gaps faced by some of their workers. Working from home was a significant contributor to the milder economic effects of subsequent lockdowns.

We should give credit where it is due. Working from home is not for everybody, and impossible for many, as noted, but it was an example of successful adaptation in difficult circumstances.

It is also, in all probability, here to stay. The paper points out that firms may want to bring more workers back when the pandemic eases as do the costs associated with it; distancing in offices, screens, testing and sanitisers. But there is unlikely to be a full substitution of home-working for workplace-working, the authors conclude. Remote working, at least for part of the time for many people, looks to be here to stay, and will be a legacy of the pandemic. Production “at home” will never be fully reversed. That, given its positive effects may be no bad thing.