A Recession Could Kill the Work-From-Home Revolution

Sign up for Derek’s newsletter here.

Sometimes a trend that seems inescapable turns out to be a fragile creature of circumstances. For example, throughout the 2010s, a fleet of consumer technology companies took on venture capital to provide subsidized services, including Uber and Lyft for ride-sharing and DoorDash and Postmates for food delivery. As I wrote about this month, these companies benefited from a low interest rate environment, in which investors were hungry for companies with global ambitions to burn cash and grow. Then the party was over: interest rates rose with nominal wages, investors demanded profits, and now an Uber by the end of the block costs around $100.

Recently, I wondered if the work-from-home revolution might suffer a similar fate. Clearly, the pandemic and rapid economic recovery have helped remote work in several ways. The coronavirus has shuttered offices and the ensuing tight labor market has empowered workers to quit their jobs, fight for more money and reject the purgatory tradition of a daily commute.

But just as the Uber revolution for everything hinged on a specific set of economic conditions that were changing very rapidly, remote work could be susceptible to rapid economic changes.

To understand where I’m coming from, you unfortunately have to talk about the US economy, which isn’t very fun. Inflation clings stubbornly to a 40-year high and nominal gasoline prices are at a record high. The Federal Reserve is trying to calm demand by raising interest rates, even as energy prices rise largely due to global factors, such as the war in Ukraine that is restricting oil supplies. Although a slowdown is not inevitable, the Fed risks destroying demand so much that the United States will slide into a recession within the next year or two. And even if growth does not turn negative, higher interest rates will almost certainly lead to less investment, less growth, layoffs and higher unemployment.

In the near future, therefore, management may regain the upper hand over work, as the Great Resignation becomes the Great Labor Slowdown. Company culture will look more like what bosses want than what workers want – and that could mean a lot more butts in seats. According to surveys by Stanford economist Nicholas Bloom, nearly 80% of employees say they prefer to work from home at least one day a week. But managers are pretty much split on whether remote workers are as productive as office workers.

We already have small glimpses of how a gloomy economic situation could burst the WFH bubble. Several weeks ago, Elon Musk told his employees to return to the office or risk losing their jobs. It initially seemed like a simple threat from an eccentric CEO with a passion for closeness in the office. But days later, Tesla announced it would likely have to lay off 10% of its workforce, suggesting Musk was using the threat of returning to the office to get some of its employees to resign on their own, without the indignity of announce a big layoff.

This morally dubious playbook is widely available. Several tech companies, including Apple, have tried (and in some cases abandoned) a version of this stealth layoff strategy, according to investor Jason Calacanis. “These companies are too proud to lay off, so instead they say, ‘Come back to the office or quit!’ “” Calacanis told me on my podcast, pure english.

Real estate billionaire Stephen Ross explained the flip side of this dynamic, predicting that just as employers can use a back-to-work policy to entice workers to quit, workers can come back to win the affection of their bosses before the start of layoffs. “Employers were somewhat hesitant because they didn’t want to lose their employees,” he said. Bloomberg. “But I think when you go into a recession and people are worried about not having a job, it will bring people back to the office. You have to do what it takes to keep your job and make a living.

Remote work is not just a macroeconomic development. It is a cultural trend which, like all trends, is sensitive to backlash. Here is a story one could tell that would result in the erosion of WFH standards. In companies without a sophisticated remote work culture, many young workers are already finding themselves adrift. In a recession, more offices could bring these young workers back to the office. As they build skills around each other and feel their fortunes rise, a skeptical WFH movement could be forming among Gen Z, who could take this opportunity to indulge in their favorite pastime. : the brazen generational war. Younger workers were making viral TikToks about how older workers looked like shit all day, wandering from their beds to their sofas. WFH is for chunky millennials and Never leave your house, it’s a bit pathetic! would be the general idea. The fact that remote work may be the hardest for the most socially active demographics could lead to some unpredictable places.

Despite all of this, I’m not ready to confidently predict that a recession will kill the remote work revolution, for three reasons. First, millions of knowledge workers clearly prefer telecommuting so deeply that it would take something much stronger than a recession – doubling their wages? an act of God? – to get them to add a trip to their daily schedule. Second, recessions lead to bankruptcies, especially among companies with messy cost structures (like, say, paying through the nose for offices you never use). As older, pro-office businesses die, younger businesses, working from anywhere, could grow to fill their space. In this scenario, remote work would not disappear during a recession. It would move forward, one corporate funeral at a time.

Third, from a purely mathematical standpoint, the most rational thing for a zombie office company to do during a recession is to cut back on office-related expenses. “Reducing office space and going entirely remotely saves money for many companies,” Adam Ozimek, an economist and remote work advocate, told me.

The slowdown, if it occurs, will be a stress test of an emerging phenomenon. Remote work flourished when the pandemic was raging, when managers were desperate to cling to employees, and when white-collar workers knew they had the power. The question is what happens when some of these tailwinds weaken. “Some employers will respond to a downturn with a return-to-work plan,” Ozimek said. “Some might be happy that 20% of the workforce is leaving. But others might be really protective of their top talent and bend over backwards to keep them.

.

Leave a Comment