Millions of American workers engaged in Work from Home (WFH) during the pandemic. WFH helped us to adapt to the risk of disease contagion. Going forward, WFH will also helps us to adapt to the rising climate risks we now face. Given that global greenhouse gas emissions are likely to continue to rise as the world’s population and per-capita income grows faster than the decarbonization of the world economy (declining GHG emissions per dollar of GNP), the climate change challenge will grow more severe over time.
New climate risk modelling firms such as First Street Foundation and Jupiter are mapping the risks of flooding and fire risk that every land parcel may face over the next decades. Of course, these science based models cannot offer certainty about emerging risks but they do play a “Paul Revere” role in educating both firms and workers about new place based climate risks. You can type in any residential address here and First Street Foundation reports the property's expected fire risk and flood risk for free! Going forward, more and more property buyers will "do their climate risk homework" before making a large $ investment in a property.
Before 2020, only the super rich and senior citizens were “footloose” and able to move to an area solely based on its amenities (or on its absence of risk). The rise of WFH allows more and more American workers to live where they want to live as their daily commute to work is no longer looming over where they choose to live. In our recent past, the expectation that one would commute to work 5 days a week for 48 weeks a year pinned down a worker and her family to specific locations near the corporate headquarters.
Perceptions and concerns about emerging climate risks will influence where workers choose to live. Those who are risk lovers will actually be attracted to risky areas because property prices will be lower there! For those WFH eligible workers who are risk averse, their menu of locational choices will expand as they can live further from where they work.
While no two WFH workers are identical, climate change will influence their locational choices. For those WFH workers who are especially sensitive to air pollution, they will anticipate that elevated fire risk in the American West will create PM2.5 spikes during summer months. They will figure out how to avoid these areas at those times. For those WFH workers who are especially risk averse, they will be willing to pay more for housing in places where climate risk modelers predict that they face less risk. Those WFH workers with niche preferences for leisure and exercise will have increased opportunity to live where they can engage in their hobby and meet like minded people.
As different workers choose their own best “climate niche”, this will improve their mental and physical health and raise their workplace productivity. Surveys of young people have documented extreme ecological anxiety. The ability to choose one’s own favorite location that will be likely to attract like minded people will help them to better cope in the face of the new risks we face.
If WFH workers choose to cluster in relatively safer parts of the U.S that feature less extreme heat, less drought risk, less flood and fire risk then firms will have an incentive to locate their future HQ2s and HQ3s closer to these areas. Firms will benefit from lower turnover from less burnout and greater worker satisfaction. Firms that expect that workers will stay with the firm longer have a greater incentive to mentor and invest in such workers. Firms will use their corporate data on the location of their workforce and can use this information to decide where to open up HQ2s and HQ3s. An old idea in urban economics focuses on the “chicken and egg” issue of whether people go where the jobs are or whether jobs move to where the people are. In our emerging economy where more WFH are footloose, they will increasingly take into account the emerging climate risks and move to relatively higher quality of life areas. As firms see these spatial clusters, the leadership can open up HQ2s closer to these worker hubs to increase face to face interaction and to buildup the company’s corporate culture.
Some worry that the rise of WFH is elitist. As new WFH clusters form in climate resilient places, there will be an increased local service sector demand. This creates a local multiplier effect. Well paid WFH workers will need local teachers living nearby, dentists, repair people, and there will be jobs in construction. This increased local labor demand in a relatively high quality of life area featuring lower rents than in the Superstar Cities offers new opportunities for non-WFH eligible workers.
Today, more educated people are more likely to work in industries and occupations that are WFH “friendly”. If WFH facilitates adapting to climate change and facing less climate risk, then this creates an extra imperative for improving American education so that more young people can have the option to engage in WFH when they are older.
Before 2020, America’s most productive places were located in areas that face emerging risks. There are worries about flooding in New York City and wildfire risk affecting the American West. WFH accommodates our diversity. Millions of workers will have the personal freedom to live where they want to live and this will reduce their stress during a time of rising risk.
Matthew E. Kahn is the Provost Professor of Economics at USC and the author of the New Book Going Remote. This piece presents some ideas from his new book.
A Postscript: Back in 2016, a prominent University of Chicago economist (who does not have a PHD from Chicago!) told me that snowstorms disrupt Chicago's productivity. I countered that I bet that he is even more productive on those days because he didn't go to work and nobody bugged him on such a day. He just looked at me. Flash forward to 2022 and I am even more confident about my 2016 comment. The WFH option is now available to more and more highly educated people and they can "reoptimize" when a day turns out to be nasty to still be able to "seize the day" and get work done. Of course a snowstorm can disrupt a dentist appointment but for more and more of the key tasks in the modern economy, these can be done "anywhere" and a footloose population will each make decentralized decisions for how to make the best of that day before the weather goes back to normal. The reduced form empirical researcher then observes that the same Chicago snowstorm causes less economic damage and this is the empirical benchmark test that adaptation is taking place! Mother Nature's punches cause less damage over time in an economy enjoying adaptation progress.