Remote or hybrid work has become the new normal for millions of people. We are only just starting to see the impact.
4 min
The fivefold increase in working from home ushered in by the pandemic is perhaps the largest change to hit U.S. labor markets since World War II. It has touched just about every manager in America, reshaped industries including real estate and business travel, and led to an exodus from city centres to the suburbs.
And working from home is here to stay—at least in a hybrid model where a commute to the office is limited to just a few days each week. Tracking detailed survey data, we see working-from-home levels were rapidly dropping from 2020 to 2022. But by early 2023 they stabilised and have remained flat ever since. Hybrid working has become the new normal for millions of professionals and managers across America.
So, it’s time to tally up the impact. Looking ahead to 2024 and beyond, who are the biggest winners and losers from the work-from-home revolution?
The biggest losers are likely city-centre office and retail property owners. The massive shift to home working has created a doughnut effect in major cities around the world. Millions of employees are no longer commuting every day, leaving many offices half-filled and retail stores struggling for customers. The owners of this real estate—often pension funds, family firms and endowments—have collectively lost hundreds of billions of dollars of investments.
In the long run, the sector will slowly recover as supply contracts. New construction has slowed, some empty buildings are slowly being converted to residential accommodation, and some lower-quality offices will be torn down. But recovery will take years to complete. Winter has come for the office sector. One forecast that a major leasing company shared with me was it would take until 2033 for occupancy to recover to pre pandemic levels in San Francisco—perhaps the hardest hit city.
Another loser has been mass-transit rail systems. Ridership has dropped by 30% nationally as commuters shift from a five-day commuting schedule to two or three days a week. These commuter rail systems have high fixed costs due to inflexible track and train costs, alongside rigid union-controlled labor expenses.
Large drops in ridership revenue translate into larger budget deficits. To date these deficits have been bailed out by pandemic-era federal and state subsidies. But the fear is unless public transit costs can be right-sized, once these subsidies run out they will see devastating service cuts or outright closure.
Growing up in Britain, I heard about the infamous Beeching cuts of the 1960s, which cut station numbers by 55% and devastated rail travel. I fear something similar happening to U.S. transit for 2024 and beyond unless operators and unions can align cost with revenues.
The third big loser has been big cities. American cities occupy surprisingly small spaces. For example, San Francisco is less than 50 square miles, comprising just the tip of a peninsula. So, when city-centre residents fled for the suburbs, they took their tax dollars with them.
As we know from the experience of New York in the 1970s, cities can adjust by cutting expenditures. But this will be painful and risks a hollowing out of city centres if key services like police and education are cut. Indeed, bond markets have already cut the prices of many city municipal bonds, providing an ominous signal of the budgetary struggles ahead.
It isn’t all gloomy, particularly for the biggest work-from-home winners: the workers. In national surveys, employees report they value the ability to work from home two or three days a week as much as an 8% pay increase. Multiplied across the roughly 70 million Americans who are currently working from home, this is a perk valued at roughly $500 billion a year. This vast dividend has benefited employees through less commuting and lower stress, alongside more personal, leisure and family time.
One recent study highlighted how the typical U.S. home-working employee spends 40 minutes more a week on child care from the time saved from avoiding the daily commute. This will have longer-run effects ranging from higher labor-force participation rates—possibly pushing up growth rates—to potentially even a fertility dividend as parenting becomes somewhat easier.
Another winner is the environment, thanks to reduced travel and energy needs. A recent study found working from home two days a week reduces pollution by about 15%. This comes from lower commuting emissions alongside additional savings from lower office energy bills. A double dividend is the reduced congestion on emptier roads, with traffic speed data from Inryx suggesting the morning commute is 10% faster.
And perhaps the biggest work-from-home winner are companies. Research finds that hybrid working three days a week in the office has a net neutral on employee productivity, while allowing firms to save on recruitment and retention costs. Firms can save money by trimming office expenses while using remote working to lower labour costs by hiring employees outside major cities.
U.S. firms made about $1 trillion higher profits in 2022 than in 2019, an increase of almost 50%. While many factors likely contributed to this, including the strong economic growth, it is notable this happened alongside the fivefold surge in working from home. Indeed, the mass adoption of hybrid working by millions of firms across the U.S. and Europe is perhaps the strongest evidence of its positive impact on profitability.
Looking further out, the biggest change will almost surely come from the new technologies we use to work remotely. When I first started working in the 1990s, working remotely meant conference calls and emailing files. Now we telecommute and share files on cloud networks.
The future likely heralds similarly large changes. In discussions with startups and tech firms, I hear about systems for holographic meetings, wall-size screens and global connectivity. This technology means working from home hasn’t just stabilised but is now moving into its longer-run phase of expansion. Ten years from now we will look back at 2023 as the beginning of the long bull market in hybrid working.
Nicholas Bloom is a professor of economics at Stanford University.
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Multinationals like Starbucks and Marriott are taking a hard look at their Chinese operations—and tempering their outlooks.
4 min
For years, global companies showcased their Chinese operations as a source of robust growth. A burgeoning middle class, a stream of people moving to cities, and the creation of new services to cater to them—along with the promise of the further opening of the world’s second-largest economy—drew companies eager to tap into the action.
Then Covid hit, isolating China from much of the world. Chinese leader Xi Jinping tightened control of the economy, and U.S.-China relations hit a nadir. After decades of rapid growth, China’s economy is stuck in a rut, with increasing concerns about what will drive the next phase of its growth.
Though Chinese officials have acknowledged the sputtering economy, they have been reluctant to take more than incremental steps to reverse the trend. Making matters worse, government crackdowns on internet companies and measures to burst the country’s property bubble left households and businesses scarred.
Now, multinational companies are taking a hard look at their Chinese operations and tempering their outlooks. Marriott International narrowed its global revenue per available room growth rate to 3% to 4%, citing continued weakness in China and expectations that demand could weaken further in the third quarter. Paris-based Kering , home to brands Gucci and Saint Laurent, posted a 22% decline in sales in the Asia-Pacific region, excluding Japan, in the first half amid weaker demand in Greater China, which includes Hong Kong and Macau.
Pricing pressure and deflation were common themes in quarterly results. Starbucks , which helped build a coffee culture in China over the past 25 years, described it as one of its most notable international challenges as it posted a 14% decline in sales from that business. As Chinese consumers reconsidered whether to spend money on Starbucks lattes, competitors such as Luckin Coffee increased pressure on the Seattle company. Starbucks executives said in their quarterly earnings call that “unprecedented store expansion” by rivals and a price war hurt profits and caused “significant disruptions” to the operating environment.
Executive anxiety extends beyond consumer companies. Elevator maker Otis Worldwide saw new-equipment orders in China fall by double digits in the second quarter, forcing it to cut its outlook for growth out of Asia. CEO Judy Marks told analysts on a quarterly earnings call that prices in China were down roughly 10% year over year, and she doesn’t see the pricing pressure abating. The company is turning to productivity improvements and cost cutting to blunt the hit.
Add in the uncertainty created by deteriorating U.S.-China relations, and many investors are steering clear. The iShares MSCI China exchange-traded fund has lost half its value since March 2021. Recovery attempts have been short-lived. undefined undefined And now some of those concerns are creeping into the U.S. market. “A decade ago China exposure [for a global company] was a way to add revenue growth to our portfolio,” says Margaret Vitrano, co-manager of large-cap growth strategies at ClearBridge Investments in New York. Today, she notes, “we now want to manage the risk of the China exposure.”
Vitrano expects improvement in 2025, but cautions it will be slow. Uncertainty over who will win the U.S. presidential election and the prospect of higher tariffs pose additional risks for global companies.
For now, China is inching along at roughly 5% economic growth—down from a peak of 14% in 2007 and an average of about 8% in the 10 years before the pandemic. Chinese consumers hit by job losses and continued declines in property values are rethinking spending habits. Businesses worried about policy uncertainty are reluctant to invest and hire.
The trouble goes beyond frugal consumers. Xi is changing the economy’s growth model, relying less on the infrastructure and real estate market that fueled earlier growth. That means investing aggressively in manufacturing and exports as China looks to become more self-reliant and guard against geopolitical tensions.
The shift is hurting western multinationals, with deflationary forces amid burgeoning production capacity. “We have seen the investment community mark down expectations for these companies because they will have to change tack with lower-cost products and services,” says Joseph Quinlan, head of market strategy for the chief investment office at Merrill and Bank of America Private Bank.
Another challenge for multinationals outside of China is stiffened competition as Chinese companies innovate and expand—often with the backing of the government. Local rivals are upping the ante across sectors by building on their knowledge of local consumer preferences and the ability to produce higher-quality products.
Some global multinationals are having a hard time keeping up with homegrown innovation. Auto makers including General Motors have seen sales tumble and struggled to turn profitable as Chinese car shoppers increasingly opt for electric vehicles from BYD or NIO that are similar in price to internal-combustion-engine cars from foreign auto makers.
“China’s electric-vehicle makers have by leaps and bounds surpassed the capabilities of foreign brands who have a tie to the profit pool of internal combustible engines that they don’t want to disrupt,” says Christine Phillpotts, a fund manager for Ariel Investments’ emerging markets strategies.
Chinese companies are often faster than global rivals to market with new products or tweaks. “The cycle can be half of what it is for a global multinational with subsidiaries that need to check with headquarters, do an analysis, and then refresh,” Phillpotts says.
For many companies and investors, next year remains a question mark. Ashland CEO Guillermo Novo said in an August call with analysts that the chemical company was seeing a “big change” in China, with activity slowing and competition on pricing becoming more aggressive. The company, he said, was still trying to grasp the repercussions as it has created uncertainty in its 2025 outlook.
Few companies are giving up. Executives at big global consumer and retail companies show no signs of reducing investment, with most still describing China as a long-term growth market, says Dana Telsey, CEO of Telsey Advisory Group.
Starbucks executives described the long-term opportunity as “significant,” with higher growth and margin opportunities in the future as China’s population continues to move from rural to suburban areas. But they also noted that their approach is evolving and they are in the early stages of exploring strategic partnerships.
Walmart sold its stake in August in Chinese e-commerce giant JD.com for $3.6 billion after an eight-year noncompete agreement expired. Analysts expect it to pump the money into its own Sam’s Club and Walmart China operation, which have benefited from the trend toward trading down in China.
“The story isn’t over for the global companies,” Phillpotts says. “It just means the effort and investment will be greater to compete.”
Corrections & Amplifications
Joseph Quinlan is head of market strategy for the chief investment office at Merrill and Bank of America Private Bank. An earlier version of this article incorrectly used his old title.
