Moody's Talks - Inside Economics - Work and Work from Anywhere

Episode Date: May 7, 2021

Adam Ozimek Chief Economist at Upwork, joins Mark Zandi and the Moody's Analytics team to discuss the recent job numbers and productivity.  Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics, and I'm joined today by my trusted colleagues, Ryan Sweet, and Chris Rees. But we have a special guest star today. This is our first guest on Inside Economics, Adam, O'Semek. And Adam is a longtime colleague. He left. When did you leave us, Adam? How long ago was that? Two years. No way. Two years ago? 2019, yep. Really? Oh, it feels like much longer than that. I really miss you. Hey, can I ask, do you miss me? Yeah, definitely. It was a lot of fun working at Moody's.

And how many years did we work together? Do you recall? Five years. Five years, yeah. And we had some classics. We wrote this great paper together. Actually, you led the way on productivity and aging, which I view that as a a classic, underappreciated.

Yeah, one of my favorite papers that I've ever worked on. I totally agree because it's underappreciated. I think that people will look back in a few years and maybe they'll get the story. Yeah, and that's probably another podcast, don't you think? I think we should come back to that. Yeah.

We had a lot of insight on aging and productivity. And then you really helped me out on another one that's also a classic and really helped me out a lot. It's linking income and wealth inequality to macroeconomic outcomes, particularly the business cycle. Do you remember that one? Yeah, I do. Yeah, for the, the Zuckman book, right? Yeah, that's exactly.

It was Heather Boucher. Yeah. It was a Peketti kind of compilation of articles that she put together. Yeah, that was a good one, too. It was a really good one. Yeah, it was very good. Yeah, I really miss you. It was great to have you as.

a colleague, but now you're the chief economist of Upwork. How's that going? It's a lot of fun. I get to do some of the same things, you know, cover the labor market and the economy, watch what's happening. But I also get to get involved in some product decisions about this, you know, giant global labor market that we have. There's a lot of really fun data kind of stuff you really can't get anywhere else. So it's a lot of fun. Yeah. And Upwork's a great, a great company. Do you want to just describe Upwork a little bit for the folks out there that may not know? Sure.

We're a global freelancing platform. So it's a place where you can come to find a freelancers and a variety of skilled services to hire remotely all over the world. So we help businesses and freelancers connect all over the world. And here's the thing about Adam that I always found amazing. He has like 10 things going on at the same time, one of which is his job. But then he had like a gazillion other things going on. one of which is I recall, believe this or not, you got you owned, or maybe you still own, I'm really curious now on the other side of the pandemic, a bowling alley.

Is that right? That's right. We made it through. We got both rounds of PPP and thanks to that, we made it through. So, oh, great. Still open. And your people are bowling. They're coming in and bowling.

We're allowed to have the lanes half filled. So every other lane can be filmed. But in the restaurant and the arcade are also open, but like with restrictions. Is there demand? There is. There's demand. Demand is. We're demand and supply constrained kind of at the same time.

It's really hard to find people. And, you know, demand isn't quite back where it is most of the time. Occasionally we'll get close to being full. But, and full is, you know, with, with quotation marks because we're. We're only not to have so many tables, and you have to everyone, everyone spread out. So it's definitely not back to normal yet. Hey, that brings up the topic we should discuss. You know, we begin on Inside Economics with the data, and then we turn to the big topic.

And in this week, we're going to be talking about the work from anywhere dynamic. And I know you've done a lot of work there. So we'll come back to that. But we have been talking about the data, kind of like a quiz show. We've been quizzing each other and trying to impress the listener up with our, you know, prowess, our geek, our geekness, really. You know, how do you out in the world do you know that number kind of thing? And, but today it feels like we should just focus on that jobs number. And maybe I'll turn to Ryan, because Ryan, you watch this data, the data very carefully.

Maybe you could describe just from your perspective the data. And then let's talk about what's going on, you know, because it was a surprise. So fill us in, Ryan. So just before I start, when the number came out, I was thinking about calling in sick. Right. That was way out of, you know, the realm of expectation. So to put it in perspective, we created two. Can I ask Ryan, was that before or after you got my email with a bunch of question marks?

Was that before or after that? Before, before. Because I knew this was common. I knew it was going to be a roast. So I was preparing. All right, all right, far away. What were the numbers in? What did you expect? All right. So we created 260,000 jobs on net in April. The Bloomberg consensus range was from 700,000 to 2.1 million. I thought it was going to come in around 900,000. Everything pointed

towards a very strong jobs number. You know, ISM surveys. The home-based data was a little bit weaker than previous months, but it was all consistent with something close to what we got in March. So I was really taken back by, you know, the small gain employment that we got. 266, the expectation was 900. Adam, do you, are you in, do that kind of work, do you actually try to predict the number before it comes out? Is that something you do as well? No, I don't have to forecast anymore. It's a great, it's a great unburdening to not, to not have my reputation on the line month after one, but I do watch it pretty closely. That's why you look so good, right? Right. Exactly. You look fantastic. Very relaxed. Very relaxed. Yeah. Very fit. So were you surprised

by the number, Adam? So I wasn't expecting that low, but I'm not surprised to see a disappointingly low number. I didn't know when it was going to happen, but it's been pretty obvious. I think that supply constraints are increasingly important, especially on the labor market side. and, you know, it's just, I think it's just simple arithmetic. When you look at the replacement rate from UI, it's like half of the people on unemployment get paid more to not work. You know, what do we expect that to do? And it's one thing when you have, you know, 20 million people out of work and the economy is sort of frozen. But when demands are covering and also job openings are basically back to normal, you combine that with that kind of, you know, UI, you're going to

get a serious constraint on supply. And so I think that's exactly what we're seeing. Brian, you think the same thing. You at least that's- I agree with Adam. Yep. But I would also add on. I mean, I think something more than that. Well, I mean, from month to month, the employment numbers can do crazy things. So you don't want to try to explain the unexplainable sometimes. But I do think we'll get more clarity over the next few months that labor supply issues are going to be more binding. And that's why I think risk to our employment forecast for the next few months is, you know, weighted to the downside. We might as we might be a little bit too optimistic. Because in addition to the UI argument that Adam makes,

which I agree with, there's child care problems. That's not going to get resolved until the next school year because summer camps, things like that, aren't going to be fully open. So if you look at the female labor force participation rate, it hasn't budged. And it's well below that scene pre-pandemic. And Dante did a lot of great work looking at using the BLS microdata to look at employment by... Dante's one of our other colleagues, Dante. How is Adam like? He's actually Adam like. Adam, have you met Dante?

Yeah, Dante's great. Dante worked on the productivity paper with us. Oh, that's right. Okay, yeah, that's right. I forgot about that. Yeah, Dante is very Adam-like. But go ahead. Sorry, Ryan.

So he was looking at employment among parents, and that's still very, very low relative to pre-pendemic. So I think the labor supply issue isn't going to go away anytime soon. But the good news is it is temporary, because the UI benefits are going to expire in September. Hopefully the next school year, everything's up and running. So, you know, the job growth that we didn't get in April, we're going to get over the next, you know, six, nine months.

Got it. Hey, well, here's what I don't understand about that argument, though. I mean, if you look at the weakness in the report, it wasn't in the sectors you would thought that would be affected by labor supply constraints or UI. Like restaurants added, I don't know, how many did they added like 260,000 jobs or something like that. So are you saying that they would have added even more than that?

Is that what you're saying? I was expecting a big leisure and hospitality gain. And also if the supply issue is also visible in hours worked, if you look at the average work week for leisure and hospitality, I think it was 26.7 hours, which is higher than we've ever seen with the data going back to 2006, 2007. You can see it in the wage data too. The wages in leisure and hospitality are now,

5% above pre-pandemic levels. And they're moving up really quickly, too. Yeah. I mean, when I looked at it, I saw a weakness in construction. There was no jobs. That makes, that's not labor supply. I don't, maybe there is, maybe who knows, but the real weakness there, you don't go from 40, 50,000 a month to zero because of labor supply constraints.

Temp help fell 115,000 after growing consistently before that. You just go from plus to minus 115. Vehicle manufacturing fell. Now that's not labor supply. That's probably chip related issues. Educational services. I mean, I don't know. I look at the couriers.

Curriers fell. That's UPS and FedEx. That fell big time. Employment at food and beverage stores. That felt like 50, 60,000. That doesn't feel. It's not like we fell off a cliff or something with regard to the labor supplies. It doesn't feel right to me.

This doesn't feel. Can I throw another theory out and you guys can agree or disagree? Do you think labor market churn is really picking up? Meaning that, you know, people are quitting jobs to take jobs where they can get signing bonuses and things like that. I mean, you hear some big chain restaurants are offering hiring bonuses now. So maybe I think quit rates are going up. And they are up. I mean, quit rates are high. And I think you really have to think of this as sort of a bigger length. labor market than just limited to one industry.

We're really talking about, you know, something that encompasses the relatively low-skilled labor market. And I think that you have a lot of, you know, back and forth between, you know, warehouse jobs, temp services and the leader in hospitality sector. And they're all sort of competing for, you know, relatively unskilled labor. And so you can have, you know, you see wages and hours go up in leader in hospitality, but you can see employment go up as well. And that can be them, like Ryan said, you've got these high science.

funding voters. That can be then pulling workers out of other sectors. But overall, you just got this tightness there. Yeah. I mean, it just, I hear you. It just feels like there's a lot of sectors where it almost fell off of a cliff, you know, big declines. It just doesn't, consistent with the idea that there's these tightening labor constraints developing throughout the economy. The other thing is ADP. You know, we help ADP, the human resource company put their data together. I tell you, I didn't sense, we can't, I think we had private sector payroll up. I can't remember. It was 750,000 during the month, something like that. And the underlying data looked really strong to me. I could not see any, you know, real weakness in the employment data. And I would have

thought I would have seen it there if there were labor supply constraints. Now, admittedly, ADP doesn't capture small businesses quite as well. Uh, But even in the restaurant, leisure hospitality industry, it felt okay. So I'm just surprised by it. I think it's, here's my gut,

and it's just a gut feeling that we're going to get it right back on track next month. You know, we're going to get some big numbers next month, that this was a, it's like BLS always throws a curve, curve ball, you know,

a pretty big curve ball. I don't know, you guys remember this, but I think it was August of 2010, you know, coming out of the financial crisis, and it felt like the economy it was kind of gaining traction and things were going in the right direction.

And everyone was sitting there thinking we'd get a big employment number. It came out to be a big fat zero. Do you remember that? Do you guys remember that? Yeah, we were pretty close on that one. Yeah, we were pretty close. It was a lot of technical issues. It's always weak in August.

It always comes in below the consensus in August. But if this number feels like that kind of a data point, it's like, you know, just the data coming together in a way that. Do you think it's seasonal factors? Well, who knows? It's a survey. There's all kinds of issues. There's a lot of churn in the labor market, as Ryan said,

particularly in coming out of the recession. So very difficult to make. I don't think there's one factor. I think there's a lot of things going on. I mean, there was another reason this is a big surprise is that there was five weeks between reference periods. And usually that biases the employment number up. So I don't know if like, you know, because of the pandemic

and all the adjustments to do the seasonal adjustment process, if things are just off kilter. The other thing is those seasonal adjustment factors and the sort of, you know, the stuff that'll get, you know, revised away, they might push the headline up higher or they might resolve all these mysteries you're talking about. I mean, like obviously months to month,

there's a lot of noise there, but you get even more noise when you go down to sectoral level. So it may be the case that the mystery, that the revisions totally clean up all the mysteries next month. when it turns out leisure hospitality didn't add that much in some of these other sectors are revised up. No. Okay. Well, this is why economists that are employed, I guess, so we can sit here and discuss and debate all these things.

Let me ask you this, though, Adam. Ryan made a strong statement, I thought, and he said, look, yeah, there's labor supply constraints, but this will all be resolved over the next, say, six months because schools will go back in person. moms and dads that have been home can go back to work. The U.I, supplemental UI, falls off in September. So, you know, yeah, we may not get as many jobs created because of the supply constraints in the next few months, but we'll get those jobs. And a year from now, you know, we'll be, you know, recovering most of the jobs you lost in

the pandemic and getting back closer to full employment. Do you concur with that perspective, that view? I think, yeah, I don't see a lot of, I was worried about a lot of, permanent damage from this, but I don't see a lot of permanent damage. I mean, household balance sheets are an incredible shape. Business failures are elevated, but nowhere near what you would have expected given the size of the shutdown. It's really more like, I think it's probably like one average, like one and a half times normal, not like five, six, seven, or eight times normal. So, you know, obviously you're going to need firm formation to make up for that. But then in the other hand,

you also have really great firm formation data. So I think we really did avoid. I think we really did avoid the really bad kind of damage that could have been done had we not thrown trillions of dollars at the economy. So I do think that we will we will recover from this and get back on the path we were on headed towards full employment. One thing I'll add is hearing Adam talk about labor shortages and buying into it is stark contrast to his view throughout the last expansion when everyone was saying that we're running up to labor supply constraints. And that never came to fruition. So, you know, I think Adam's making a strong argument. Well, can I say I also, but on the flip side of it, you know, when when Adam was saying that,

that there were no labor supply constraints, I was saying there was. And now you'll notice he's saying there's labor supply constraints. I'm saying, don't worry about it. So we're on the flip of that one. Chris, let me ask you, do you land in this roughly the same place as is the rest of us in terms of this is temporary and a year from now, the economy will have gotten these jobs and we'll be approaching full employment. Yeah, I think it's just a strange time, right? We have both supply and demand issues simultaneously. But yeah, I think by September things will have largely worked themselves out.

Okay, so I want to go on to the big topic. Before I do that, I want to have one quiz. And we're going to see who gets, this isn't a toughie. I think it's pretty straightforward. So Ryan, you're not allowed to answer because you will probably know this. This is a quiz for Chris and Adam. Tell me what this number is.

18.5 million. 18.5 million. This is an underhanded softball for Adam. Can I guess? Is that continuing claims? No, but I'm trying to think. Could it be close to? I don't think that's, I don't know.

That's not right. No. Do you know, Chris? And then I'm going to flip it to Ryan. This to me is the most telling statistic of the month. Ding, ding, ding, ding. Ryan, what is it? Vehicle sales.

Yeah, new vehicle sales. 18.5 million in the month of April. That was the biggest April sales month on record. How many, there can't be too many months in history where we got over 18 and a half million years. Right, Ryan? It's got to be just a handle. I'm trying to think. Maybe back to cash for clunkers.

But that was like a one. Yeah, one month wondering. Yeah. No, 18 and a half is really strong. Yeah. So to me, that says it all. That is an economy that is booming. It's booming.

It's not consistent with job loss, but at least not consistent job loss. So we'll see how that costs. How about I give you a number? That's a segue into the big topic. Okay. Let's see the three of you can get it. Okay.

18.3%. I know what that is. Should I say it? Do you guys know? Go for you. Adam knows. You guys don't know? Okay, that is, according to BLS, in the month of April, the percent of the workforce that's working remotely, right?

Exactly. There you go. You see, Ryan thinks he can school me. You think he's still, to this day, thinks he can school me on these statistics. Yeah. You guys, you know, you complain. Like, it's a, oh, it's a, you know, a number that no one pays attention to. Oh, that's true.

I do do that. You guys are the masters of holding numbers in your heads. I remember being very impressed at this when I came to Moody's. How many numbers you guys hold in your heads at the same time? Yeah, I know Ryan can do it because he loves baseball so much. It's kind of the same thing. I don't know where your ability to do this comes from, Mark. Well, I can remember nothing else.

That's it. I can barely remember my passcode. I mean, I'm deathly afraid. I'm going to forget my passcode. So I write it. I shouldn't be telling everybody this, but I write it down. Where do you write it? Yeah, exactly, exactly.

That's my trick. It's the only thing I can remember. Okay, anyway, well, that's a good segue. Hey, so set the table, Ryan. What are the, what is BLS say about remote work, a percent of the workforce? And let's see if that lines up with kind of Adams survey work. So what are the numbers, roughly speaking, before the pandemic during? Well, they weren't doing the survey before the pandemic.

It's only post-pandemic. So in the last, so in March, 21%. of people were working remotely or at home because of the pandemic. And that dropped to 18.3% in April. And what was it at the peak? I think back in March, April last, because they started it back then, I believe. I'd be a lot of it. I mean, ballpark, off top of my head, this is one number I don't remember.

Yeah, I think it was 27 or it was north of 30, I think. I thought it was north of 30. I think it's north of 30. Yep. I was using a third. Yeah. Yeah, like a third. Yeah, like a third.

Adam, is that consistent with your, the way you would characterize it? And what do you think work from anywhere? What remote work percent was working remotely before the pandemic? Do you have a sense of that? So before the pandemic, there's a little, there's uncertainty about this because it really, it depends on how you ask the question. And workers are pretty sensitive to like kind of the details of how you ask the question. To start, you also often see a conflict between people.

who are saying work from home versus work remotely, which are two distinct things, right? Like if you ask someone to work from home, that's a subset of work remotely. And then work remotely is really just kind of, there's like a line that's a little bit confusing where you draw it. So let me give you an example. If you have an office in your basement,

that's clearly working remotely, right? Yeah. If you have an office downtown, though, but you're the only one who works there and all your clients are at a different location. Is that remotely? Oh, good point. Right.

Right. But then if you add a couple more workers to the office, then it doesn't seem remotely anymore, right? Right. So, like, it's, there's like a gray line. So that creates a lot of uncertainty about how many were working pre and also during. The BLS number has an added complication that they asked. in the last four weeks,

were you working remotely because of the pandemic? So if you were working remotely pre-pandemic, then you wouldn't respond that you were, like you wouldn't show up in their day now. Right, right. So if I asked you to characterize work from home, however you want to define it, or work remotely before the pandemic,

in the teeth of the pandemic, and like right now, what would you say? How would you characterize it? So I think pre-pandemic, we are probably somewhere between five to nine percent, like depending on where you draw the line. And it's also really important whether you're talking about wage and salary workers versus self-employed because the self-employed have like a way, way higher share of work from home or work remote.

At the peak of the pandemic, I think it was probably like 60%. Oh, you do. It was a really high number. Yeah. And that's consistent with Gallup too. Gallup finds a much higher number than the BLS does. Today I think we're probably down around like, you know, maybe 25, 30 percent, something like that. And then you have a lot of people who are working part-time as well.

So maybe 25, 30 percent full-time, maybe, you know, 15 percent part-time. So like 40 percent to some degree or another, that's about where I think it is. And I think in a long run, we're going to end up around probably like 20% full-time and maybe another 10 to 15% part-time. But there's a lot of uncertainty, obviously, about that. So I think a third of workers working remotely to some extent. Okay. So just to summarize that, just make sure I got it right, pre-pandemic, 5 to 10%,

teeth of the pandemic is high as 60%. And now we're probably down around 2530. but we're going to settle in about, ultimately, you know, when it's all sudden done a few years down the road, about a third of the workforce will be working remotely. That's kind of the way you're thinking about this. Yeah, the third would include like all the part-time. All the part-timers.

So like 20% full-time in like a third including all the part-timers. Yeah, so that's, sorry, go ahead, Chris. Yeah, I was going to ask, does that include the hybrid? Yeah, that would be included in the part-timers, yeah. Got it. So four days in the office, one day at home, that's still a remote. Okay. Yeah, you've run a couple surveys of hiring managers.

I'm sure that you do business with it at UpWorks. And there was one question that you were asking the respondents, what surprised you most, positively surprised you the most about working from home or working remotely? And the number one response was eliminating unessential meetings. That does not resonate with me at all. I feel like I'm on Zoom 100% of the day all the time. How do you, am I the only one thinking?

What about you, Chris, Brian? How do you feel about that? It's just one big meeting. It's just one big meeting. It's just one big meeting. It just continues. Does that, did that surprise you, Adam, that you got that answer in the survey? That was the number one thing they learned or that they found positively surprised coming out of this?

Well, two things about that. One, it is relative to expectations, right? So maybe they, you know, thought it was going to go really, really bad and it went just a little bad. But it also, if you just ask in absolute terms, like are you doing more meetings or less? It depends from survey to survey, whether, you know, if you ask the workers, if you ask the managers. But it seems to me on that, I mean, you hear a lot about the squeaky wheel gets the grease or whatever. So you hear a lot of stories about too many meetings. But I think that there's there's a lot of people who are like, they find that they have more control over their day.

You know, you can't, you can't pop into someone's office in their basement. and you can't like just go knock on their cubicle and just walk up and ask them to do something and maybe this is um maybe this is like a manager work or difference or something like that um in perceptions because uh you know there weren't a lot of people who would just like pop into your office would be my recollection mark you had you need a meeting with mark zandi if you want to if you want to grab mark's andy's time um but me in my in my cubicle i would have people popping in all the time come to the knock on the wall and say, hey, have you looked at or can you do this or that? And so you just, you know, you have, you have, you definitely have meetings, but like you,

you know when they are, you know where they are and you have control over that. Yeah. I totally get the, the other thing that people said that possibly surprise them is the flexibility they had in their day. And that I totally get. But what I've had to do in my calendar is I have to actually block out the time. Because if I don't block out the time, literally, I, I will have no time to my.

I mean, no time. I can't even use the bathroom. That's how difficult it is. So I don't know, Chris, you and Ryan, you feel the same way? I thought it was just me, so it's good to hear that. Okay, good to hear. Yeah. The one nice thing about Zoom meetings is you can keep working

because you can just turn off your camera. So you're there, but you can get work done. Right. Hey, so Adam, in all the surveys that you did, what surprised you most? What was the result you got that said, oh, wow, I didn't know about that. I didn't think that was going to happen. In the one we did, we asked whether it was going better or worse than expected.

And it was really much more roundly better than I thought because you throw so many people into this way of working that there's a lot you have to learn about how to work this way. Like blocking off your calendar is one example. more. So like the company that I work at now, Upwork is a remote company. So I've always had to be remote here. And that was one of the things that you learn is like you got to, you got to watch your calendar. You got to be a little defensive of your calendar. And like, if you need like if you've got big projects that you really need to be heads down on, you should you should block that time off. And that stuff takes like time to learn. There's like practice to this. And those are like the immediate sort of adjustments. There's also like,

you know, adjustments reorienting your entire firm around this way of work. So if you think about like in the Industrial Revolution, when they first created, you know, electrified engines versus the like the giant turbines. It used to be the case that in a factory you'd have like one giant turbine that turned. It was like huge engine, the middle factory, and everything sort of worked off that. Electrification allowed for the creation of smaller engines. But those didn't really have effects on those old factories. factories because you can't, you can't just like bring these new engines in and you keep the big

factory, the factory oriented around one like giant mechanical engine and just pile all the little electrical ones on. You need to build new factories. You need to start from scratch. And I think that there is a lot about remote work that remote first startups are going to get and they're going to build a culture around and they're going to build management practices around. and the rest of us sort of have to learn those things. So it was surprising to me how people were saying, like, it's going better than I thought so early. I sort of expected it was going to go like not that great at first,

and then over time people would get better at it. But like the really positive response immediately surprised me. Yeah, I mean, I'll have to say I'm very positively predisposed to all. And I was skeptical in the beginning. In fact, I can remember in the pandemic that the start of the pandemic, we were lucky at Moody's because we adopted Zoom. Like, I don't know, it felt like two weeks before the pandemic hit, just fortuitously. So we had Zoom.

And then when the pandemic hit, people started doing the Zoom thing. And I go, what the heck is that? I'm not doing that. I'm going to, no, I still want to do the conference call. Now I can't even tell you what the number for the conference call is. I mean, I can't do it. And I go, what is this? What are we doing?

How is this going to work? And immediately, though, within about, I'd say 30 minutes, I'd go, oh, this is a game changer. This is real. And this really works. You know, this really is much easier. And, you know, people, one of the things that I'll just give you a personal example that I find so amazing is we have a lot of people that we hire, right? We've got a couple hundred economists around the world. And people, we could hire people.

They could be with us for five years. And I may not have ever talked to them, literally. never have talked to them because they're sitting in Prague. They're sitting in, you know, Singapore, Dubai, London, wherever. And I never had a chance. But now every new employee that comes, I make an effort to sit down with that person through Zoom for 30 minutes and I immediately have a relationship with them. And it makes all the difference because now I go into meetings and I have a relationship and it just makes the whole conversation all that much easier, which before, you know, I didn't know who that person was. It's just just an amazing thing.

I'm sure there's many, many examples of that kind of benefit from Zoom. That's really fascinating to hear that from you guys because Moody's is such a highly already globalized company. Like pre-pandemic, you would have been like, well, here's an example of a company that clearly knows how to work with remote workers all over the world. But to hear that like the change has also pushed you guys further along the technological frontiers really interesting. It just goes to show that like, you know, there was there was room for improvement all the way from like people who did zero remoteness. and we're just like a tiny isolated, like, you know, they're all in one office all the time, to like even, you know, mega global corporations that are already over the world, that's the potential to improve productivity there.

So what's wrong with it? I mean, you got folks out there, you know, prominent folks. I think Jamie Diamond, CEO of J.P. Morgan might be the most outspoken, but I'm sure there are others that say this isn't such a great idea. The productivity of my workforce is declining, and I can actually see it on a Friday. it's definitely lower than the rest of the work going back to you have more flexibility so people take Friday half off, let's say, and no one knows, no one's the wiser for it. What do you think of those arguments and, you know, how do you think about that?

What's the downside to all this? So it's important to benchmark. And, you know, I'm saying that long run will have 20% full-time remote, which means 80% will be not full-time remote. And so I think a lot of it. we see is companies, it's just not a good fit for them. It might be a result of their industry. It might be a result of their management style. It literally might be just a result of the CEO, but for some companies, there's not a great fit, but they're kind of stuck there because of the pandemic. And that's what makes the productivity effects here interesting, because in both my work

and in Nick Bloom of Stanford, he has work on this as well. He finds positive productivity effects. I find positive productivity effects. And we're finding this based on all these companies that were just thrown into this experiment overnight against their will. And a lot of them who aren't going to be remote in the long run. So like once this, you know, we're waiting for the selection effects to take hold where companies for whom this is a good fit, they stay in it. Companies who it's not a good fit, they leave it. And then like everybody's happier. It's sort of like, it's a really unfair test of productivity in a lot of ways. Think about like if before R was invented, the statistical software, if you forced everyone, every state of user in the world to adopt R for a year,

and then you measure the productivity effect. That wouldn't be a very good test of the invention of R and letting people self-select into R, right? Because like people for whom it's not a good fit, they're going to have to do any way in their productivity is going to go down. So, you know, the Jamie Diamonds of the world let themselves. locked out. And, you know, maybe that that's the equilibrium. But then again, maybe they're going to come up against the startup in the same industry who manages to make remote work. And then they're just going to get their lunchy. Let me, let me ask you, this might be a little geeky, but I'm really curious. How do you, your work and Bloom's work, how do you measure productivity? And I had another

a question, but how do you measure productivity? So in our work, both of us were just relying on self-reported productivity from managers, importantly, because obviously you ask workers, they're going to be hesitant to tell you if their productivity went down. So it's really the managers who were asking it up. But there's more rigorous measurement of the effects of remote work on productivity from pre-pandemic times and also some that sort of straddled the pre-and-post-pandemic period. And those are generally like call center workers.

and then there's another study on patent officers, and I think the other one was like travel agents, something like that. So like you have these occupations where you can measure outcomes, and in those studies they've all found that productivity does go up from remote work. So it'd be hard to make those sorts of productivity-based measurements across a lot of different kinds of companies and industries without making it sort of subjective. So like you have that, the subjective,

and then you have like the very well-defined, well-measured, but it's like more limited to individual occupations in industry. So like less external validity there. Not it. Hey, let me ask you. So you think it lifts productivity growth. Do you think it's also all else being equal deflationary? Does it reduce, put downward pressure on costs and inflation?

Yeah, I would say so through through if nothing else, the housing market channel, but also the labor market channel too. I mean, you're going to, I think that the. two, look at the two biggest housing markets that got hit by the pandemic and have been seeing the prices down in San Francisco and New York City. And so, you know, I see it as sort of leaning against the trend of the last few decades where skilled service workers have just increasingly clustered into a handful of superstar cities.

And those cities, by the way, don't build new houses. So like prices have just gone up, up, up. And, you know, wages go up, up, up, up with them. And I do think that that, that there is a. a geographic contribution to inflation that way. Yeah. Before you move on to the labor market channel, let me ask Chris, because Chris focuses quite a bit on housing markets.

I mean, how big a deal do you think work from anywhere has been in the hot housing market? I mean, the housing market, single family housing markets booming. It's raging. Price gains are strong. How much of that has worked from anywhere, Chris? I certainly significant. I don't know what.

what fraction you'd give it, but clearly, right, the movement has been to the suburbs looking for more space, for a more comfortable work environment at home, right? So that's certainly being a driver of a lot of the activity. Longer term, well, I guess if we're saying this is going to wear off to some degree, right, then the reverse would happen, right? We'd expect to see some deceleration going forward. You mean in the in the prices? When the pandemic Mick is over, work from anywhere, moderates a little bit before we start, before it starts increasing again, you're saying. Yeah.

That's right. So if we are going back to the office, right, that's going to change my calculus in terms of the size of the house I want, where I want it located, right? Right. City becomes more attractive once again, perhaps, for some segment of the population. Right, right. Hey, on the labor market channel here, I got another kind of, you know, I've tried to, from me, it always, it's all personal. So, and thinking about it from a Moody's context, the work from

anywhere dynamic is empowering, you know, it allows people to go and live where they want to live. And, you know, and that's good for them. That's good for us, you know, as employers. But we're having trouble with pay. So, you know, let's say I live in New York just to make a striking contrast. And I get New York wages. And then I say, hey, Mark, I want to go live in Tampa, Florida. I want to go live there because the cost of living is lower. Housing's more affordable. My commutes are lower. Taxes are lower. Should I get paid New York wages or should I get paid Tampa wages? And how do employers figure that out? I mean, do you have a sense of that? And I guess that goes to your point about the deflationary aspects of this through the labor market channel.

Yeah, that's a great question. It's a very fascinating question as to whether we're going to end up with something more like a national U.S. labor market where you sort of have like, here's the wage for this occupation no matter where you live. I think it kind of depends on how big this labor market, the remote labor market gets, whether we end up with something that looks more like that. Like right now, I think it's really a matter of sort of individual bargaining power to a large degree. we can look at this a little bit in our data actually at Upwork. So we know where every client's located. We know where every freelancer is located. And so we can look at, you know, hundreds of thousands, millions of contracts and see does the labor market.

We can also match every contract to the kind of job that it is. You can compare it to BLS data on pay in that industry or in the occupation in those actual physical labor markets. So what I did in a recent paper is I looked at. contracts when you have a client in a high-cost living city and a freelancer a low-cost living city and what are both either or neither of the labor markets do the effect the actual hourly pay that gets negotiated and they do both have an impact so they do both both labor markets tend to pull tend to pull on that so that's a possibility but you know there's there's other evidence for a platform that's that some of these um some occupations the wages

are really like this is the wage you make this everywhere and that's like the end of the story. So I think it depends on maybe on liquidity, the particular occupation, the extent that it goes remote so that, you know, is someone's outside option another remote company or is there outside option a local labor market company? To the extent that it's dominated by local labor markets, then I think you will see some cost living. I think, you know, you have this, you have a big chunk of, you know, economic rents basically to split when you match between a high cost to a low cost place. And so like how do you share that surplus? I think for now it will tend to be in the middle in the long run.

It depends. Yeah. And in my mind, that's why it's going to take a little bit of time to get up to that one third share of the workforce that is remote because employers like Moody's going to have to try to figure that one out. How do we how do we navigate that one? We want to do it. It seems like it's in the best interest of everybody, but how do you get from here to there,

given the wage structures that exist? Right. It's a little weird because on the one hand, as economists, we think, well, this is what the marginal productivity of that worker is. Yeah, exactly. On the other hand, like, is that what they should be paid or should they be paid to going rate in the labor market? Because, like, that's what the rate that the market sets.

It's sort of a, there's a tension there. Although I like the way you're thinking about it. I'm around occupations because it is really going to marginal product, right? I mean, I don't care whether you do it in Tampa or Boise or San Francisco or New York. I mean, you're doing a certain thing. There is a market for that and you have a certain level of productivity, at least value added relative to the company, you know, what you're producing. So that makes a lot of sense to me.

I think that's probably where we migrate over time. Yeah, and I think it really depends on whether there's someone else for whom they can earn that same marginal productivity, where if you don't pay it, then they'll take it, right? Because if the marginal productivity in that labor market is lower, which is what generates the low cost there, then they don't really have that bargaining power to demand that. And, of course, we're not talking about a global market now, too, right? Increasingly, right? Yeah, you're one step away then from competing with Mumbai, right? Yeah, exactly.

Right. Very, very interesting. Hey, so I'm going to throw this to Chris and Ryan, and then back to you, Adam. There's certainly going to be some, we've already alluded to this, but there's going to be some regional within the U.S. economic impacts. Are there any, you know, I think there's the obvious one, or maybe it's not so obvious, around big urban areas being diminished and kind of suburbs, exor, smaller cities benefiting. Is there any other regional aspects to this that we should be thinking about? Like, you know, I worry about my hometowns, our hometowns Philly, right, the Philadelphia area. I worry about the city of Philadelphia because they have a wage tax.

You know, how is that going to play in a world of work from anywhere? You know, that becomes pretty difficult. So do you guys, have you thought about that or anybody? Any thoughts on the regional impacts of this? Well, anecdotally, to support your argument about Philly's wage tax, the housing market right around our office in Westchester is on fire. And a lot of the realtors, like when we sold our house, a lot of the interest was from Philadelphia residents. Is that right?

Okay. So it's already happening. Philadelphia is an interesting case. Like, I think that there's obvious places that will lose and obvious places that will win. And then there's a lot of places that are kind of in between. Philadelphia is kind of a place that's in between. I actually think like the bad history that Philadelphia has had with regional competition. has kind of already puts them in a stronger position

because like the cat's already out of the bag. Like for, you know, Philadelphia's had decades of people leaving the city to live in the suburbs, right? And to work in the suburbs to the extent that Philly suburbs has basically just as many jobs as Philadelphia has, which is quite different from the normal center city suburb dynamic. Normally the center of the city is where the jobs are. And then the suburbs, you don't have the jobs there. And so like you don't have the, the city has. this sort of monopoly power. It's an extracted rent. It keeps prices high in the center of the

city relative to the suburbs. In general, you have a line that declines from the center of the city and the farther out you go, the farther down it goes. Philadelphia is not like that. Philadelphia has a spike in the middle where the center city is expensive, but then the price goes down, and then it goes back up again once you get to the suburbs because the suburbs actually have quite a few jobs there. And so what we're seeing in Philadelphia is center city and South Philly are taking a hit because right that's the core those are the nice parts of the city and like they had that like that high price that was like in part based on access to jobs the suburbs other than you know there's a couple of places westchester i guess would be one example other than a couple places the suburbs as a whole aren't doing great and where you're actually seeing the strong growth is north philly and west philly and i think that that's because like those are the low cost of living places in the area those are the places where previously like You didn't have really great access to jobs,

and it's still relatively low cost of living. So you go to New York City, San Francisco, the places that are benefiting are like excerpts because that's where the lower cost of living is. But in Philly, the lower cost of living is still within the city boundary. Yeah, I think this is a very complex issue in city to city, really.

I mean, because you've got to think about who the competition is and the cost structures. And, you know, like the other thing about Philly is you're, you know, on the Acelli, you're an hour and 15 to New York, an hour and a half to D.C. With this, you could work three days. You could live in Philly cheaply, do three days there and maybe go up one day a week into New York or go one day a week in D.C. So it might actually work out in Philly's favor, you know.

Yeah. On the other hand, if you work in Philadelphia for two days a week, you can take the Amtrak line up to the sort of cheaper, when you go even further out than the Philly suburbs. Yeah. Yeah, yeah. Go out to, you know, Lancaster, Harrisburg, Dolphin County, where prices are way lower than even in the suburbs. And so, like, Philly gets it both ways. Like, they'll probably get some remote commuters living there and they'll probably get some remote commuters leaving there. Yeah.

Hey, you know, this reminds me, this is why I miss you so much. I really miss you, Adam. If you ever want to come back, you know, you're more than welcome. I mean, these are the kind of, I get these conversations with Ryan and Chris, but I need, I need, I need more of it. So, you know, please, you know, feel free to come back anytime. Hey, what are we missing here? What didn't we discuss about work from anywhere that we should be talking about that we missed?

Anything in particular? There's a lot of moving parts here, I know, and there's a lot of script to be written. But is there one or two things you think we should be thinking about that we're not thinking about on this issue? So I think that a really important aspect is the impact on dynamism and startups and entrepreneurship. Because we already did see this year, I don't know if you guys. I've been following the business formation statistics at all? Have you seen this? Like, they're...

EIN numbers? You mean the B-EIN data? Yeah. Like, they're incredible, right? Yeah. And I think one of the things... EIN, by the way, for the listener, sorry. The EIN is, when you start a company, it's a tax, what's the EIN is the acronym is

identification, establishment identification number, I think. So I go start a company, I got to get an EIN for tax purposes. and the government records that, and so they have a grip on how many businesses are forming. So that's what the EIN is. Sorry, sorry. Yeah, go ahead. That's good context.

Yeah, so the Census Bureau collects those business registrations, and then they break them out by, like, industry, and they break them out by whether it's a likely employee establishment or not a likely employee establishment, because when you fill your EIN form, you say whether you're going to have employees or not. And a lot of the growth is in the non-employee establishments.

And so you also have it in retail and you have professional services. You've seen a really huge spike in it. So non-employee, retail and professional services, what do you guys think these people are? I thought they were more like software companies and no workers, though. Pardon me? Non-employee, though. Oh, non-employee. Oh, yeah.

I thought real estate maybe because there's a lot of real estate transactions. So every time you, you know, you, I know this because my son does it. He goes by his old homes in the middle of Roe Homes in Philly and immediately sets up an LLC. And he needs an EIN, you know, for the LLC. So I thought that might be part of it. But you, I'm sure I'm missing something. Go ahead. Yeah.

So they give you the Nakes code. So you can see that there is some there. Yeah. So, but there's a huge jump in retail and in professional services. And I think what's happening is that you have a lot of people who are, working online that you've got people who have decided this you can also see it in the platform data so um you know this has been a really really strong year for upwork we had like you know so the fastest growth in a really long time um and uh who else like Etsy and eBay and so I think

that what's happening is remote works unlocking a lot of like um entrepreneurship a lot of startups and you know for a lot of independent people who are just there they've decided they're you know a a programmer or web developer or whatever and they want to just do they want to do freelance you get you get the remote life right gives you a little bit of flexibility and then once you go independent you get even more flexibility and so just watching the the strong demand on our platform both client and freelancer side and seeing these business formation statistics I really think that that's and they're still high like these numbers are all still really high like even as the pandemic is like winding down So I think that that is a structural increase there.

Yeah, that makes a lot of sense. So you ascribe this as surge in EIN numbers and formations to perhaps to work from anywhere. Yeah. Very interesting. Hey, I didn't want to throw out one. My wife, I, you know, I was chatting with my wife about work from anywhere and she constantly point. And I keep like you espousing the benefits of this.

I mean, I'm always surprised by new things that among, that I'm doing that are empowered by the work from anywhere. And she does point out that young people, this is a problem for them, that they use the workplace as a place to meet people. It makes sense, right? And that's, I didn't meet my wife in the workplace, but I know a lot of people who have. And so what do you say about that?

I mean, it's just a matter of adaptation and we'll figure that one out, or do you think that's a real impediment to work from anywhere? I think it depends on the occupation. I think there are some occupations where you probably need that person to person like mentoring and like, you know, hands on sort of learning and, you know, something like, I don't know, maybe sales or something like that, you know, and very hands-on occupations, things like that. So I do think that there are some occupations where you're going to, they're going to go back to the office because that like sort of person-to-person connection matters. On the socialization side, I think that before the pandemic, you would hear people talking about how professionals have become like overworked and they've wrapped up their identities too much in work. And we live in this like work obsessed life. And obviously it's like a bimodal distribution, right, where you're concerned that like, you know, people without a lot of education aren't working enough.

But then we say that people with a lot of education, like maybe they're working too much. their lives are spent too much around their office. And this is one of the reasons why, you know, marriage rates are down and birth rates are down and stuff like that. And so I find it interesting. We go from like these, everyone works too much. We're a work obsessed culture. America is like excessively work obsessed. We do something to throw the balance a little bit more in the favor of being at home and spending time of your family.

Everyone's like, we got this huge problem where, you know, people aren't spending enough time in their offices with their colleagues. and it's so important. It's like you can't, it's like you can't win. And I personally think throwing the balance of time towards home life and, you know, your friends and your family and your community is probably a healthy thing in this country rather than going sort of in the wrong direction. Got it. Got it.

Hey, Ryan, Chris, did you want to push back on anything? He said, my sense is you're in rough agreement with Adam's perspective on. Is there anything that you would push back on? I mean, any, or anything that we missed here that you think we should be focused on? I think, no, I think all great points. The one thing I would point out, I don't know, in the Zoom world, you also have this continuum of work, right? The work they never really stops, right?

That's the risk that we face as well. So that might be a consideration, something that still needs to be addressed in terms of, you know, adapting to this world. And I think a hybrid work, I think that's where we'll land ultimately is much more, much more predominant hybrid work, lifestyle, lots of remote work, but still having that, that connection, some, some break up to the day in the weeks to make sure that we have a consistent connection with our colleagues. Yeah.

One thing I was wondering about is like, do you think this is going to have an impact on climate change? Because, you know, just personally, you know, I've driven. my one SUV not that much at all this year because we don't really leave the house that much. So I wonder if that's an area for future research is looking at the climate impact of work from home. I did a study earlier on in the pandemic.

It was like around August where I estimated how much I did a survey asking people what their previous commute was. Do you work from home? How long was your previous commute? I sort of calculated up what the like cost benefit of this was. using like sort of standard estimates of like what's the cost of a vehicle mile travel on you know to your personal expenses and then social expenses. I actually found that the cost were huge like

the average person of their own money is saving like two thousand bucks a year by not commuting. And but the social costs that they were saving were actually higher. So when you when you include the environment and also congestion costs and the cost of accidents and crashes and lost life, the social costs of driving less that we were saving from working from home outweigh to private. So I definitely think that there's a lot to be gained there. I think we probably will get a little bit of a bounce back from that due to people who are going to be living like two or three hours from the office and maybe going in once a month. So it's like less frequent trips, but longer trips that'll probably claw a little bit of that back.

But I do think on net, yeah, it's positive for the environment. Hey, talking about work-life balance, it is now 5 p.m. Eastern Time Friday, afternoon. So I'm sure everyone's exhausted. I'm a bit tired. And I do want to thank you, Adam, for joining. And I think when the pandemic hit a year ago, I thought that the long-run impacts of that of the pandemic would be decidedly negative, that there would be what economists said, would call a scarring, that, you know, we'd see a lot of business failure. A lot of people will be thrown out of work permanently. It would just take us a long, long time to recover from the ill effects of the pandemic.

And I agree with what you said earlier, Adam. I do think the policy response, the monetary policy response early on and then the subsequent fiscal policy response, you know, most recently with the American Rescue Plan, has been so massive that it has helped bridge all of us to the other side. And, you know, there's obviously been a lot of pain and suffering here, you know, healthcare and financial pain and suffering. But we've navigated this much, much better than I thought. And then, moreover, the pandemic has had impacts that are longer lasting that may actually end up being a positive, a plus. I mean, I can think of a few things like certainly supercharging our use of, of, of,

of the online activities. You know, we were doing that anyway, and that was going to happen, but clearly the pandemic put that into hyperdrive, and we're in a very different place today than we would have been without the pandemic in terms of online usage and activity. You know, travel, business travel,

I think it's going to significantly impact the way businesses. Not so much on the tourism side. It may take a little bit of time just because the pandemic is still raging in the rest of the world, and global travel isn't going to kick right back in to get her. take a few years for that to happen. Business travel, that's not going back to the way it was. But at the end of the day, the thing that is the biggest game changer, and I think for the, you know, there's positive and negatives of any change, but on net, definitively positive is work

from anywhere. This is a fundamental shift in the way we live in work. It's going to have all kinds of implications. And I totally agree with the idea that, you know, there's, it's like almost like the internet. We all adopted the internet, but those companies that were born after the internet was in place, they, they, they, the internet was in their DNA and they could capture the productivity benefits of that and it was evident in the data. And I sense the same thing happening here. Companies that are born on the other side of this in a work from anywhere kind of environment are just going to be light years ahead and we're going to see, you know, enormous benefits from this, from this dynamic. And I think it's global. I think it's global. I think it's global.

I don't think it's, in fact, this may be one of the most significant global unifying forces in the world, you know, at the end of the, I know. It sounds like a little bit hyperbole. I might be getting ahead of myself and I probably am. But, you know, I do think there's a lot to be excited about for this development. With that, hey, Adam, really, thank you. You're welcome back anytime. In fact, I'm going to ask you back regularly. Hopefully you will join, although we have to see the ratings, you know, our listeners are important here.

So we're going to get the feedback. And, you know, if the feedback's good, no, I'm only kidding. I'm sure it's going to be fantastic. But next time we can do it as bowling alley. Yeah, we can do it from his bowling alley. Hey, oh, you have good, good pizza. I haven't had pizza, good pizza in a long time. You have pizza at the bowling alley or?

No pizza. It's a real restaurant there. It's not. Oh, it's a real restaurant. Okay. Yeah. Adam, over under Mark and Chris Bowling 150. Oh.

Oh, no, I got to, sorry, guys. I got to say. I'm going to take the under tilt. What do you bowl? What is your typical goal? I am not that great of a bowler, honestly. I like the arcade game. So I'm the ski ball is my game.

Okay, got it. Chris, are you a bowler? No. Not at all. Really, I'll bet you on the 150, Brian. I can do 150. Of course, I'm getting a little older. You know, as a younger man, I could.

Is that a dollar bet? Oh, geez. Well, about a slice of pizza. A slice of pizza. Let's make it a slice of pizza. Yeah. All right. Well, thank you very much.

And hey, if you like what you heard, rank us. We need those rankings. So please. And also questions. Fire away. Last week I asked you for questions. I got a couple. I'm collecting them.

We now have a new email address. Inside Economics at Moody's.com. Oh, inside economics, one word at moody's.com. Send in your questions. and we will at some point answer those questions. And we've got a lot of swag for those folks that we take questions from. So thank you very much and talk to you next week.