The Major Way Remote Work is Transforming our Cities
Amazon’s HQ2 selection process featured an ensemble cast of recent troubling trends: the increasing and overwhelming economic dominance of Big Tech; the backlash against that dominance; middle America’s recent inability to compete with the coasts; broken political processes yielding disappointing yet predictable ends. No one — cities or taxpayers — left feeling good about the outcome. In hindsight, we will see Amazon HQ2 as the beginning of the end of an old regime of economic development, one in which local governments entice large employers with lavish incentives, competing at the expense of taxpayers and workers. Instead, the future of local economic development is about attracting workers themselves.
If Amazon’s process was the beginning of the end, COVID-19 is the end of the end. Capital investment at large employers has slowed at the same time that those employers are exercising far less control over where their workers live. Many employers are now declaring partial or full remote work permanent. In the past several months, companies ranging from Pinterest to REI have given up on planned headquarters, burning the proverbial boats in a commitment to remote work.
Overall, this is a win-win for both employers and workers: companies save money while employees save time commuting. But a subtler and critically important secondary effect is in motion: a fundamental shift in how cities attract investment and economic opportunity that reorients focus from the employer to the worker.
To understand what has changed, it is important to understand how economic development has historically been done. For decades, cities and states have competed with each other to attract jobs and investment, fighting over companies’ new headquarters, back offices, factories, distribution centers, and other economic infrastructure. Governments’ arsenals included a wide array of grants, tax incentives, and regulatory leniency. By playing the game well, companies could tap taxpayers to foot the bill for expansion, with local governments trusting that their investments would circulate back into the economy and eventually into state coffers through income and sales taxes.
In addition to effectively transferring wealth from individuals to companies, the existing economic development process favored large corporations at the expense of small businesses. When BigCo can build a factory on the taxpayer’s dime, it entrenches their power and makes it even more challenging for smaller businesses and upstarts to compete.
Fairness aside, the harsh realities of “being uncompetitive” forced cities and states to play this game. And economic uncompetitiveness is a downward feedback loop: as a region declines, it becomes more and more difficult to recruit new employers.
Various social trends over the past half century have served to make this feedback loop more powerful. For example, while beneficial for society as a whole, the rise of dual-income households has entrenched major cities as economic powerhouses. When both partners in a couple have careers, there are less viable opportunities to move to a smaller city — while one partner may have a great job offer in hand, the other may face extended unemployment or a dead-end career path by moving to a location with fewer job opportunities. This concern discourages employers from opening offices in smaller cities, leading to a self-reinforcing cycle: fewer employers means fewer economic opportunities, which means more hesitation for dual-income couples to move to a new city, which further discourages employers.
The rise of remote work breaks this cycle. When employees have more flexibility in where they work — even if only one person in a household is working remotely — they’re more willing to relocate to a smaller city and optimize for things beyond the raw number of economic opportunities available. Education, lifestyle, affordability, and political alignment all matter. And when workers have a greater say in where they choose to live, the nature of economic development shifts to focus less on the employer and more on the worker.
This consumer-oriented shift has already begun: cities including Savannah and Tulsa have launched economic development programs offering direct payments to workers that choose to relocate to those cities. Vermont is paying employees $10,000 each to relocate to the state and work remotely. The pandemic has only made these programs more important and a larger picture of those states’ and cities’ economic development initiatives.
This is a great thing for workers and cities alike. Rather than paying large employers directly through grants and tax incentives — and hoping those payments trickle down into increased commerce and tax base — governments are giving direct payments to workers who will unquestionably plow those grants back into the local economy as they spend money, pay taxes, send their kids to school, and buy homes.
While the rise of remote work and the changing face of economic development will lead to a reshuffling of economic power, cities will still remain magnets for talent even if employees select away from New York and San Francisco and toward Savannah and Burlington. There is a lot of evidence that employers followed workers into cities over the past two decades, not the other way around. And as long as people — particularly young people — want to socialize, date, see friends, and go out, they will gravitate to cities rather than single-family detached homes in the exurbs. Cities will come out of this pandemic just fine, as they have with previous pandemics for millennia. But the new economic winners might be very different from those pre-COVID.
Those winners will be determined by cities’ ability to shift their economic development engines from recruiting employers to recruiting talent. They will need to create the spaces that enable effective remote work as well as get the intangibles right, offering a great lifestyle at an affordable price to a worker who could choose to live anywhere. And they’ll need to develop a wholly new skill set — marketing — to make sure they’re on the radar of mobile creatives. A great reshuffling has begun, and now the race is on to determine the 21st century’s economic winners.
