Why Work From Home Is Painful for the Economy

Everything is connected. As any middle school algebra teacher will tell you, a change in X causes a change in Y. The same can be held true for our economy, which can be thought of as a series of interconnected activities.

The process of creating a wooden table from a tree in the woods seems pretty straight forward. But there are many parts involved.

One person had to sell the ax, another had to cut down the tree, another had to drive the truck to transport the tree, an individual then had to split the tree into its separate parts for the table, someone had to put the table together, someone had to transport the table to a retail location, multiple people had to decide on the price and other marketing details to sell the table, someone had to complete the sale of the table, and lastly you had to buy the table.

You buying that new table helped support many jobs and individuals.

An item as simple as a place to sit down and eat lunch at your house, impacted many lives. There are even more people involved in this example than mentioned.

Pandemic Pains

As the pandemic continues, many employees are still working from home. There are many individual pros and cons of this, as well as societal pros and cons.

But the impact on the economy shouldn’t be understated, especially during the beginning of the pandemic. Many industries have suffered and as a result, many working in these industries have had it rough.

New York City was the busiest city in the US before COVID-19. Now, it’s not nearly as vibrant as many employees are working from home. Looking at a typical pre-pandemic day in the city and all the interactions one single person has, shows how interconnected the economy really is.

Let’s say the typical New Yorker wakes up, takes the subway to their office. They stop at their favorite local coffee spot. Around noon they go out to eat with some of their co-workers at a close pizza joint. And after work they go to a bar for a few drinks. Not only have they helped the transportation industry and three local businesses in the food and beverage industry (which has been hurt immensely by lockdowns), they have also helped all the businesses that support these establishments.

All these locations receive ingredients and supplies from a variety of vendors. And transportation is needed to bring everything into the city.

On a larger scale, with people working from home New York loses on revenue from bridges and tolls of people driving into the city. Public transportation takes a huge hit as well. If people are not using the trains and subways systems, the government loses revenue, lowering their budget and having to cut spending.

In the past, most people left their houses five days a week for work. They ventured outside and lived their daily lives. Within this daily life, they spent money on any appealing item, service, or experience they came across. With most people working from home now, spending has shifted more online and impacted many lives.

It is also important to point out, certain companies have benefited from the pandemic. More people are buying home office supplies, companies are investing in video teleconference services, and RVs have become a popular travel vehicle.

Consumer Spending

Gross Domestic Product (GDP) is a measure of a country’s economic production. It essentially tells the size and growth of an economy. In the US, roughly 70% of GDP is from consumer spending.

That is a high percentage of our economy dependent on one area. But consumer spending is a bucket consisting of many parts.

The issue is that as consumers spend less in the pandemic, whether their income is reduced, they are saving out of fear, or any other reason, the economy will suffer. And as all parts of the economy are connected, a decrease in one section will likely lead to other decreases.

Consumer spending has been such a big part of the US economy in recent decades. It has fueled economic and job growth. As consumers habits start to change, temporarily or permanently, it will be interesting to see the long term impacts it has.