The new ‘Zoom economy’ brings winners and losers

The home working revolution could mark a ‘profound rebalancing of the economy’ – but the benefits won't be shared equally

Zoom rocket
Office life has adapted to the Zoom economy better than most had expected

Covid-19 has upended the world. The New Normal is a 10-part series looking at the stunning ramifications for the world of economics and business. Part seven explores the rise of the new working from home economy many firms have adapted well, but the leisure and hospitality sectors have been left behind and face a highly uncertain future.

Where better than the white sands and crystal clear waters of the Caribbean to wait out a pandemic? With faster internet speed than the UK and Covid-free since June, Barbados is trying to tempt workers who can log on remotely into making the idyllic island their home.

The new 12-month “Barbados Welcome Stamp” is aimed at the millions of workers who have found they can work from anywhere in the world without a hitch. The $2,000 (£1,530) visa may only be a gimmick to whet the appetite of holidaymakers, but it does hint at the huge potential the new “Zoom economy” holds.

“People will look back at what Covid changed, and they'll see it changed the way we worked,” says Mark Dixon, founder of office space company IWG.

“It has forced people to experience a different type of working that they wouldn’t have normally done and for our industry in the medium to longer term it will be transformational.”

Forced on employers and workers by the pandemic, the shift to remote working has crammed years of transformation into just weeks and months. But keeping workers cooped up in spare bedrooms and entrenched social distancing rules are also having a dramatic impact on other parts of the economy. The Zoom economy has as many losers as winners.

The UK has been among the most adaptable to remote working, but is also more vulnerable to the pandemic than most. Of the major Western economies, only Spain suffered a greater hit to GDP during a record-smashing first half of 2020.

Social distancing has dealt a serious blow to the hospitality and consumer industries

After official figures last week showed output plunging by 20pc in the second quarter, Chancellor Rishi Sunak said “the primary explanation is the consumption of our economy”. 

“Social activities – going out for a meal, going to the cinema, shopping – those kinds of things comprise a much larger share of our economy than they do for most of our European comparator countries,” he said.

Critics will argue that the longer lockdown had a larger impact on the dire GDP figures. But restaurants, bars, cinemas, theatres, bowling alleys, nightclubs, nail bars, football matches and hairdressers all depend on the face-to-face interaction and social consumption that Covid-19 has made dangerous.

“Sectors vulnerable to social distancing and ongoing restrictions account for 30-40pc of consumption in most economies and so represent a significant potential drag on consumer spending,” says Ben May, director of global macroeconomic research at Oxford Economics.

Many of those activities have reopened, but venues now have lower capacity limits. Social distancing has also instilled a caution in consumers that is damaging the economy. Precautionary saving by households fearful of a second wave of job losses is also likely to keep the pressure on these industries until a vaccine is found.

Personal care services, dentists and childcare are the industries with the highest contact intensity, according to the St Louis Fed. Schools, bars and restaurants also scored highly, with 35pc of employment and 27pc of total labour income in the US in high contact-intensive industries. But the St Louis economists found that the damage caused by social distancing is not just contained to those areas.

“The economic impact of social distancing may extend well beyond its direct impact on contact-intensive industries via the indirect impact on low contact-intensive industries,” says Fernando Leibovici, its economist.

If demand stalls for high-contact industries, the impact heads down the supply chain to others not directly hit by social distancing. A bar with no drinkers will buy less from brewers, while film production or popcorn sales will be affected if movie watchers shun cinemas.

British workers remain reluctant to return to the office

While it is a race against time to rescue swathes of services firms, office life has adapted to the Zoom economy better than most had expected. White collar workers have ditched shirts and ties for shorts and t-shirts but have largely been as productive in spare bedrooms and on kitchen tables as in offices.

Of the legacies left behind by Covid-19, the remote work revolution has the potential to be the most enduring and positive. At its most transformational, it could solve city housing crises, slash office costs for businesses, open up job opportunities to millions more workers and accelerate businesses’ tech adoption.

“Even if we do land at some kind of balance between office and home working, it would still represent the most monumental shift in working habits that we’ve seen in decades,” says Pablo Shah, economist at the Centre for Economics and Business Research.

“It would lead to some quite profound rebalancing of the economy.”

Shah says the move could help the Government's bid to "level up" British regions outside London the South East, but adds that the main effect is likely to be the movement of economic activity from city centres to the suburbs.

Boris Johnson wants workers to start returning to the office but Britons are staying put for now. Morgan Stanley found that the UK is lagging well behind other countries in terms of workers returning to their desks.

Only a third of office staff have gone back, well behind most of Europe where the figures are 83pc and 70pc in France and Germany respectively. Some two-thirds of Britons working from home would like to do more in the future, while 55pc say they will be very or somewhat comfortable with hotdesking after the pandemic.

“Everyone has discovered pretty much countrywide that they can work from home or near to home and still be productive,” says Dixon. 

“Companies have found that they don’t lose any productivity from people working in a decentralised way or from home.”

Remote working revolution will reshape companies and city centres 

In adapting to the pandemic and smoothing the transition to remote working, firms are embracing technologies that will help to boost productivity, such as cloud computing.

“One of the major reasons for the productivity gap is only a few firms in key industries have managed to keep up with the pace at which underlying innovation was expanding,” says Berenberg economist Kallum Pickering.

“We have been forced to utilise these technologies in order to find a way around the pandemic and the social distancing.”

If remote working takes off, city centres could be among the biggest losers of the Zoom economy. The pubs, restaurants and Pret A Mangers that rely on workers commuting into cities will find demand squeezed as services are pushed out to rejuvenated suburbs.

Transport will face lower demand, meaning services could be reduced, but the enormous pressures on housing in Britain's biggest cities will ease if workers can be based further afield.

Dixon says city centres face a “painful short-term situation” but he expects them to adapt. Companies will be anchored to offices larger than needed for some time by leases, but every month there will be leases that end and more companies that will change.

“It is a gradual change that was happening but is now socially acceptable," he says.

"For a company it is a massive saving as well. Everyone's a winner.”

For the millions of home workers, Barbados may be a stretch. But the rise of the Zoom economy could still have a profound, lasting effect on their daily routine.