The Work-From-Home Boom Is Here to Stay

employees who have embraced that change of scenery. But those decisions can also come with a cost, namely a localized compensation. So that's the big question. Would you take a pay cut to keep your job but live where you want? Before the pandemic, the US had never been less mobile in its entire history. So what transpires next and how that question gets answered could bring some profound changes for the US labor market, the economy, and the country as

a whole. This episode is brought to you by Principal Financial Group, combining actionable insights with specialized solution scans to help you meet your investment goals. Get to know us at Principal dot com. Go burboard, young knowledge worker. The pandemic has meant that white collar workers can suddenly live anywhere that will have implications for pay. How does salary

cut sound and could reshape the US? By Noah Buhire Rachel music Er was on maternity leave, stuck in a two bedroom basement department with a newborn when COVID nineteen started spreading in New York City. Her husband, who works in the insurance industry, was still commuting on the subway, so she started making him shower before holding the baby. It was just starting to feel unsafe to even go for walks, Musicer says, so on March fourteen, they packed

a few bags and drove to Rochester, New York. Musker had loved her Brooklyn neighborhood. The rent was ridiculous, but there was a bistro a few steps from her apartment that ord a fabulous brunch if you were willing to wait for a table, and a daycare a half block away where she planned to send the baby. None of that mattered now the daycare might not even be open when she went back to work. Brunch was a before times indulgence. She and her husband had planned to stay

with her parents for two weeks in Rochester. They ended up there for nine Afterward, they rented a house outside town on Lake Ontario, and Musker settled back into her job as director of communications at the real estate and technology company Redfin. In August, the couple bought a four bedroom, thirty four hundred square foot house for three hundred and

fifty five thousand dollars. There was a time when the thought of relocating to her hometown would have been something close to a nightmare for Musicer, But to her pleasant surprise, Rochester wasn't that bad. Her mom was helping with childcare, it was easier to shop for groceries in a car, and there was a straight out of Brooklyn Craft Brewery nearby. It was a whole bunch of young people in a field at picnic tables, drinking in the middle of the day.

She says. We could picture it in Williamsburg. Like many people during the pandemic who could suddenly work remotely, Musicer had moved without figuring out all the details with her employer. One thing they hadn't discussed was salary. Now that she lived in an inexpensive city, Redfinn asked, would she be willing to accept a pay cut. It's a question that's

been foisted on many white collar employees. In February, only eight percent of the U S workforce did their job entirely from home, according to research from the Federal Reserve Bank of Dallas. It spiked to thirty five percent in May as offices stayed closed and workers fled to less densely populated areas. The work from home rate has fallen a bit since and will drop further as vaccines are distributed, but a substantial number of workers are likely never going

back to their old offices. This shift has been especially pronounced in the tech industry, which has a high concentration of employees who can work from anywhere but are based for now in expensive coastal cities. Facebook, Microsoft, and Stripe have announced that more employees will be able to work remotely indefinitely. Like Redfin, those companies are also adjusting pay for workers who relocate. Music Er salary and bonus will go down about next year if she stays in Rochester.

She's resigned to the tradeoff, at least for now. So much in the world is not how I thought it would be, she says. What music Er and workers like her do in the long run, could be one of the lasting legacies of the pandemic. If the exodus to second cities and exerbs becomes permanent, it has the potential to improve corporate balance sheets, remake labor markets, and profoundly

reshape the American landscape. Millions of upwardly mobile urban dwellers may find that they can move out without sacrificing their career ambitions. It's only just started, says Nick Bloom, an economics professor at Stanford who studied work from home trends. There's going to be a reverse of the urban boom.

There are doubters, of course. Jamie Diamond, Larry Fink, and Reed Hastings, the bosses of J. P. Morgan, Chase, black Rock, and Netflix, respectively, have all argued against the shift, suggesting in various ways that remote employees aren't as productive, that corporate cultures will be eroded, and that worker's mental health could suffer. Musicker's boss Glenn Kellman shares some of those concerns.

The Red Fend chief executive officer loves his company's Seattle headquarters, which features catered meals and a video game room, but he now wonders if he was imposing his preferences on his employees. There's a narcissism to it. He says that if somehow they're in close proximity to me, we will

share some kind of weird energy. That's part of why he's set a new corporate policy in August, allowing what Redfinn calls headquarters employees, the one thousand or so people who aren't real estate agents or field operations staff, to work remotely full time as long as they accept localized compensation. The policy makes sense for redfin, which has more to

gain than most employers from a wholesale labor shift. The company, which has been around since two thousand six, is a low cost real estate brokerage that also maintains a popular home shopping app. It employs about nine salaried agents in more than ninety markets in the US and Canada and offers listing fees that can amount to as little as a third of the industry standard. When the virus shut down the economy this spring, investors worried Redfin would be

saddled with big losses. The company had expanded into mortgage lending and had been buying homes for cash and flipping them. Business practices that had begun to look dicey. Home sales plunged, Hurting agent fees Redfin's stock law two thirds of its value from February one to March eighteenth, falling to ten

dollars and thirty three cents of share. By early April, Kellman had decided to forego the remainder of his three hundred thousand dollar based salary for the year and temporarily cut the pay by ten percent for all headquarters staff who made more than eighty thousand dollars a year. He furloughed or let go two fifths of the agents and their support staff. Then, almost as quickly as things had

fallen apart, they came roaring back. Low mortgage rates and newfound work flexibility gave people a reason to buy homes in places they would never have considered before. In August, the National Association of Realtors reported that the area around Kingston, New York, a working class town about two hours north of Manhattan, had the fastest appreciating home prices in the US. Throughout the West, communities near national parks and ski resorts

were becoming zoom towns for remote workers. Dramatically pushing up home prizes. Maln Niels, who had spent a decade horrifying their parents by paying three thousand dollars a month to occupy tiny, roach ridden Warren's near farm to table restaurants in big cities, had already started seeking out farm to table restaurants in the suburbs. The pandemic accelerated that trend too. Redfin took advantage of all this, allowing homebuyers to video chat with agents or to take virtual reality tours on

its website. Revenue ended the second quarter at two fourteen million dollars, up eight percent from a year earlier. The company reinstated salaries for headquarters staff in June, and by the next month had brought back the agents at furloughed. In September, the stock climbed to more than fifty dollars a share. Inside the company, though employees had been demanding answers. We had people asking, well, when are we going to come back, Kellman recalls. Some of them wanted to know

if they could move to Montana. The head of product design, Colin Grigson, eight, had been spending part of his time in an airstream on land. He owned outside Walla Walla, Washington. There was no running water, but he was logging on to video calls through a Verizon hot spot and using solar panels to power his computer. I'd be in these meetings and they're like, how is this working, Griggson says.

More common, though, were questions about regional moves. An employee wanted to leave Seattle's Queen Anne neighborhood for Mill Creek, Washington, about twenty five miles north. How often would she have to come into red Fenn's headquarters. Even Kellman's executive assistant was thinking about moving to a far flung suburb. In June, Redfinn told employees they wouldn't be required to come back to the office for the rest of the year, and Kellman started working with his executive team on a longer

term plan. Many companies and large organizations, including the federal government, pay differently in different places because the costs of living in labor can vary widely. Red Fenn had been no exception, and it already had a process for changing pay for agents when they moved between markets, But until that point, relocations and salary adjustments for headquarters staff had been handled

on a case by case basis. Over the summer, Redfin's human resources team began surveying employees and researching how businesses such as Facebook, Uber, Amazon, and MasterCard were approaching the challenge. Even in normal times, getting the numbers right is tricky. Pay too little and a business will struggle to recruit. Pay too much and profits suffer. So companies constantly keep tabs on the cost of labor in markets where they operate.

Before the pandemic, Redfin considered raising engineer salaries every six months to stay competitive with the big tech companies. Remote work introduced a whole new set of challenges. Kellman says it was like opening an office in every American city all at once. Suzanne Sanders, director of Compensation, started her analysis by getting data on roughly se cities from the Economic Research instoo out, which compiles information on wages and

the cost of living across the US. She grouped the data by state and metro area and focused on professionals who made around one hundred thousand dollars a year, roughly the midpoint for redfin Seattle headquarters staff. She also included variations for different kinds of jobs, such as software engineer and product manager creating an insane spreadsheet. By late August, red Fend executives had settled on an approach that divided

metro areas into tiers based on cost. Should Portland, Oregon, where the median home sold for about four hundred and fifty thousand dollars, be lumped in with Seattle, where it fetched sixty dollars? Was it right to separate the huge sprawl east of Los Angeles County, which is part of the Riverside metro area, from Los Angeles itself. People sometimes commute between the two, but the cost of living is

about twenty five lower in Riverside. Then there was Bend, Oregon, a sun soaked city on the eastern side of the Cascades that's popular without doorsy types and thus a bit more expensive than comparable locations. On August twenty fourth, the executives went back and forth during their weekly Google hangout, debating where to put the town or whether to call it out at all. Have you been to Bend. It's so small, said one executive, suggesting they could safely ignore it.

Kelman disputed this. It's growing incredibly fast, he argued, It's like the Austin of Oregon. Two days later, Kellman sent an email to all staff outlining the new policy. He said he expected most headquarters employees to eventually come back to a red Vent office at least a few days a week, but they'd now have the option to work wherever they wanted full time if they got approval from their manager and a senior executive. Employees would also get

six weeks of notice before offices reopened. Then he turned to the juicy stuff money. Extremely expensive areas the San Francisco and San Jose metro areas would continue to command the highest salaries and equity awards. Recruiting and retaining people in two of the most costly housing markets in the

country would be impossible without paying top dollar. Expensive areas such as Boston, Los Angeles, New York, Portland, and Washington, d C. As well as their suburbs, would hu to the same levels Redfin had been paying employees in Seattle. After that, there was a big group of mid tier areas.

Anyone who moved from an expensive place to one of these would get a ten percent to fifteen percent reduction in cash compensation, salary plus bonus, as well as ten percent to twenty percent less in stock These included Austin, Baltimore, Chicago, Denver, Houston, Miami, and Philadelphia, as well as Frisco, Texas, just outside Dallas, where Redfin has an office. The company also threw in a few cities in the Pacific Northwest, including Olympia and

Bellingham in Washington and Bend. Everything that didn't get called out, which included vacation spots such as Aspen, Colorado, rust belt towns like Detroit and Rochester, and some major metro areas like Atlanta, ended up in a vast and vaguely insulting bucket called rest of the US. Employees who moved to these places could expect a twenty pent reduction in cash compensation and to twenty five percent cut to equity awards, even though a few of these locales were bound to

have higher costs than Seattle. Almost a hundred questions poured in during a live employee Q and A in late September. Workers wanted definitions of the costs of living in labor and to know how their specific circumstances would be treated. A few asked the obvious question, why was it fair for people doing the same jobs to be paid different wages depending on where they lived. Kelman had anticipated the pushback.

Even for a business where everyone is in one office, pay is a hornet's nest, he wrote at the end of his email outlining the policy. What makes pay especially tricky now is that simplicity and fairness trade off with one another. Most employees chose to see the bright side. Nick Smith, a thirty five year old senior product manager in Seattle and avid snowboarder who had been with the company for two and a half years, was already headed

to Bend when the policy was announced. The ten percent to pay cut seemed fair to him because his research suggested wages in Bend were as much as less than what they were in Seattle. A senior product manager at Redfen in Seattle can make between onety seven thousand dollars and one sixty three thousand dollars in salary before bonus is in equity. It was a sigh of relief. Smith says,

I was like yes. He and his wife sold their four bedroom craftsman style home in a walkable Seattle neighborhood and for roughly the same money bought a rural property that felt like a palace. Their new house is forty eight hundred square feet and has an in law unit on about three acres outside Bend and thirty two miles from the closest ski mountain. Redfin's remote work policy and what Smith was reading about other companies made him comfortable

that he wasn't committing career suicide. He says. He plans to stay in Bend for the rest of his life and raise his two kids there. I don't want my options to ever be limited, he says, and I don't think they will be, at least for a narrow slice of the workforce. This seems to be the case. The remote positions US employers most want to fill right now are dominated by tech roles, including front end developer, full

stack engineer, and product manager. According to LinkedIn, For these jobs, the pandemic has created what amounts to a national labor market that could ultimately cause salaries to stagnate in tech hubs while they gradually rise elsewhere. If companies can source talent anywhere more cheaply, the extremely high salaries in the Bay Area in Seattle may look a lot less reasonable.

Kellman has been attuned to this for years. Redfin used to pay engineers fresh out of school about eighty thousand dollars a year, but that had spiked to around one thirty thousand as the company has tried to keep pace. Part of what we've always been doing is rationalizing the higher pay, he says. Our CFOs perspective on this isn't why are we lowering pay in Dallas. It's tell me why the worker in San Francisco earning more than the worker in Seattle is that much more productive? Much wider

adoption of remote work has implications beyond money. Many companies say remote work will help recruit more diverse employees. Redfinn has been somewhat of a leader on this front, hosting a symposium on real estate and race two years ago and publishing data regularly on diversity in its workforce. Even so, only three of its technology employees are black. As Kellman points out, one reason engineering has been this enclave of white privilege is because we created a cult around a

certain type of person. Consider Phyllis Geroggi, who grew up in Massachusetts. After graduating from Toughs University in with a degree in cognitive and brain science, she started making spreadsheets of places in the US that had a warm climate, were diverse and had a reasonable cost of living. Houston won out, and she moved there in March to start looking for jobs. She initially found work as a hostess at a restaurant, only to have it closed after her

first day because of the virus. Meeting people in a city where she knew no one proved challenging with so much shut down. Then in June, one of her former college classmates contacted her on LinkedIn saying Redfin was hiring product managers. Jeroji, who is black, initially hesitated because she didn't want to move to San Francisco, go she'd never visited, but it's extreme wealth, inequality and widespread homelessness were a

turn off. A friend had also told her that he'd become hyper aware of how few other black people were in the city. Over the summer, though, Gero j realized she could work from Houston at least until the end of the year. Her job even came with a Bay Area salary, despite her living with roommates in a city where the costs are about forty five lower. As much as she feels productive working remotely, there are drawbacks. It's been a hard adjustment to learn how to make casual

conversation with coworkers. She says Gerogi plans to eventually move to the Bay Area once Redfin's office is reopened, though it's unclear when that will be her situation. Hence at the potential complexities to come for Redfinn and its employees. A senior product manager may be able to acquire acreage and bend and do his job remotely in a way that a more junior staffer from Houston with no built

in network can't. Another big question is how to treat workers who want to come back to the office for only a few days a week. For now, Redfinn isn't making a distinction between those who come in every day and those who sometimes work from home, which means Grigson, the airstream guy, will still be able to collect his Seattle paycheck even if he occasionally logs in from Walla Walla while he builds a house out there. Not that

anybody is coming back soon. In October, amid yet another wave of COVID infections, Kellman announced that Redfinn won't expect people in its offices until at least June one. He also said those who moved only temporarily during the pandemic wouldn't have their pay changed. In general, Kellman says he wouldn't be surprised if salaries eventually inch up in smaller cities as more companies allow for remote work, and the promised cost savings on real estate might not be as

great as some expect. The overall need for office space could drop about ten to fifteen percent in the US, according to the research firm Green Street, but that could be offset if companies spread employees out more to make them feel more comfortable. As Facebook CEO Mark Zuckerberg conceded in a live stream with employees in May, it's really unknown what the economics of this are going to look like.

The uncertainty goes well beyond real estate and business. Where people live will have profound implications on everything, including politics and climate change. An exodus from California could make the state more competitive for Republicans and turn Texas more toward Democrats, but it's also possible that people who leave will select regions where they feel more among their political tribe, deepening divides.

Telework could significantly decrease carbon emissions, but it could also lead to dirtier commuting patterns if more people end up driving in from exerbs a few times a week rather than writing public transit or walking from an apartment near the office. What this means for cities is going to be complicated too. Younger workers will probably still come to

urban areas to start their careers and have fun. For highly educated people, cities are marriage markets, says Jenny Shoultz, a fellow at the Brookings Institution who studies housing policy. Married drivers may also stick around to be close to the action, or if both partners can't find fulfilling work

in the zoom town of their dreams. But lots of other people are going to decide they can get more of what they want in cheaper cities or suburbs, whether that's access to nature, a home with a yard, or good schools, even if the dating scene leaves something to be desired. This potential shift could have devastating consequences for extremely expensive places, but it could also spread wealth more evenly. Before the pandemic, America had become less mobile than almost

at any point in our history. Kellman says, no matter what the economic cost of being in San Francisco, people would pay it. Having more remote workers means wages in Texas are going up, he says, so our housing price is. You can't have a two million dollar, two thousand square foot house in San Francisco and to two hundred thousand dollar house in Dallas that are basically the same for very long. When there are airplanes and internet connections and zoom.

None of this makes the decisions employees have to make over the next several months any easier, especially for those who relocated in a hurry. Music Er, the Redfind Communications director, has until May to figure out whether she's staying in Rochester permanently and taking the pay cut. She's still not sure, and the decision will depend partly on whether her husband is allowed to work remotely after the pandemic. But she's more open to living up state than she ever thought

she'd be. We were making a lot of sacrifices in Brooklyn, music Er says. In Rochester, we get so much more for our money. And that is this week's cover story. Check out more stories in the current issue of Bloomberg Business Week magazine. It's on newsstands, online and at Bloomberg dot com and on the Bloomberg terminal. I'm Carol Mam sir, and check out Bloomberg Business Week Radio Monday through Friday

at two pm Wall Street Time on Bloomberg Radio. Catch to our daily podcast feed at Bloomberg dot com, Apple Podcasts or wherever you get your podcasts. And watch us on YouTube, just search Bloomberg Global News