The Economics of Working from Home

Article by Harald Eustachius Tomintz
January 22, 2021
The Economics of Working from Home

Strict lockdowns imposed by governments to slow the spread of covid-19 continue to force more and more people around the planet into a “work from home” setup. This is problematic for a number of reasons as the citizens of countries around the world have to go about work and entrepreneurial activities under a number of restrictions: Tomas Forgac summarized major problems encountered by people who try to go on with their lives amid quarantine requirements.

Others have already commented on policies related to government action against covid-19, so rather than analyze such restrictions directly, this article will focus on insights and lessons learned from applying Austrian perspectives of time coordination to the difficulties present in the global phenomenon of working from home. Theoretically there should be many advantages due to more and more work and business efforts going digital, but in practice, this is not quite the truth.

The Theoretical Pros

The Austrian perspective values time and coordination. Where other economists see things primarily in terms of labor and capital, there is also a value in seeing things in terms of how subjective inferences about the future are made in a particular context and at particular points in time. In a free market economy, having access to information is a must for things to happen efficiently and smoothly. This would lead to better coordination among individual actors.

In the initial weeks of the lockdowns, many seemed to like the idea of working from home. Similarly, the idea seems attractive to businesses as well: a lot of the troublesome things that come with the daily grind are eliminated entirely as colleagues and employees use their smartphones and computers to react instantly to work matters. With limitations and mandates against going out, it becomes natural to make the most out of the situation and explore better ways of doing things.

That said, when business meetings are no longer in person, when everything is said in a clearly written email, when people no longer have to spend hours commuting to and from work, then coordination should be easier, and efficiency should be increased, right? Not quite.

The Practical Cons

To illustrate the drawbacks of the work-from-home setup, we have to consider an important concept in Austrian economics known as “opportunity cost.” To put it simply, this is not merely the monetary cost of something. Rather, it is the cost of what is given up when pursuing something else. Compatible with this is a concept borrowed from Ivan Illich, the idea of “shadow work,” which is essentially the time spent on the unpaid work one needs to do in order to actually perform paid labor.

A simple example should illustrate these two concepts. Let us say that a person with a 9:00 a.m. to 6:00 p.m. job (an eight-hour work day, lunch time excluded) spends an hour commuting to work in the morning and another hour commuting back home at the end of the day. A normal consideration would be to say that this person only works eight hours a day. However, when we use opportunity costs and shadow work to measure time, we see different dimensions instead.

It may well be that a worker would like to shorten their lunch break for various reasons, such as to run an errand or even to finish a task that “cannot wait.” Doing so is a classic example of opportunity cost, as lunch is considered “free” time, but the time isn’t actually free, because that time could be used to do something else instead. The two-hour total of daily commuting from home to work and vice versa, on the other hand, could be called shadow work. This is time not considered part of the working hours per se, but it does take up part of a work day, and it is a necessary task that needs to be done in order to actually do a job. That’s a ten- or eleven-hour work day in the eyes of the employee, and not just an eight-hour one!

In practice, an employee in such a situation might choose to, for personal reasons, forego lunch one day to finish their daily tasks as fast as possible, so that they might leave work early and beat the afternoon rush back home. In this case, the employee is making a subjective and time-based value decision: rather than stay at work until 6:00 p.m., the employee finishes work early by skipping lunch and thus manages to go home as soon as possible, “saving” their time.

This leads to the realities that come with lockdowns. In a work-from-home scenario there is no need to commute or spend time in traffic. Likewise, the comforts of being able to prepare and eat one’s food at home can tempt people into believing that the new setup is convenient in terms of “saving” time. It is easy to fall into the trap of thinking that opportunity costs and shadow work can be mitigated or eliminated because everything is now done in one place.

One might even be fooled into feeling thankful for compulsory regulations that limit movement just because the hassle of distractions and personal costs of time associated with long business meetings, hours stuck in traffic, and so on, are suddenly gone. Poof! Just like that. Yet fast forward to the end of 2020, and we find out that, as with many things in reality, life isn’t that simple.

For example, the distinction between private life and work became blurred in many aspects, which certainly didn’t help the mental health of people coping with the isolation. In cultures where this distinction between work life and leisure is hard to make to begin with, the expectation of being online all the time causes much stress. Agreeing on common times to do work and coordinating effective schedules becomes difficult as well when one takes individual contexts into consideration.

As it turns out, while some meetings could have been reduced to a simple email, making everything an email isn’t the solution either. Those work spaces that realized this were quick to hold online meetings, which are cumbersome due to connectivity issues, unfamiliarity with the technology, and other aspects that make time coordination difficult. Rather than “save” time and improve efficiency, time is lost. In countries where internet access is already unreliable due to storms and inclement weather, it adds another contextual layer of hardship, exacerbating an already tiresome situation.

Conclusion

That everything is going online from now on due to the pandemic is not to be taken for granted. In theory, many things should become easier for work life as a consequence. In practice, however, and most especially due to a continued lack of coordination, that certainly won’t be the case.