By James Pethokoukis and Nicholas Bloom

America’s major cities host top research universities and innovative startups. But are the opportunities they create worth competing for? And is virtual work likely to stick, making geography irrelevant altogether? On a recent podcast, Nicholas Bloom joined to share insights from his latest research.

Nick is the William Eberle Professor of Economics at Stanford University. This summer he co-authored, along with Tarek Hassan, Aakash Kalyani, Josh Lerner, and Ahmed Tahoun, the working paper “The Diffusion of Disruptive Technologies.” In the spring, he and Jose Maria Berrero and Steven Davis released a working paper titled “Why Working from Home Will Stick.”

Below is an abbreviated transcript of our conversation. You can read our full discussion here. You can also subscribe to my podcast on Apple Podcasts or Stitcher, or download the podcast on Ricochet.

Pethokoukis: Is
it worth it for government to try to create technology hubs in areas that haven’t
benefited in the past from lots of growth in high-skilled jobs?

Bloom: Yes, it is in the short run, but less so in the
long run. Initially, when technologies enter the commercial world, low and
high-skilled hiring tend to be very geographically concentrated. I think Steve
Jobs first held [the iPhone] up or announced it in, what, 2006? Thereabout. Both
low and high-skilled hiring for cellphones was pretty much concentrated in
Silicon Valley. The engineers were there, but also the low-skilled jobs (making
them, selling them) initially were concentrated there.

What you see is these jobs spread out, particularly the
low-skilled jobs. So within about 20 years, on average for technologies,
low-skilled jobs are completely spread out across the country. High-skilled
jobs tend to stick more in the place the technology was born, and it takes them
about 40 years to spread out.

Can this be
successfully done as a conscious, directly planned effort?

I’m not sure very top down industrial policy has a great
track record. Paying company X to move to place Y historically has not worked
out that well. If you want a lot of grads and post-grads in your city, you want
to make the center of town safe but fun, enjoyable to live in, good schools, etc.
In the data, basically a lot of research universities, a lot of graduates are
very predictive of these technologies.

I think it’s a good idea for the federal government to put
more money into technology and research. And you certainly could target a few
cities that have lots of potential — as in cheap housing, a reasonable supply
of graduates, appealing to graduates as well — and put resources into those.
And if you run it through universities and research centers, you’d get startups
and spinoff growth, and you get a mini Silicon Valley picking up. So yes,
absolutely.

How much will
working from home stick?

Working from home is going to stick, but more at the
extensive margin. Before the pandemic, roughly 15 percent of Americans ever
worked from home for a full paid day, and that accounted for 5 percent of
working days. During the pandemic, that exploded to 50 percent of Americans,
and probably pretty much most people are probably working from home or at least
have for chunks of the pandemic. It’s pretty clear post pandemic, the setup’s
going to be hybrid.

So most employees, 80 or 90 percent of us that are
currently working from home, will go back to the office, say, three days a week,
and work at home two days a week. Pretty much everyone that is working from
home now will be post pandemic. But rather than doing it five days a week,
typically we’ll be doing it two days a week. And for most people, that’s
actually a pretty happy medium.

From what you
found, are people as or more productive working at home compared to working in
the office?

Yeah, so hybrid’s basically a win-win. I ran a randomized
control trial on working from home in China 10 years ago and found that people working
from home for four days a week were 13 percent more productive. About 4 percent
of it comes from them being more productive per minute, and the reason is, it’s
quieter at home. The other 9 percent is folks at home just worked more minutes
because they took shorter breaks and they had less delays. I would say that the
large reading on the literature, and our survey data, seems to be working from
home increases productivity.

In terms of repeating tasks, it seems fine, if not better,
doing them at home, because it’s quiet and you have more time, and you save on
the commute. The problem seems to be what I would call long-run productivity:
being creative and innovative. And certainly from anecdotal evidence there’s
more concern that certainly five days a week working from home could hamper
long-run creativity.

Do you think
that we’re going to have higher productivity growth, for whatever reason, in
the decade ahead? You’ve written that the productivity gains from working from
home may not show up in the official government statistics.

Imagine the average American commutes one hour a day, and
imagine I now work at home. I produce exactly the same amount, but I stop
commuting. But now I’m producing the same amount through spending five hours
less a week commuting. Or maybe just I’m more efficient at home, but I work a
shorter day. In the US, we currently have GDP above pre-pandemic levels, but we
have six million less jobs. So of course, if we’re producing more with six
million less people, our productivity is substantially up. So is the pandemic a
new normal? I’d say I’m slightly skeptical. Working from home is great and
maybe kicked up productivity 2 or 3 percent, but I don’t think it’s done much
more than that.

So my guess is some of the burst in productivity we had
now will unwind. Beyond working from home, it’s hard to think what the pandemic
has done to generate such a big increase in productivity.There’s nothing about the pandemic that’s made AI particularly
easier to use. I mean, maybe you could argue it’s made it more appealing to
have robots rather than people to, say, serve your coffee, but that incentive
is already there. In reverse, the pandemic, I know from Stanford University,
has been hugely disruptive. It closed down a lot of the labs, still the social
distancing capacity is down, etc.

But if we saw one, the most likely reason would be that in 2018 or 2019, we had all these technologies that were ripe for expansion — AI, computer vision, driverless cars — and finally the light switch gets turned on, or something clicks, and they finally take off.

James Pethokoukis is the Dewitt Wallace Fellow at the American Enterprise Institute, where he writes and edits the AEIdeas blog and hosts a weekly podcast, “Political Economy with James Pethokoukis.” Nicholas Bloom is the William Eberle Professor of Economics at Stanford University.

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