This review considers how one of the side effects of the Covid-19 pandemic, that of homeworking, may impact on the agglomeration benefits that transport projects may deliver. There is substantial evidence on the extent of homeworking, and how this has changed during the pandemic. The evidence identifies that homeworkers during the pandemic are predominantly made up of urban based, white collar, well educated, service sector employees. The pandemic has increased the proportion of homeworking in each occupation and sector, but aside from possibly the administrative and secretarial occupations has not significantly altered the demographics of the homeworker. The pandemic also highlights a potential upper ceiling to the numbers of homeworkers of around 60% to 65% of the workforce in the core demographics that are suitable for homeworking. Over the whole workforce it is likely that only between 40 and 50% could work from home.
The literature contains much speculation about the future of homeworking and how this may change the hierarchy, shape and function of cities. However, from stated intentions data it appears that homeworking is seen by the majority of the (pandemic homeworking) workforce to be something they only want to do some of the week – commuting on the other days. This would imply that cities and city centres will continue to remain important in the future, but that there will likely to be some changes in the land and transport markets as a consequence of more homeworking. What happens in the land and transport markets will be interrelated.
Aside from impacting on where people work, homeworking may impact on agglomeration benefits by changing the scale of the external benefits to agglomeration – by affecting the agglomeration elasticity and the decay parameter. We find that there is little empirical evidence that can be drawn on regarding the influence of homeworking (or digital connectivity) on agglomeration economies. What data exists on agglomeration elasticities is very much at an aggregate level, and cannot be disaggregated beyond sectors and countries. The evidence on the different micro-mechanisms that underpin agglomeration economies is very much concerned with demonstrating the relevance of the mechanism as a source of agglomeration economies, rather than identifying the proportion by which each mechanism contributes to agglomeration. This does not permit it to be used to estimate the potential for homeworking to enhance or erode the scale of agglomeration economies ceteris paribus. The only form of disaggregation possible is between the static (matching and sharing sources) and dynamic mechanisms (learning sources). Potentially homeworking may enhance matching mechanisms (by lowering average commute costs), but if learning mechanisms are dependent on face to face contact then these may be eroded. However, this is conjecture as evidence is non-existent on the impact of step changes in interaction costs. It is in our view unlikely that homeworking will negate the existence of agglomeration economies, though it could alter the productivity levels in cities and alter the change in productivity due to transport investments. Cities have been remarkably resilient to the digital age, and in fact are becoming increasingly important. This is attributed to their role as centres of ideas. Households also like to locate in cities for the amenities on offer.
To understand the potential impact of a step change in homeworking, as induced by the pandemic, on agglomeration benefits in a transport appraisal some research is needed. This is multi-pronged. Given the age of the current agglomeration parameters (agglomeration elasticity and decay parameter) and the need to better understand the role of transport costs in the ATEM function updating them would strike us as the most important aspect of research to pursue. In the short term this parameter updating could be undertaken using wage data such as from the Labour Force Survey (LFS) which already includes a ‘rough’ variable on homeworking. Enhancing the data collected in the LFS or using an alternative secondary data source would be a longer term option. In terms of answering the question as to what the potential impact of homeworking will be on agglomeration benefits, this is clearly something that can explored in the short term using scenario analysis: based on estimates of homeworking, land use change and transport cost changes. Longer term a deeper consideration will need to be given to consistency across the different facets of the appraisal such as other wider impacts in TAG, the land use inputs used as standard in appraisals and the treatment of uncertainty in these inputs.
Full report:
LAIRD, J.J. and E. TVETER (2021) Agglomeration under Covid. Report to the Department for Transport. Report dated: May 2021.