The zoomshock is changing the urban geography of labour with implications for restaurants, pubs, gyms and hairdressers

1 February 2021

By Professor Gianni De Fraja (Professor of Economics, University of Nottingham), Dr Jesse Matheson (Senior Lecturer, Department of Economics, University of Sheffield) and Dr James Rockey (Senior Lecturer, University of Birmingham)  

The zoomshock is changing the urban geography of labour with implications for restaurants, pubs, gyms and hairdressers

The economic consequence of the COVID-19 pandemic is disproportionately shouldered by services that are locally consumed. Businesses in this industry include restaurants, cafés, pubs, hairdressers, retail outlets, theatres, and so on. What distinguishes these businesses is that they offer services for which the supply and the demand must be geographically coordinated: one  cannot enjoy a latte from a London café whilst in Cardiff or Edinburgh.

This industry is important. It makes up more than 30% of the UK labour force, and 40% of the UK workers who do not hold higher-education qualifications. Businesses in this industry are also an important part of what makes urban living great. Pubs, cafes and gyms make up both the economic and social fabric of our neighbourhoods.

In our ESRC-funded research project [1], we are using new and existing data to better understand the impact that the Covid-19 pandemic is having on our locally-consumed services. By understanding the different risks posed by the pandemic and the geography of these risks, we are creating new information to guide place-based recovery policy.

The pandemic poses three distinct threats to businesses and workers in this industry. First, these businesses are social by design; in many cases, social distancing measures have therefore led to the complete shut-down of many of these businesses. Second, these businesses are hit hard by recessions, when workers across other parts of the economy experience loss of jobs and income, spending on locally consumed services falls. Finally, the pandemic has led to an unprecedented shift in where people are working, from the office to home, which we call a zoomshock. This zoomshock also changes the geography of demand for locally-consumed services. This is the focus of our recent research published in Covid Economics (De Fraja, Matheson, Rockey; 2021).

Our research paper quantifies the zoomshock for neighbourhoods across England, Scotland and Wales. The zoomshock is big: more than 25% of UK workers work in a different neighbourhood than they live in, and have a job that can be done at home. An important pattern quickly emerges: working from home has moved workers from office-dense city centres to relatively low-density residential suburbs. Another way of looking at this is that office workers, and their demand for locally consumed services, are moving away from neighbourhoods in which there are many businesses offering locally-consumed services to neighbourhoods in which there are relatively few, creating a supply-demand mismatch. As a result, cafes in residential neighbourhoods are experiencing long queues, while many city centre cafes have chosen to close their doors.

The zoomshock has three important lessons we need to consider in post-pandemic recovery:

First, the allocation of scarce resources at aid recovery should be place-based. A café located in an affluent residential suburb is likely to realise a surge in demand, as the residents in these suburbs are more likely to be working from home and less likely to suffer an employment interruption. The same café in the city centre is likely to experience a significant loss in demand; office-work may never go back to its pre-Covid levels. The highly productive areas of   City of London and Westminster underscore this point: as much as 70% of its large workforce commutes to work and can work from home (Figure 1).

This figure maps the change in economic activity (based on number of jobs performed) by middle super output area for the Greater London area. Blue areas indicate an increase in activity; red areas indicate a decrease in activity.

Second, the supply-demand mismatch created by the zoomshock is, to an important extent, a capacity-constraint problem. The zoomshock reallocates a significant portion of the demand for delis, cafés and hairdressers, from urban neighbourhoods with many of these services to suburban neighbourhoods with relatively few, and with limited suitable premises. This means there will be employment loss in the short-to medium run; even when workers can change jobs to follow the demand, there will only be limited floor space for them to work. Suburban retail shops, bakeries, and hairdressers can only hire so many additional workers without expanding their floor space.

Third, it is critically important that we understand how many workers are likely to return to the office once the public health crisis is over. This will guide recovery policy. If a significant portion of the labour force continues to work from home after the pandemic, then policy should support and encourage locally consumed services to relocate to the residential neighbourhoods in which homeworkers live. If we expect office work to quickly return to its pre-Covid-19 level, then the goal of policy should be to ensure businesses survive until then, avoiding costly business turnovers due to a temporary demand shock.

Working-from-home has allowed many workers to continue their employment with minimal interruption while following public health guidelines during the Covid-19 pandemic. The zoomshock may have positive implications for those who can telework, meaning that many more of us in the future have the opportunity to work from home at least some of the time, saving time and resources. But, as we have found, it may also have serious negative implications for the LCS sector. It is vital that these workers are not left behind, magnifying existing inequalities.

De Fraja, G., J. Matheson, and J. Rockey, 2021. Zoomshock: The geography and local labour market consequences of working from home. Covid Economics, 64, 1–41.[SW4] [1] This research is funded by the Economic and Social Research Council (ESRC) under the UKRI Covid-19 rapid response research call. Project title “The geography of post COVID-19 shutdown recovery risk in UK economic activity. Implications for recovery inequality and targeted stimulus”. Grant reference ES/V004913/1.

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Professor Gianni De Fraja is Professor of Economics at the University of Nottingham, and at the Universita’ di Roma “Tor Vergata” (part-time), and Research Fellow at CEPR. He received a DPhil from Oxford in 1989, and held chairs in York and Leicester. His research interests are in the areas of labour and public economics, and the economics of education. Personal website: https://sites.google.com/site/giannidefraja/

Dr Jesse Matheson is a Senior Lecturer in the Department of Economics at the University of Sheffield and has previously taught at the Universities of Leicester and Calgary (Canada). His research interests are in the areas of public, labour and health economics. Personal website: https://sites.google.com/sheffield.ac.uk/jessematheson

Dr James Rockey  is Senior Lecturer in Economics at the University of Birmingham and previously also taught at the Universities of Bristol and Leicester. An applied economist, his substantive research interests are broadly in the areas of Political Economy and Inequality.  He also enjoys interdisciplinary collaborations. Personal website: https://www.jamesrockey.com/

The perspectives expressed in these commentary pieces represent the independent views of the authors, and as such they do not represent the views of the Academy or its Campaign for Social Science.

This article may be republished provided you place the following statement and link at the top of the article: This article was originally commissioned and published by the Campaign for Social Science as part of its COVID-19 programme.