The Changing Environment for Work—and Incentives
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Dr. Ellen Harpel and Randall Bauer
May 5, 2023
The COVID-19 pandemic fundamentally altered many aspects of 21st century life. Besides the obvious health issues, it accelerated a change in how work is conducted. This in turn has significant implications for the use of work-related government incentives.
The work from home (or remote work) movement had been slowly growing for decades. In the 1960s, nearly one percent of U.S. employees said they worked from home. By 2019, it was five percent. Then with the arrival of the pandemic, the use of remote work accelerated dramatically. In mid-2020, 62 percent of employees were remote workers, according to one national survey. In April 2022, 39 percent of people were still working remotely, well after the end of many pandemic-related activity restrictions. Multiple surveys indicate that workers prefer these job arrangements. A LinkedIn study of activity on its website found that in February 2023, 12 percent of its paid job postings were for remote work positions, but they attracted 52 percent of job applications.
This is an important factor for state and local governments as employers. Many public sector entities are seeing remote work as having multiple benefits including helping to attract and retain its present and future workforce, while still lagging the private sector in pay.
Beyond that as remote work has become a significant workforce feature, it has changed several work-related dynamics that impact local governments in a variety of ways. These include:
- Population shifts. There was a notable population decline in major cities and urban counties during the pandemic—and remote work was part of why. While some have returned to urban areas, that doesn’t necessarily translate into prior levels of economic activity.
- Economic activity and revenue shifts. Prior to the pandemic, worker and commuter activity in urban centers meant spending for transportation (transit fares, parking taxes), purchases of food and beverage (consumption taxes) and property taxes for the buildings that house the workers. Bringing workers from outside of cities also created nexus for local income taxes in many places.
- Fixed costs that cannot be recouped. When workers are only in the office twice a week, bus and train routes still need to accommodate them, likewise with fire and police protection. Meanwhile, property values tied to rental income from downtown buildings will decline—which reduces property tax revenue.
Incentives in the Remote Work World
For years, many business incentives have been tied to creating or retaining jobs, generating payroll or making capital investments. Now, governments should consider the level of remote and hybrid work to ensure the requisite economic activity occurs to provide the expected economic and fiscal return.
Some are adapting incentive program rules to consider the new reality. Program changes include:
- Adapting incentive program rules and offers to address remote workers;
- Specifying how remote workers will be counted for job requirements;
- Defining the amount of time workers must be on-site for location-specific incentives;
- Establishing geographical definitions for counting remote workers for location-specific incentives.
A common adjustment requires remote workers to be a resident of the state offering the incentive. Existing job quality metrics, such as wage levels and benefits, typically continue to apply. Governments are also increasingly looking beyond job counts toward metrics like workforce training/skills development, property revitalization or capital investment.
With low unemployment and high demand for skilled workers, state and local governments are also turning to worker (rather than business) incentives. Many seek to take advantage of the ‘in the cloud’ work environment by attracting remote workers. While migration (particularly of skilled workers) is generally beneficial, the level of incentive and the value proposition need to be clearly articulated. The economic impact for a relocating household will be less than the impact of a major business investment, where there are impacts on suppliers and potential business clustering effects. As a result, the justifiable incentive ’cost per job’ needs to be adjusted accordingly.
Even so, worker attraction policies, including those aimed at remote workers, remain popular. Evaluations of programs in Vermont and Tulsa, Oklahoma suggest that remote worker attraction policies may be effective in attracting new people and generating meaningful economic benefits. It is not clear whether communities that have followed in their footsteps have been as successful. One reason is that the powerful media attention Vermont and Tulsa received as policy innovators likely played a role in the number of program applicants each received. Second, incentives are important but may not succeed without other sufficient attributes such as affordable and available housing, childcare, broadband and cultural and recreational amenities to support workers and build a sense of connection to the community. In short, an incentives-only policy is unlikely to be effective.
Conclusion
The United States is still adjusting to remote and hybrid work. As the work environment continues to evolve, so will state and local incentives. State and local governments have already made many adjustments to their incentive policies to acknowledge the real changes their communities and businesses are experiencing. It is imperative that incentive policy evolutions identify the fiscal impact for the public sector and the strategic impact for their economies.
Authors: Dr. Ellen Harpel is Founder of Smart Incentives and Randall Bauer is a Director with PFM Group Consulting. This article was written under the auspices of Barrett and Greene, Inc.
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The Changing Environment for Work—and Incentives
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Dr. Ellen Harpel and Randall Bauer
May 5, 2023
The COVID-19 pandemic fundamentally altered many aspects of 21st century life. Besides the obvious health issues, it accelerated a change in how work is conducted. This in turn has significant implications for the use of work-related government incentives.
The work from home (or remote work) movement had been slowly growing for decades. In the 1960s, nearly one percent of U.S. employees said they worked from home. By 2019, it was five percent. Then with the arrival of the pandemic, the use of remote work accelerated dramatically. In mid-2020, 62 percent of employees were remote workers, according to one national survey. In April 2022, 39 percent of people were still working remotely, well after the end of many pandemic-related activity restrictions. Multiple surveys indicate that workers prefer these job arrangements. A LinkedIn study of activity on its website found that in February 2023, 12 percent of its paid job postings were for remote work positions, but they attracted 52 percent of job applications.
This is an important factor for state and local governments as employers. Many public sector entities are seeing remote work as having multiple benefits including helping to attract and retain its present and future workforce, while still lagging the private sector in pay.
Beyond that as remote work has become a significant workforce feature, it has changed several work-related dynamics that impact local governments in a variety of ways. These include:
Incentives in the Remote Work World
For years, many business incentives have been tied to creating or retaining jobs, generating payroll or making capital investments. Now, governments should consider the level of remote and hybrid work to ensure the requisite economic activity occurs to provide the expected economic and fiscal return.
Some are adapting incentive program rules to consider the new reality. Program changes include:
A common adjustment requires remote workers to be a resident of the state offering the incentive. Existing job quality metrics, such as wage levels and benefits, typically continue to apply. Governments are also increasingly looking beyond job counts toward metrics like workforce training/skills development, property revitalization or capital investment.
With low unemployment and high demand for skilled workers, state and local governments are also turning to worker (rather than business) incentives. Many seek to take advantage of the ‘in the cloud’ work environment by attracting remote workers. While migration (particularly of skilled workers) is generally beneficial, the level of incentive and the value proposition need to be clearly articulated. The economic impact for a relocating household will be less than the impact of a major business investment, where there are impacts on suppliers and potential business clustering effects. As a result, the justifiable incentive ’cost per job’ needs to be adjusted accordingly.
Even so, worker attraction policies, including those aimed at remote workers, remain popular. Evaluations of programs in Vermont and Tulsa, Oklahoma suggest that remote worker attraction policies may be effective in attracting new people and generating meaningful economic benefits. It is not clear whether communities that have followed in their footsteps have been as successful. One reason is that the powerful media attention Vermont and Tulsa received as policy innovators likely played a role in the number of program applicants each received. Second, incentives are important but may not succeed without other sufficient attributes such as affordable and available housing, childcare, broadband and cultural and recreational amenities to support workers and build a sense of connection to the community. In short, an incentives-only policy is unlikely to be effective.
Conclusion
The United States is still adjusting to remote and hybrid work. As the work environment continues to evolve, so will state and local incentives. State and local governments have already made many adjustments to their incentive policies to acknowledge the real changes their communities and businesses are experiencing. It is imperative that incentive policy evolutions identify the fiscal impact for the public sector and the strategic impact for their economies.
Authors: Dr. Ellen Harpel is Founder of Smart Incentives and Randall Bauer is a Director with PFM Group Consulting. This article was written under the auspices of Barrett and Greene, Inc.
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