4. Post-COVID-19 spatial effects and policy responses for G7 countries

The Covid-19 crisis has brought manifold changes to the way people interact and firms do business, but with unequal effects across the territory. The COVID-19 crisis has accelerated the trend of digitalisation, allowing a higher share of workers to continue their economic activity from home and many firms to function virtually, without a common physical workplace. Yet, as previous chapters have depicted, the capacity to adopt remote working methods is unequal among type of regions, workers and firms. Notably, large cities are the places with the greatest share of the labour force that is capable of working remotely because of the larger share of well-paid and high educated workers in high-value added service activities. Looking at the post-pandemic scenario, governments need to put in place forward –looking policies to help all regions seize the benefits of remote working and prepare for changes in settlement patterns.

This digitalisation of economic interactions has opened the possibility for workers and firms to reassess where to live and locate, which can reduce the attractiveness of cities, although a massive exodus from cities is unlikely. Cities have historically attracted most workers and firms due to benefits from physical agglomeration of economic actors. Greater acceptance and adoption of virtual working methods and social interactions offer new incentives for workers and firms to relocate outside high densely populated areas. These incentives include access to affordable and bigger housing and office spaces and to environmental amenities. Yet, densely populated areas will likely retain most workers and firms, as they benefit from economies of agglomeration and will also seek ways to transform and improve quality of life.

Irrespective of the post-pandemic scenario and the decision of workers and firms to relocate across the territory, policies need to be forward looking and responsive if they are to seize the potential benefits that remote working and other technologies can offer. Emerging technologies coupled with a greater adoption of remote working will continue to disrupt the benefits of physical proximity and the way people and firms interact, which could lead to new forms of mobility for a share of the population. Policies have then a decisive role in the future attractiveness of regions and the environmental and economic outcomes in the new normality.

This chapter sets out possible effects of COVID-19 on the adoption of remote working and the spatial distribution of people and firms, and outlines current and required policy responses to benefit from these new trends. The chapter begins by reviewing the results from recent research and surveys on the effects of COVID-19 on remote working adoption and on the spatial decisions of workers and firms. Then, it outlines the G7 policy strategies at national and regional levels to make the most of remote working and attract people and firms. Finally, the chapter examines the policies needed to enhance the long-term attractiveness of non-metropolitan regions.

The COVID-19 pandemic has accelerated the adoption and acceptability of remote working. As Chapter 2 and 3 depicted, during the COVID-19 crisis many firms and workers have embraced remote working as a common practice and relied on it even during the months it was not compulsory. The increasing adoption of remote working coupled with a greater digitalisation of services and human interactions might offset some of the central forces behind economic agglomeration in cities. This section revises recent academic literature and official and private surveys on the long-term effect of COVID-19 on remote working adoption and on the spatial distribution of people and firms.

COVID-19 has led to an unprecedented growth of teleworking. This crisis led many firms to accommodate their business models to function remotely and workers to change labour habits by working at home. Although prior to the COVID-19 outbreak, teleworking used to be treated chiefly as a matter of opportunity to improve employee’s work-life balance, during the pandemic it became a mainstream standard in many professional environments. Remote working is a new experience for many, and it has proven to have a number of benefits and challenges for people and firms.

Working at home has proven to bring benefits for people and firms in a number of economic, social and environmental areas:

  • Economic benefits:

    • For firms: remote working enlarges the pool of workers that firms can choose from (e.g. high skilled workers who, for personal reasons, are tied to a specific location), which can decrease labour costs and improve skill-matching. Furthermore, with a share of employees working at home, firms could reduce some costs on office space, utilities or services. Remote working can also improve and normalise co-operation among satellite offices within the same company and open new business opportunities to meet teleworkers’ needs.

    • For workers: remote working reduces commuting expenses and creates labour opportunities for women, people with disabilities or the elderly (Chapter 2). It also offers the flexibility to have multiple jobs and to relocate to reduce housing and living costs.

    • For society: Remote working can spread wealth across the territory by allowing mobility –temporary or permanently – to different locations.

  • Social and environmental benefits:

    • For workers: This labour practice can improve work-life balance by allowing workers to spend more time at home with the family and decreasing commuting time.

    • For society: Remote working can have an impact on the reduction of global greenhouse emissions, air pollution and transport congestion, resulting in lower levels of air pollution.

However, remote working also revealed a number of shortcomings in economic, social and environmental areas. As explained in Chapter 2 and 3, the unequal capacity to adopt remote working based on the type of region, type of worker or type of firm is a chief challenge for the future. However, some of the challenges in adopting remote working might include the speed and the compulsory nature of this labour practice coupled with lockdowns and the technology available until now.

  • Economic challenges:

    • For firms: a greater adoption of teleworking raises questions around innovation and team cohesion. It also creates challenges for team management and limits the gains from information and knowledge spill overs inside and among firms. The cost associated with adopting digital technologies and management reorganisation is a sizeable challenge, particularly for small firms.

    • For workers: Disparities in access to telework add to existing dimensions of income inequality. Well-paid workers and those in high value-added service activities are often more likely to telework, while those with lower incomes and performing in-person services do not have the same possibilities. It adds to the cost of utilities and equipment at home. Career progression and networking is also perceived as a shortcoming of teleworking, especially for young people.

  • Social and environmental challenges:

    • For firms: Corporate culture belonging to a company might be affected by employee retention and engagement.

    • For workers: Inappropriate working environment at home, high levels of multitasking with children, isolation, hidden overtime and blurry boundaries between private and work life, with consequences on health (OECD, 2020[1]). Many workers found themselves working at home with children and in unsuitable spaces and work conditions, especially young and low-income workers (Gorlick, 2020[2]). Moreover, the Covid-19-related economic crisis has exacerbated inequalities among type of workers, based on education, economic activity and gender (Chapter 2 and 3).

    • For society: remote working might lead to a change in the mobility patterns of workers and greater individual consumption of resources at home (e.g. water, energy) which would require a readjustment of the strategy to attain climate goals due to lower gains from efficiencies of agglomerations (e.g. waste management, building energy efficiency).

Figure 4.2 summarises main challenges and benefits of teleworking during the recent scenario of short-term adaptation to this new working practice.

Although the net effects on productivity levels are not yet clear, the results seem to be better than expected. Prior to the pandemic, the literature on productivity of working from home was relatively scarce. According to studies in the US and China before COVID-19, workers experienced an 8% to 13% increase in productivity due to working from home (Emanuel and Harrington, 2020[3]; Bloom, 2015[4]).1 During the pandemic, the net effect of remote working on productivity remains unclear, as other factors affected workers' performance and well-being, such as lockdowns, mobility restrictions and the speed of the transition.

On the positive side, several studies, mainly through self-reported assessments, highlight the positive effect of telework on productivity during the pandemic:

  • According to (Barrero, Bloom and Davis, 2020[5]), out of a sample of 1 500 workers in the US, 84.7% reported a similar or higher level of productivity from being at home than in the office. These authors estimate that productivity levels with remote working could increase by at least 2.4%, taking into account that this scenario involves other effects affecting productivity (e.g. children at home, pandemic-related stress) (Barrero, Bloom and Davis, 2020[5]).

  • During May and June 2020, the Boston Consulting Group surveyed 12 000 employees in teleworkable activities in United States, Germany and India, of whom 75% reported being at least as productive in performing their individual tasks as they were before the pandemic (BCG, 2020[6]).

  • In May 2020, a survey by YouGov, LinkedIn and USA Today covering 2 001 US adults showed that 54% of respondents stated that remote working had a positive effect on their productivity (YouGov, USA TODAY & LinkedIn, 2020[7]).

  • Etheridge et al. (2020[8]), using self-reported survey data from the UK, found productivity at home is not significantly different from productivity in the workplace.

However, the conditions under which remote working unfolded makes it difficult to disentangle the net effect on productivity. A firm-survey in Japan underlined that employers perceived a lower productivity level of workers who adopted remote working during the pandemic (40% less than at the workplace on average), yet the effect varies across industries - information and telecommunications industry had the highest productivity, while retail the lowest (Morikawa, 2020[9]). The reported factors affecting productivity include outdated regulations for some tasks, poor telecommunications environment at home, and psychological effects of the health crisis, among others.

Companies have only just begun to apply the best available techniques for remote working. As technology is quickly advancing (e.g. use of virtual reality for meetings) and regulations are being revised, productivity benefits from remote working can be a target for industries and governments to improve in the future.

Some surveys and authors have pointed to a post-pandemic scenario where a hybrid model of working is preferred by workers and firms. Hybrid remote working refers to a combination of time between working at home and at the workplace that varies from reduced working time at home, flexible approaches or only occasional presence at the workplace (Figure 4.2). A number of recent surveys reveal increased intentions from both managers and workers to keep remote working practices in place after the pandemic fades (Table 4.11). Nevertheless, some other surveys raise uncertainties about the extent of teleworking (Indeed, 2021[10]) .

A common characteristic of the surveys analysed is the positive perception on the outcome of remote working and expectations that this working model will continue to a greater extent than before the pandemic (Table 4.1). For example, a survey of 500 managers in Germany shows that a large majority of them (89%) agree that the home office can be implemented on a larger scale without disadvantages, while a global survey from PWC (133 business and 1 200 office workers) reveals that a greater share of employers (83%) agree that remote work has been successful in their companies, in comparison with pre- pandemic scenarios. Specifically in most of the surveys, a hybrid teleworking model is the most likely working system to be implemented in the medium term (e.g. France 58% of respondents and in the United States 62%), in countries like Italy the concept of smart working (remote working but without fixed working hours) reported positive outcomes on productivity.

However, many respondents to these surveys agree that some strategies still need to be put in place to improve teleworking conditions. A survey in France (2 049 employees) highlights an important share of employees (40%) have felt isolated during the remote working periods, which can be explained by lockdown measures. Surveys in countries such as Italy and Germany highlight the relevance of adaptation of a regulatory framework for teleworking, the training of managers and supervisors with remote teams or career progression. The aggregate effect of the share of remote working time and the number of workers adopting this labour practices is still uncertain.

The long-term response of people and firms as a consequence of increased teleworking practices might lead to the relocation of some economic actors outside of densely populated cities, although a mass exodus from cities seems unlikely. Some workers with greater abilities to remote work might be attracted to move outside cities to less densely-populated places that offer housing that is cheaper and bigger with better environmental amenities. Some large firms, mainly technological companies have already given their employees the possibility to work from home permanently (e.g. Twitter or Shopify). Yet, the exodus from populated places is not likely as economies of agglomeration would keep attracting business and workers based on greater network opportunities, entertainment and cultural amenities.

Cities have spearheaded economic success and living standards within countries, while attracting people at a rapid pace. The population living in cities, high-density places of at least 50 000 inhabitants, has more than doubled over the last 40 years (OECD/European Commission, 2020[21]). The agglomeration economies of cities have historically attracted capital, firms, consumers and workers whose physical proximity creates a number of benefits, including a better match of supply and demand for labour, greater offer of goods and entertainment activities. Density of cities has also a positive effect on exchange of ideas, innovation and productivity. OECD estimates point toward a productivity gain of 2-5% for a doubling of population size (OECD/European Commission, 2020[21]).

The attractiveness of cities is not only economic, as city residents also benefit from higher standards of living. Urbanisation and development are closely interlinked (Glaeser and Gottlieb, 2009[22]). Agglomeration increases the efficiency of health and education provision and offers citizens greater access to cultural amenities and social life. Educational attainment is considerably higher in cities than in rural areas, due to a greater concentration of universities and technological centres.

As cities keep growing in size, agglomeration effects also create a number of shortcomings. Cities tend to face higher prices of land and housing and a reduced offer of environmental amenities. Urban residents are more exposed to crime, health related issues, violence and air pollution than residents elsewhere (OECD/European Commission, 2020[21]). For many workers, especially in cites with poorly developed public transport, commuting to work takes an important share of the daily time and represents a high cost. It is also a source of stress and safety concerns.

The arrival of COVID-19 and lockdown measures tarnished some of the attraction of cities, while it exacerbated some of their shortcomings. In many countries, lockdowns were coupled with restrictions on in-person services and cultural amenities such as restaurants, bars or theatres. With the greater adoption of remote working, many people found themselves in small and unsuitable conditions for working at home, while paying relatively high housing (rent, utilities, maintenance) and living costs (e.g. food and utility prices). In fact, a share of urban residents, mainly high earning workers or students with family elsewhere, moved temporarily outside cities, breaking the trend of the last decades of inflow population to the cities (see Chapter 1).

Central business districts in large cities have experienced most of the outmigration during COVID-19. In the largest US cities, this effect was greater among people living in high-income neighbourhoods (Ramani and Bloom, 2021[23]; Liu and Y Su, 2020[24]). People in these neighbourhoods (e.g. Manhattan) have greater incentive to relocate as they are most likely able to work remotely and own secondary houses, while paying high rents and housing prices. Also, during the lockdown periods, the in-person entertainment amenities (restaurants and bars) were shut down, which make it much less attractive to live in those neighbourhoods. For example, during lockdown periods of 2020, Tokyo experienced the first net outmigration since 2013 (Ministry of Land, Infrastructure, Transport and Tourism of Japan, 2020[25]).

Some effects of the temporary outmigration have led to a moderate decrease or stagnation of prices in housing and office space in cities. In many local markets, firms are increasingly reluctant to rent or buy new space while waiting for changes in remote working, which has driven forecasting scenarios of price stagnation in the next couple of years (Credit Suisse, 2020[26]). In 2020, the annual growth of housing prices in capital cities like London (3.5% 2020 vs 2019) or Paris (5.4% for apartment prices 2020 vs 2019) grew below the national average (8.5%, 6.3% respectively) (UK HPI, 2021[27]) (Notaires-Insee, 2021[28]).

Ramani and Bloom (2021[23]) estimated that the top 10% zip codes with highest population density in the central business districts of the 12 largest metropolitan areas in the US experienced more than a 10% drop in rents, while the rent prices in areas with lower population density remain stable or slightly increased. Similarly, the effect on residential and commercial property prices in the 12 largest metropolitan areas in the US decreased relatively more than in less densed populated areas.

With a greater possibility and acceptability of remote working, the arguments in favour of leaving big cities are certainly greater than before the pandemic. The lower living costs and increased affordability of larger spaces in more rural regions are particularly relevant for people. Some people could also value the possibility to be closer to nature and enjoy outdoors activities, while others can see it as an opportunity to leave stress of cities and change their way of living. For businesses, the possibility to relocate outside a city or downscale their offices or headquarters is under much debate. While surveys so far are inconclusive, a common threat is an increasing number of companies expecting to modify their real estate decisions.

The analysis of recent surveys in G7 countries reflects a greater willingness of people to move outside cities and firms’ expectations to modify building offices in cities, in comparison to pre-COVID scenarios.

  • A study in the UK showed that 15% of people surveyed were considering moving out of the city as a result of life in lockdown. Almost one-third (34%) stated they think differently about their home as result of the COVID-19 outbreak, especially the importance of a garden and the need for more indoor space for homeworking (Nationwide, 2020[48]).

  • A survey in Japan conducted by the national government showed that 46% of respondents said they were more interested in moving outside the capital city. Moreover, 14% of the companies surveyed have started to consider offshoring or relocating their headquarters out of Tokyo (for more information, see the (Box 4.1).

  • The AEI Housing Centre has found that between May and August 2020, buyers have opted for homes in areas with 19% less density on average than the same period last year. Demand was up 74% in the least dense quintile of zip codes (Tobias and Pinto, 2020[29])).

  • A survey in Italy found that 85% of people surveyed "would go or return to live in the South if they were allowed to, and if it were possible to keep their jobs remotely". These are young people with a university degree, professional experience and, in 63% of cases, with a permanent contract (Lanari, 2020[30]). Moreover, COVID-19 has also driven requests for properties in the countryside. Thanks to the lockdown period and the massive use of smart working, the demand for farmhouses outside the big cities has soared by 30% compared to the same period in the pre-COVID era (Immobiliare, 2020[31]).

  • A survey in the US showed that a majority (87%) of executives expect to make changes to their real estate strategy in the medium-term. These plans include consolidating not only office space in prime locations but also opening more satellite locations (PWC, 2021[32]).

Despite the greater adoption of remote working, benefits from agglomeration economies will likely be a predominant factor to retain workers and firms in cities. As mentioned before, physical proximity in densely populated areas creates efficiency on economic, social and environmental factors. Exchange of ideas, innovation and business creation are factors that are highly dependent on face-to-face contact and these interactions are a source of productivity, growth and increased well-being. The relevance of in-person social interaction for people also leads to a demand for leisure and cultural amenities, (e.g. bars, restaurants and theatres) which tend to benefit from proximity to highly populated areas. Furthermore, efficiency of economies of scale facilitate a more sustainable management of resources and the attainment of climate goals. These agglomeration benefits will be harder to replace with virtual interaction in the short term.

In fact, in the scenario of greater migration away from cities, the dispersion of settlements could bring negative effects on various fronts, including the environment, income of low-skilled workers in large cities or efficiency of service delivery.

  • Efforts to achieve the climate agenda could be undermined by potential sprawl as remote working becomes increasingly popular. The degree of urbanisation creates economies of scales that are relevant to reduce negative effects on the environment. These places also concentrate higher efficiencies regarding resources management (e.g. wastewater reuse, IT infrastructure), transport (e.g. public transport, commuting) and public service delivery (e.g. gas, water) (Newman and Kenworthy, 2000[35]).

  • An increasing use of a hybrid work model could also reduce aggregate income of lower-skilled workers in cities. As mentioned before, high-skilled workers in cities are the share of the workforce with the greatest capacity to telework. Low-skilled service workers in large cities, who are heavily dependent on jobs requiring physical presence, bore the brunt of the economic impact of the recent pandemic (Althoff et al., 2020[36]). An intermittent presence of these types of workers in central business districts could affect income of local consumer service industries that rely heavily on their demand.

  • Efficiency of service provision could also be affected as cities benefit from scale to provide high quality services, education and health, with an easier access to them.

Despite the uncertainties at the time of elaborating this report, with the pandemic still unfolding, four possible future settlement pattern scenarios could emerge in the new normality as workers and firms increasingly embrace remote working. They include:

  1. 1. business as usual but with greater adoption of remote working

  2. 2. expansion of commuting zones around cities as a doughnut effect, with

  3. 3. a rise of intermediate cities in terms of attractiveness for workers and firms, and

  4. 4. structural changes from a permanent movement of high-skilled workers outside city centres (name it “City Paradox”).

Table 4.2 describes these four scenarios and their possible effects on mobility patterns and regional development. These scenarios might not occur in mutually exclusive forms and the linkages between them may vary in time (some can happen before others) and space (regions can have different scenarios). Figure 4.5 ilustrates these four scenarios.

Whether the post-pandemic world is closer to one of those scenarios, to a combination of some or to none, one thing is likely: the greater acceptance of virtual working methods and social interactions. Any greater magnitude of remote working adoption could imply greater consumption of resources at home and new commuting patterns for some workers. In some cities, a relocation of workers would lead to new demand for transport connections or longer distances commuted by car.

Furthermore, remote working is only one of several practices and technologies that can modify location and mobility patterns in the future (Box 4.2). In the long run, the cumulative effect of this new labour model with technologies such as virtual or augmented reality or automotive vehicles can modify the incentives for workers and firms to live or locate to different places than current ones (OECD, 2020[37]). Technological progress might also allow in-person activities such as hairdressers or sales to conduct services virtually (or through robots). While the future has many uncertainties, technology will certainly keep disrupting the way people interact and the benefits from physical proximity.

Governments should thus establish flexible policies to adapt to changes in settlement patterns, especially with land use and public transport policies as well as the promotion of resources efficiency and circular economy practices among households. The long-term preparedness of local governments and co-ordination policies to improve structural attractiveness and factors for development (including energy efficiency) of all regions is of chief importance for benefiting for any future scenario.

The post COVID-19 scenario is uncertain in many ways, but one thing is likely: the increasing adoption and acceptance of virtual working methods and social interactions. Remote working was a sudden experiment for many actors and involved different challenges for adoption. Yet, results have been rather positive in many aspects, including greenhouse gas emissions, time flexibility, work-life balance and productivity. As a result, in the future, many firms and workers will likely increase the adoption of a hybrid remote working model, compared to the pre-COVID-19 situation.

This new possibility to work and access services remotely will open up many opportunities for places with a low population density to attract new residents and firms. Given that many workers no longer need to go into the office every day, the arguments in favour of leaving big cities are certainly more convincing than before the pandemic. A new set of priorities is taking hold, as the lower living costs and increased affordability of larger spaces in low density regions coupled with greater access to environmental amenities are particularly relevant for firms and people. Either with full-time or a hybrid remote working, firms located in central business districts have incentives to reduce or consolidate office space. This type of change in real estate decisions from the private sector could improve access or affordability of housing and offices in cities.

Yet, a decline of cities is unlikely. Benefits from agglomeration economies will likely be a predominant factor to retain workers and firms in cities. A big exodus from cities would not be desirable for economic, social and environmental aspects. A decline in large urban centres would lead to a loss of economies of scale affecting national growth, efficiency in provision of public services and meeting environmental goals.

This chapter identifies four post-COVID-19 scenarios regarding the impact of remote working on settlement patterns across the territory: i) an important outmigration outside city centres, ii) a movement of actors to the outskirts of cities, iii) a greater attraction of intermediate cities, and iv) little movement but with a hybrid working model. A commonality of these scenarios is the acknowledgement that technology will keep disrupting the way people and businesses interact, which will have an impact (greater or lesser) on spatial distribution and commuting patterns.

Irrespective of the post-pandemic scenario and the decision of workers and firms to relocate across the territory, policies need to be flexible and prepare regions to seize the changes that remote working and other technologies can cause. Indeed, decisions by people and businesses to leave the city entails a cost-benefit analysis, in which local government actions might play a decisive role. Governments need to ensure that people and firms willing to adopt remote working have the right conditions to do so. Therefore the COVID-19 can become a trigger to increase quality of life in rural places, while unlocking and harmonising new growth opportunities throughout the territory.

The need for remote working during the pandemic led many governments to adapt their policies and regulations to ensure the right conditions and outcomes for workers and firms to benefit from this labour practice. This section discusses policy responses adopted by G7 countries to bolster the benefits and mitigate the challenges of remote working and to attract people and firms that want to further adopt virtual methods of working.

Well-designed policies and smarter adoption of remote working could raise workers’ well-being and lower firms’ costs, while reducing the environmental effects of commuting (OECD, 2020[1]). By working at home, workers can allocate their time efficiently, lower levels of stress related to commuting and save transportation-related resources, while achieving greater overall work-life balance. Yet, as described before, this labour practice can have negative effects in terms of greater cost in utilities - especially in countries with extreme weather (cold winters and hot summers), professional isolation and hidden overtime.

G7 countries, as in many OECD countries, have reacted to the need to increase remote working during the pandemic and implemented a number of policies to make the most of this labour method (Table 4.4). Relevant policies to create the adequate conditions for a wider adoption of efficient remote work can be divided into three main groups i) investment policies, ii) policies to overcome cultural barriers and improve the legal framework and iii) policies to mitigate the potential negative side effects of this labour practice (OECD, 2020[1]).

Promoting remote teleworking for all types of sectors and regions requires investments that level the playing field for its adoption. Some of these investments include stimulating investments in high speed broadband, providing financial support to small firms for ICT upgrades and promoting investments in digital skills among workers.

In the short term, all G7 countries have identified ICT support to workers and firms as a cornerstone policy to allow everyone to benefit from remote working. As depicted in Table 4.1, many G7 countries have provided either tax relief (UK, Canada), in-kind services (Italy) or direct grant support (Japan) for workers and SMEs to improve work equipment or technologies. For example, Italy launched the “Digital Solidarity” initiative, a portal where companies (in particular SMEs and self-employed) can access free digital services from large private sector companies (e.g. online conferencing, mobile data, cloud computing, etc.) (OECD, 2020[38]).

In the medium term, a common objective across G7 countries is to improve broadband connectivity in all regions. As discussed in the last section of this chapter, many countries have established strategies to level the playing field in terms of broadband connectivity among urban and non-metropolitan regions. Yet, there is still not a clear focus on ensuring equal internet speeds across the territory.

Remote working still faces a number of cultural barriers inside companies and the legal framework has many grey areas with regard to labour security and support for teleworkers. G7 countries have implemented polices to overcome these barriers:

  • Promoting a ‘right to telework’. G7 countries have taken actions to establish the right of workers to work from home. While it is not a statutory right, most G7 countries had directives even before COVID-19 to encourage employers to allow employees to work from home wherever possible. In France, the order of September 2017 to strengthen social dialogue, which stipulated the right to telework without the need to change labour contracts, had established that in the event of exceptional circumstances (e.g. epidemics), the implementation of teleworking can be considered as necessary.

  • Information campaigns on the broader societal benefits of home office. All G7 countries have implemented either information campaigns about the explicit benefits of teleworking, guidelines for workers and managers to best deal with remote working or platforms to resolve questions about remote working (e.g. France).

  • Adapting the legal and regulatory system. For example, France introduced the use of digital signatures more broadly in notaries, while Canada’s national employment service has an online tool, called "Job Bank", that has changed its website and adapted its services by allowing applicants to specifically search for teleworking opportunities (OECD, 2020[38]).

  • Tax regimes and relief to frontier workers has been a major subject during the boom of teleworking. A co-ordinated regulation is necessary to prevent cross-border teleworking from undermining national labour standards and wage agreements (Baldwin, 2019[39]). Some G7 countries have already signed agreements to address this issue:

    • France and Germany along with Belgium and Switzerland have all agreed to lay down specific tax regimes for frontier workers (Ministére des Affaires Étrangeres, 2020[40]).

    • Germany has concluded mutual agreements with Austria, Luxembourg, and the Netherlands on the taxation of frontier workers, stating that the employment income related to work-days spent at home due to COVID-19 can remain taxable in the state where the usual place of work is located.

As previously mentioned, remote working can lead to negative side effects for workers and firms, which can be overcome with policy responses. Workers can face isolation, ‘hidden overtime’ or increased costs in utilities, while firms can perceive negative effects on innovation, team cohesion and motivation. Policies can help mitigate these effects by promoting opportunities for in-person exchange (e.g. promoting co-working spaces across the country), encouraging the ‘right to disconnect’ or policies to avoid increased costs related to working space and IT equipment on workers.

G7 countries have implemented policies to address some of these challenges:

  • Information campaigns for workers and firms to manage teleworking. This includes encouraging employers to introduce new models to manage employees in remote working. (e.g. Japan has published guidelines for labour management to encourage workers to work from home)

  • Promotion of flexible work arrangements to ensure employees have the option to telework. In some countries (France, Germany) collective arrangements have agreed to monitor and reduce hidden overtime when working at home (e.g. in French post and telecom sector)

  • Most countries have also set up dedicated programmes to allow workers to deduct higher utility bills from their taxes.

Table 4.6 summarises the main policy responses in G7 countries to facilitate teleworking.

Some policy programmes, mainly from regional governments, have created policy strategies to attract workers or firms interested in further adopting remote working. While most G7 countries do not have explicit national policies to drive the relocation decisions of workers, different regional and local governments have established strategies to attract new economic agents to their territory. For most non-metropolitan regions, particularly those remote, digitalisation and attraction policies are a way to tackle depopulation and rapid ageing. As this working method opens up new opportunities for women and people with disabilities to join the labour market (Chapter 2), strategies to attract women and families will help achieve rural revitalisation and build resilient communities.

Some of the strategies to attract workers and firms that adopt remote working include financial or in-kind incentives as well as programmes to ease the relocation process. Financial incentives can be issued to cover the cost of relocation or to sustain the installation during the first few months, while in-kind incentives include providing office space or housing for newcomers. Strategies for easing the relocation can involve offering networking opportunities with local firms and community or creating fast track tools to accelerate the administrative process related to moving into the area:

  • In-kind incentives. Some regional governments have aimed to improve remote work conditions by providing in-kind facilities for co-working such as industrial parks or co-working spaces. This strategy reduces the cost of offices for newcomers and also creates space for exchanging ideas and agglomeration economies among firms and workers, recreating the in-person contact that cities offer. For example, the Schleswig-Holstein region in Germany launched a pilot initiative, called CoWorkLand, which rezoned empty buildings in rural areas to create co-working spaces as a new solution for workers.

  • Easing the relocation process. Some local strategies have aimed to promote the benefits of the non-metropolitan regions and to create networks with local actors before their arrival. For example, Gers, France has launched the SOHO SOLO initiative to support independent entrepreneurs who wish to settle in the region by discussing in advance practicalities and needs (access to trains and planes or quality and places to educate children) and offering meetings with other workers already in place and sharing the experience of their families (Soho Solo, 2021[42]).

  • Financial support for relocalisation. Other governments have established active financial support to attract workers (Tusla, Oklahoma or Vermont in US). For example, Tusla, Oklahoma launched the Tulsa Remote initiative which provides remote workers and digital nomads with a maximum USD 10 000 grant (partly upfront for relocation expenses and in the form of a monthly stipend), a one-year membership at a local co-working space, support in finding housing, and regular community-building opportunities (OECD, 2020[38]).

  • Flexible/temporarily attraction of remote workers. In Japan, prior to COVID-19 some regions were promoting the concept of the "workation" (work + vacation) as a way to encourage longer-term stays among visitors and travellers in non-metropolitan regions, while contributing to a more sustainable regional revitalisation model. After COVID-19, workation gained a greater role as a policy strategy and was actively supported by the national government. Regions like Nishi-awa (Tokushima) or Urabandai region (Fukushima) offered plans to remote workers that include working facilities and organised touristic tours.

At the national level, within G7 countries, Japan is an outstanding case of a country with a national strategy promoting teleworking as a tool to reverse the population decline as it seeks to reduce the excessive concentration of the population in the Tokyo metropolitan area and revitalize non-metropolitan economies.

With the COVID-19 pandemic, Japan’s government has seen in remote working and digitalisation a possibility to accelerate the goal of tackling population decline and boost quality of life by repopulating non-metropolitan regions in a family-friendly setting with a better work-life balance. The country has long struggled to boost its fertility rate to the replacement level, partially due to the work culture, a deterioration of employment opportunities for young men and the traditional gender division of labour (Tsuya, 2017[43]) Benefiting from the digitalisation trend, the country updated in December 2020 its core policy, which was implemented in 2014, to address population decline and repopulate non-metropolitan regions. The Comprehensive Strategy for Overcoming the Population Decline and Vitalizing Local Economy (Box 4.3). Some of the mechanism to promote remote working in this strategy include:

  • Provide local governments a grant to enhance local conditions for teleworking practices, including setting up satellite offices in non-metropolitan regions (the Regional Vitalization Teleworking Grant).

  • Information campaigns to promote the advantages of remote working for firms and local governments

  • Promoting flexible working styles. This includes guidelines for employers to manage teleworkers and update labour practices.

  • Specific support to ease implementation of teleworking in SMEs, including grants and free consulting service by IT experts.

This policy goes beyond the support to teleworking and actively incentivise relocation into non-metropolitan regions. In December 2020, The Comprehensive Strategy for Overcoming the Population Decline and Vitalizing Local Economy was amended by including measures to face the pandemic, such as promoting digital transformation, supporting increased teleworking and the economy decarbonisation. The amended policy strategy stresses the relevance for creating attractive universities and industries in regions, and increasing the number of people who move or visit places outside the capital city. Furthermore, it recognizes the importance of attracting women to revitalize rural areas and build resilient community tools to trigger this relocalisation out of Tokyo by setting up:

  • Grants to municipalities (except the ones within Greater Tokyo) that promote teleworking as a regional revitalisation measure such as covering 75% of municipality expenses on systems for satellite offices of companies and shared office spaces (Government of Japan, 2021[44]),

  • A national programme to match businesses with municipalities looking to accept branch offices, and

  • An enhanced subsidy programme that financially supports people who live or work in central Tokyo and will move to work in non-metropolitan regions. This grant target people or families who move outside Tokyo to raise their children or take care of elderly family members, while continuing to work for their employers in Tokyo through remote work (The Japanese Cabinet Secretariat and the Cabinet Office, 2020[45]).

Long-term city policy responses to COVID-19 have highlighted the relevance of transformations towards inclusive, green and smart cities (OECD, 2020[47]). Policies around these three goals would help large cities to remain attractive and retain workers or firms that might be tempted to perform their economic activity remotely elsewhere.

Offering affordable and adequate housing is one of the chief policy targets to make cities more inclusive. Most of the world’s metropolitan areas have experienced faster population growth in the commuting zone than in the city, partly as a consequence of a shortage of housing availability in the city itself (OECD/European Commission, 2020[21]). As a consequence of COVID-19, some cities have adapted their housing policies to reduce commuting times, increase available housing and create inclusive neighbourhoods. For example, Vienna (Austria) has announced important housing developments disseminated around the city in attractive residential environments at an affordable price for citizens of different income levels (OECD, 2020[47]).

Offering environmental amenities and improving urban mobility are also the focus of many city governments. Cities are adapting urban design and reclaiming public space to ensure easier access to services and amenities. For example, greater investments in bicycle infrastructure, concepts such as the “15 minute city” (ensuring access to essential functions in a short perimeter) or pedestrianisation of streets are policies that have gained traction, with the aim is to improve mobility and well-being for citizens (OECD, 2021[48]). Other policies are looking at opportunities to replace abandoned buildings or public spaces to create parks and green areas.

Cities are also increasingly embracing digitalisation and smart tools to improve citizens’ lives, including greater security, access to services and political participation. Digitalisation of municipal services accompanied with interventions to improve digital skills are core policies for many cities (e.g., Milan, Italy).

This pandemic could also accelerate urban regeneration policies in cities to expand supply of housing and community areas. For example, the Tokyo Metropolitan Government has a project to give grants to private companies to renovate abandoned buildings and transform them into 1) houses for parents who take care of children, 2) houses for single parents, 3) houses for foreign workers, 4) community spaces (e.g. places for communicating between parents, event spaces, places for elderly people to eat together) (Tokyo Metropolitan Government, 2020[49]).

It is worth noting that countries have also developed specific policies to increase the attractiveness of intermediate cities (those with 50 000 to 500 000 people), which have received renewed attention, as they are at the core of territorial recovery but their potential is often underexploited. These cities can provide a good compromise of high quality of life with sufficient critical mass to achieve agglomeration benefits, while playing an important role for the surrounding territories. Yet, they experience difficulties in attractiveness, degraded housing or commercial vitality. France, for example, created a programme called Action cœur de ville (action in the heart of the city) to finance projects to revitalise medium-sized cities (e.g. improving housing in the city centre and accessibility and transport).

Policies that encourage people and firm’s mobility can struggle to produce sustainable changes in territories. Subsidies or grants for people to relocate can create incentives to obtain the short-term economic benefit, instead of increasing long-term attractiveness of places. Without the right conditions at the local level (e.g. access to services), these policies risk to have little benefit in relation to the cost, as firms tend to be more responsive to co-location externalities rather than subsidies (Ascani, Crescenzi and Iammarino, 2016[50]; Devereux, Griffith and Simpson, 2007[51]). If not well-planed, moves might also lead to declines in welfare for existing residents, for example by increasing housing costs and a reduced capacity for public services. Furthermore, given the high share of elderly population living in Tokyo, policies inducing movement can struggle to trigger commuting of older workers, as age correlates negatively with mobility (OECD, 2020[37]).

Competition among regions for workers and firms can create spatial distortions and lead to aggregate inefficiencies within a country (Lingwen Zheng and Warner, 2010[52]). In the extreme case, increasing regional competition to attract economic actors through tax incentives or grants could lead to the “race to the bottom” scenario where local governments decrease their fiscal net revenue and end up with under provision of public goods for local communities (Glaeser, 2001[53]). Local tax incentives or grants for firms or workers to relocate to a region can also create distortions with local firms and workers.

National governments should help co-ordinate regional attraction policies and support broader strategies that improve the enabling factors for a sustainable development in regions. Balancing economic growth across types of regions should, instead, rely on place-based intervention that targets places with less focus on people or firm-based identifiers (Yagan et al., 2014[54]). Investing in quality broadband and access to health and education are some areas that can increase long-term attractiveness in regions.

The boom in remote working and digitalisation of economic activities ushered in by the COVID-19 pandemic revealed the need to increase the structural attractiveness of non-metropolitan regions for people (workers and their families as well as young people and retirees) and businesses. Most non-metropolitan regions of the OECD and G7 face greater population decline and rapid ageing than metropolitan regions (OECD, 2020[37]). Furthermore, their economic performance in terms of GDP per capita, productivity and employment rates is on average below those in metropolitan regions, which has expanded regional inequality in almost all OECD countries since the 2008 financial crisis (OECD, 2020[37]). This section outlines the policies from G7 countries to increase the long-term attractiveness of non-metropolitan regions by improving access to fast broadband, high quality healthcare and education.

Without policy intervention, the effects of digitalisation could further increase the well-being and economic gap between non-metropolitan and metropolitan regions. Non-metropolitan regions tend to have outdated ICT infrastructures and deployments of new technologies (e.g. 5G) are more likely to occur first in urban regions as the high population density makes these investments more profitable. Increasing digital capacity and skills is also a pivotal competitive factor for places to succeed.

Digitalisation can help non-metropolitan regions enhance growth opportunities and quality of life. Digitalisation can increase job and market opportunities (e-commerce) and new technologies (e.g. drones, automotive vehicles) reduce transport times and costs. Digitalisation can also enhance well-being, living standards, access to quality healthcare and education, innovations to accelerate environmental sustainability, and equal opportunity (OECD, 2020[37]). By embracing digitalisation, rural areas and towns can strengthen their resilience against future shocks and tap into megatrends (demographic change, digitalisation and climate change). G7 governments have acknowledged this issue and implemented some policy responses to strengthen digitalisation in non-metropolitan regions.

The pandemic has exacerbated the existing digital urban-rural divide. The persistent gap in broadband accessibility between non-metropolitan and cities is more evident when comparing accessibility to high speed internet (OECD, 2020[37]). For example in Canada, internet performance testing found that median download speeds for rural Canadians (5.62 Mbps) were approximately 10 times slower than for urban Canadians (51.54 Mbps) (CIRA, 2020[55]). While urban internet speeds have nearly doubled since the beginning of the pandemic, rural speeds have plateaued. Furthermore, people in non-metropolitan regions have lower digital skills.

All G7 countries have implemented a type of policy to enhance digitalisation in non-metropolitan regions. Common policies ensure non-metropolitan regions have high-quality broadband so communities have access to services (telemedicine). They have also established and prepared places for teleworking in non-metropolitan regions (Italy, Japan). Others have actively supported digital transformation in local governments (Italy, Japan). Many governments are still investing in civil infrastructure (e.g., telecommunications infrastructure and roads) to strengthen accessibility and mobility for rural economies (Canada, Italy).

G7 policies to expand broadband coverage are headed in the right direction, but preparing non-metropolitan regions for future digitalisation trends require a more active approach. In turn, this will ensure everyone has access to high quality broadband while helping to improve digital skills. To this end, governments should:

  • Accelerate equal access to high quality and affordable communication services in non-metropolitan regions by:

    • Implementing holistic policies that foster competition in communication markets to increase investments and reduce prices for communication services

    • Reducing barriers to broadband deployment with simplified licensing procedures, streamlined access to rights of way and faster permits

    • Creating funding methods to increase connectivity, including demand aggregation models to ensure financial viability of projects, public private partnership (PPP) initiatives and coverage obligations in spectrum auctions.

  • Implement educational and training programmes to boost digital skills of all communities and firms outside metropolitan regions. This includes implementing courses on basic use of ICT technologies and computers, and capacity building on software and ICT maintenance.

The COVID-19 pandemic revealed some of the difficulties of people in non-metropolitan regions to access health and social care services. Geographical distances and less developed transportation services exacerbate the challenge to provide public services. Non-metropolitan regions also tend to face an increasing number of closures of hospitals and the consolidation of schools, due to increasing depopulation and limited local revenues (OECD, 2020[37]). Furthermore, social isolation, a lack of medical staff, and an aging population are particular challenges for non-metropolitan regions (OECD, 2021[56]).

Digitalisation has proven to be a useful tool to improve delivery of health and education. Health technology and innovation are changing how doctors and hospital staff tackle clinical and health problems. These tools let clinics change the procedures and practical styles for delivering healthcare through technologies such as process innovations, e-Health, and Big Data. Good internet access, access to equipment, and use of online distance learning platforms are crucial factors to determine who benefits and who suffers from online education.

G7 countries have already implemented a number of policies to enhance education access through digitalisation (Table 4.6). Most countries support e-learning at school by providing equipment such as laptops, tablets, and SIM cards (Canada, France, Italy, Germany, Japan and the US). Furthermore, countries like Canada leverage ICT to foster social innovation through the collaboration with communities in primary and secondary schools, while expanding co-operation with private companies to increase e-education (OECD, 2021[56]).

In terms of health, most G7 countries have taken measures to reap the benefits of e-health (Table 4.7). This includes investing in infrastructure capacity to support online treatment (Canada, Japan, US), or ease regulatory barriers to encourage the use of teleconsultation (France, Germany, Japan, UK, US) (OECD, 2021[56]). Moreover, some non-metropolitan regions have implemented mobile health clinics to guarantee adequate primary care (Germany).

Countries have also implemented a number of strategies to improve overall access to services in regions. Improving accessibility to a greater range of amenities can help attract a broader range of population. Cultural and leisure amenities can be prioritised by the younger population, while elderly care facilities can attract retirees and senior citizens. Of chief importance in the post-COVID-19 scenario and in countries facing rapid ageing, like Japan, is to focus on strategies that improve quality of life for the entire family. Childcare facilities for example can help people found families , while lowering the trade-off for women to integrate the labour market.

Some policies across OECD countries, including G7 countries, offer good practices to support child and elderly care in non-metropolitan regions. Extended schools programmes are strategies that encourage schools to offer a wider set of services, including support for parents and childcare (UK). Multi-function centres can also be a good solution to attain efficiency and economies of scale in the provision of different services under a single management structure, including kindergarten or day care services, pre-primary and primary education, and a community facility (Japan, Lithuania) (OECD, 2021[56]). Strategies to attract healthcare workers to low density populated areas are a common policy target in many countries. Regarding elderly care, many countries try to increase and retain the number of caregivers, by giving financial support for their training programmes and using public image campaigns, increasing wages, and providing counselling services to caregivers (France, Japan, the UK, the US) (OECD, 2020[58]).

Despite the policy effort of governments to improve the quality of public service delivery in non-metropolitan regions, there is room for improvement on a number of fronts, including addressing skill and physical infrastructure gaps. The OECD (2021[56]) has identified a number of policies that help governments prepare non-metropolitan regions for future changes related to demographics and digitalisation:

  • Increasing scale on the provision of education, health and government services in non-metropolitan regions, which includes:

    • regarding education: developing school clusters or structures in which schools formally co-operate under a single leadership to allocate resources more flexibly and efficiently. Furthermore, taking a flexible approach when considering class sizes and regulatory matters will benefit education in scarcely-populated areas

    • regarding health: providing incentives for the establishment of multi-disciplinary health centres and reinforcing primary and integrated care provision in non-metropolitan regions as it is generally the first point of contact for the majority of patients’ needs

  • Strengthening policies for attracting, retaining and empowering teachers and health workers

  • Promoting a greater use of digitalisation to provide services in non-metropolitan regions, which includes:

    • Investing in managing and operating software and improving intellectual property and security protocols

    • Enhancing co-operation between schools/healthcare centres and ICT firms

    • Improving ICT training to teachers, healthcare and local government staff

  • To support equal opportunities in the adoption of remote working, policies could also adapt support services so women, youth and low-skilled can work remotely. This could entail enhancing child and elderly care amenities in non-metropolitan regions and supporting co-working spaces to offer quality work conditions and networking opportunities.

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Note

← 1. These studies analysed productivity on samples of 3 063 and 15 000 employees respectively from one particular working sector, call-centre operators.

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