Agglomeration, working from home, and the character of places

Why do certain industries cluster together in one location? Social scientists have answers:

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Economists believe agglomeration — like the clustering of tech in the Bay Area — has historically been the result of two main forces. The first is what they call “human capital spillovers” — a fancy way of saying that people get smarter and more creative when they’re around other smart and creative people. Think informal conversations, or “serendipitous interactions,” over coffee in the break room or beers at the bar. These interactions, the theory says, are crucial to generating great ideas, and they encourage the incubation and development of brainiac clusters. The other force is the power of “matching” opportunities. When lots of tech firms, workers and investors clustered in Silicon Valley, there were lots more opportunities for productive marriages between them. As a result, companies that wanted to recruit, grow or get acquired often gravitated to places like the Bay Area.

However, remote work could actually improve certain matching possibilities. Companies can hire smart people anywhere in the world when they drop the requirement that they physically be in a central office. Not only that, they can pay them less. Moreover, killing the office can significantly lower costs for companies, which no longer have to pay for expensive real estate.

So, in this theory, the future of work and the economic geography of America really hinges on whether companies can create those “human capital spillovers” through computer screens or in offices in cheaper locations.

This is a phenomenon with a pretty broad reach as cities could be viewed as clusters of firms and organizations. What has been interesting to me in this field in recent years is how places like this come to develop and what it means for the character of the place.

Take Silicon Valley as an example. This is the home of the tech industry and, as the article notes, the big firms have committed to physically being there with large headquarters (including Google, Apple, and Facebook). These headquarters and office parks are themselves interesting and often a post-World War Two phenomena as highways and suburbanization brought many companies out of downtowns to more sprawling campuses. At the same time, the impact of all of this on the communities nearby is also important. What happens when the interests of the big tech company and the community collide (see a recent example of a Facebook mixed-use proposal)? What did these communities used to be like and what are they?

This is bigger than just the idea of employees working from home. This potential shift away from clustering would affect places themselves and how they are experienced. If thousands of workers are no longer in Silicon Valley, what does this do to those communities and the communities in which more workers are now at home? Silicon Valley became something unique with this tech activity but it could be a very different kind of place in several decades if there is new activity and new residents.

The same could be said for many other communities. What is New York City if Wall Street and the finance industry clusters elsewhere or disperses across the globe? What happens to Los Angeles if Hollywood disperses? And so on. The character of places depends in part on these clusters, their size, and their history. If the agglomerations shift, so will the character of communities.

Brick and mortar success in selling chickens and other farming supplies to new “ruralpolitans”

The shift of Americans from cities to suburbs and rural areas helped boost the fortunes of retailer Tractor Supply:

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Such gangbusters growth is unlikely to continue, with the pandemic easing. But the rush to the country that underpins it is less an anomaly than a speeding up of a long-tern trend, as more people – notably millennials yearning to become homeowners – look to adopt quasi-rural lifestyles. Being priced out of urban living is one driving factor; interest in healthier and more sustainable diets, including homegrown vegetables and home-harvested eggs, is another. Whatever is motivating them, Tractor Supply sees an opportunity in these “ruralpolitans” – and the COVID-driven shift toward remote work will help sustain their numbers.

Lawton, who became CEO in early 2020 after two years as the No. 2 at Macy’s, says millennials’ willingness to move farther from city centers is a “game changer”: “We seeing a new kind of shopper in our stores,” he tells Fortune. Now Tractor Supply is adapting to cater to both its established customer base and these younger space-seekers, following a strategic road map with the folksy title “Life Out Here.”…

The fast-growing cohort that Tractor Supply is cultivating, she says, are “beginning to learn how to garden. They have this passion for poultry.” Call them the “country suburban” customers.

The company is strategic about where it meets these customers. Its stores are almost all located in mid-size or small towns – communities that are often too small to support a Home Depot, Petco, or Walmart.

The economic impact of COVID-19 has hit some businesses very hard while others, like Tractor Supply, have found opportunities. From the sound of this article, they had locations in numerous places that received new residents during COVID-19 and had the right mix of products and service that appealed to them.

I wonder about the class dynamics of all of this. How do the new “ruralpolitans” who want to raise chickens or have a small farm and have moved from the city compare to the other shoppers at Tractor Supply or to long-term residents in the community?

Another question to ask is whether these newer residents with these interests in food and farming are in it for the long haul or not. On one hand, if remote work is more viable than ever, perhaps people will stay in smaller communities outside cities and pursue this. On the other hand, if companies ask more workers to return or if small-scale agriculture and animal husbandry is not appealing in the long run, this may be more of a flash in the pan. Industry-wide shifts in agriculture could have an impact as well.

Finally, the move to a more rural life has implications for private lives and community life. Many Americans say they like the idea of living in a small town but this is different than actually living in one. What is the tipping point where an influx of new residents changes the character of the community (or is change somewhat inevitable)? How involved will these new residents be in local organizations, religious congregations, local government, and in local social affairs?

Getting people back to mass transit after COVID-19 – and a deck stacked against mass transit

Mass transit agencies across the United States are trying different strategies to try to get people back after COVID-19:

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Agencies in Boston, Cleveland, Las Vegas, the San Francisco Bay Area, and New Orleans are offering reduced fares or free rides, temporarily, to lure people back onto transit. Others are considering abolishing fares altogether. Los Angeles is exploring a 23-month pilot that would give students and low-income residents free rides. The Kansas City Area Transportation Authority scrapped fares in March 2020 and doesn’t plan to bring them back. “The return on investment for empathy, compassion, for social equity, far outweighs the return on investment for concrete and asphalt,” Robbie Makinen, the agency’s CEO, told Stateline last week.

Others are taking aim at an even more sacred cow: rush hour service…

Agencies are using the murky period of pandemic recovery to usher in schedule changes. In Los Angeles, officials for Metra, the local commuter rail, said this month they would test new schedules that “step away” from the pre-pandemic, rush hour norm, “in favor of a more balanced approach” that spaces trains more evenly throughout the day. In Boston, officials in April went ahead with pre-pandemic plans and began running more frequent commuter trains outside the schedules of the 9-to-5ers. It’s part of a bigger vision to transform the system into a more equitable regional rail network that serves more than the traditional office worker. Off-peak riders are more likely to be immigrants, women, people of color, and lower income. The pandemic, as the local advocacy group TransitMatters has observed, may have given the local agency the “political space” to make long-planned changes. There are fewer people now to complain that operators took away their specific train.

Just as the aftermath of COVID-19 offers an opportunity to think about housing, here is an opportunity to reconsider mass transit strategies. Why keep doing things the same old ways when the world has changed? If different cities and regions experiment with different tractics, they might find a few that work and that can be widely adopted.

At the same time, mass transit does not just face COVID-19 fallout. If given the choice, many Americans would prefer not to use mass transit. If needing to travel, they would prefer to drive unless this is really inconvenient. Driving offers more individual freedom to come and go and offers completely personal space (outside of seeing other drivers and passengers in nearby vehicles). American governments have spent a lot of money in the last century paying for roads and driving infrastructure while investments in mass transit have lagged or mass transit is often tied to driving (an emphasis on buses).

Additionally, if a post-COVID-19 world means that working from home is more of an option, more people simply will not need mass transit and/or will enjoy not having to use it. Mass transit could still be useful for going out but if it is not needed for work for as many people, this will mean losing a lot of regular riders.

More broadly, this gets at bigger questions in the United States about development, density, transportation, and thriving communities. An ongoing commitment to cars has consequences as would a shift toward a different kind of mass transit or constructing more dense places where mass transit makes more sense. If the best that can be done now is to prioritize transit-oriented development in denser pockets in urban areas, it will take a long time to swing trips toward mass transit compared to driving.

Where will the new work from home people in suburbs and other places want to settle and spend their money?

Now that we have more clarity on where remote workers have moved, another question arises: what do they want to do in their new communities?

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“People who are working from home still want to go out, either during the day or after work, and they still want to spend their money on interesting things and interesting places,” says Bill Fulton, who directs Rice University’s Kinder Institute for Urban Research. “If you move from San Francisco, you’re not going to want to spend all your money at Applebee’s, right?”

Tracy Hadden Loh, a fellow at the Brookings Institution who studies real estate development, puts it another way: “I think annoying people with laptops are going to be everywhere. They’re coming for your favorite spot.”

The changes have elected officials, city planners, and developers mulling how to plan for this still-hazy future—and asking plenty of questions. Who will live here? Who will work here? Who will drive or take transit here, and when? Most essentially: What kinds of housing should we be building and for what sorts of people?…

City planners and economic development officials recognize that there’s an opening here. But most say that the work so far has been the equivalent of building the plane while it’s in the air. Work has been quick, a little harried, and focused on helping businesses just make it to the next day. Longer-term economic development—planning for places that might host new stores, restaurants, and housing—is more time consuming. It also demands more information on post-pandemic life.

Another way to think about it: how much risk are these communities with new residents willing to take? The pandemic brought changes but it is less clear how long-lasting these changes will be. Will people move back to cities or are there in these new places to stay? Is work from home going to continue at higher rates or not? Is this part of longer trends – retrofitting, “surban” development, etc. – or a blip? Certain development decisions could require multiple sources of capital: financial commitments, political moves, and significant changes to the character of particular communities.

Unfortunately, there may be no guarantees on these choices. Some suburbs and cities could do well, others may not. There may not even be fairly consistent success or failure within the same region. There could be some benefits to moving quickly and showing momentum; or not if trends go another direction or hasty planning fails to take everything into account.

At the same time, this is unique opportunity for communities. As noted in the title of the post, it could lead to new revenues, an issue facing many communities during COVID-19. Population growth is also seen as good. This could be a turning point to a different future.

Can workers collectively fight against back-to-the-office plans?

Some employers want workers back in the office and at least a few employees do not like that idea:

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After a year of working from home, most workers feel the same way. Vaccinated or not, more than half of employees said that, given the option, they would want to keep working from home even after the Covid crisis subsides, according to a survey by the Pew Research Center. Far fewer look forward to returning to the office full time…

And yet, in a survey of more than 350 CEOs and human resources and finance leaders, 70% said they plan to have employees back in the office by the fall of this year — if not sooner — according to a report by staffing firm LaSalle Network…

The majority, or 58%, of employees said they would look for a new position if they weren’t allowed to continue working remotely in their current position, according to a recent report by FlexJobs, which surveyed more than 2,100 people who worked remotely during the pandemic.

Ultimately, however, “nothing will change,” said Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania’s Wharton School. “Employers have virtually unlimited power,” he said.

Both sides can justify changes. Employers want to recreate office culture and conversation plus see people face to face. Employees want flexibility, no commute, and assurances of safety.

The quote at the end above suggests workers do not have much leverage. They can complain about changes. They can say the world has changed significantly. They can say that the prior system did not provide benefits long-term.

But, what if large numbers of workers in significant companies refused to go back to the old office-based systems? Could leading firms afford to have large numbers of workers quit? Could these workers afford to quit and know there is work elsewhere? Not all workers could do this and it might not matter at a lot of companies. If something started in the tech industry where more workers work from home for the long-term, would this spread? Or, if some business saw this as an advantage – get better employees by letting them work from home – this might encourage some others.

A mass labor movement over working from home may not materialize. Yet, COVID-19 could at least change the thinking about offices and doing work from home. Under conditions of a pandemic, at least some work got done. Perhaps such arrangements will continue for some but it could also extend to many more workers.

“Digital nomads” wanted to enjoy city life but could not

Researchers studying “digital nomads” detail their initial enthusiasm for big cities and later decisions to move elsewhere:

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Most digital nomads started out excited to work in career-track jobs for prestigious employers. Moving to cities like New York and London, they wanted to spend their free time meeting new people, going to museums and trying out new restaurants…

Although these cities certainly host institutions that can inspire creativity and cultivate new relationships, digital nomads rarely had time to take advantage of them. Instead, high cost of living, time constraints and work demands contributed to an oppressive culture of materialism and workaholism…

Although they left some of the world’s most glamorous cities, the digital nomads we studied were not homesteaders working from the wilderness; they needed access to the conveniences of contemporary life in order to be productive. Looking abroad, they quickly learned that places like Bali in Indonesia, and Chiang Mai in Thailand had the necessary infrastructure to support them at a fraction of the cost of their former lives…

The digital nomads we studied often used savings in time and money to try new things, like exploring side hustles. One recent study even found, somewhat paradoxically, that the sense of empowerment that came from embarking on a side hustle actually improved performance in workers’ primary jobs.

As the researchers note, this is a different perspective on the creative class that works in particular jobs and industries and pursues particular locations. Could these pieces detailed by Richard Florida be pulled apart; can the creative class jobs exist outside of the urban culture that Florida argues goes with it?

On one hand, numerous other locations other than big cities would love have to more creative class workers. These young professionals, often working in industries like tech, are desired by suburbs, smaller big cities, and many places because they represent status and potential long-time taxpayers and contributing members of society.

On the other hand, the creative class is supposedly not just looking for jobs with particular features: they also want to move to places with cultural opportunities and diversity. Can “digital nomads” find this outside of big cities? Maybe; there are suburbs and smaller big cities with diversity and vibrant creative scenes. Can these locations match the big city possibilities of places like New York or San Francisco or Austin?

These digital nomads have the potential to shape how communities look at jobs and residents in the coming years. Many will want them to locate in their community and yet the power of clustering together with other creative class people is strong.

Trying to forecast future suburban commuting patterns, Naperville edition

The Naperville train stations are busy – until COVID-19. So how full will the parking lots be in the future?

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The city conducted a survey in the fall to gather data on commuting habits and gauge when people expect to return to work. The information will be used as the city reevaluates the Commuter Parking and Access Work Plan instituted in 2019…

A survey shows 81% of respondents are not commuting, but 75% indicated they expect to return to their “pre-pandemic schedule for commuting by Metra” by the end of 2021…

The survey shows 1,642 respondents, or 76%, said they commuted on Metra four or more days per week before the pandemic. But 37%, or 797, said they expect to continue commuting four or more days when life gets back to normal…

When people do return to a regular commute, Naperville’s parking survey showed 69% of responders would like the city to consider other payment options beyond quarterly and daily fees.

Trying to forecast commuting via multiple means – train, car, bus, subway, etc. – is going to be difficult for a while. As the article notes, a work from home option from many employers could continue. The willingness of commuters to return to mass transit and regularly proximity to others also might matter (and more of those who return to the office might choose driving which leads to other problems).

Yet, even if ridership or commuting stays low, systems still need to run and be maintained. With less revenue, how do transportation systems and municipalities keep up with costs?

This can contribute to an ongoing chicken-and-egg problem often posed in the United States. If there was better mass transit, would this lead to increased use? Or, do you have to have increased ridership or interest before building out transit systems?

The effects could be broader than just infrastructure and local budgets. Populations might shift if people change their commuting patterns for the long-term. Workplaces and offices could be very different. Suburbs, already built around private homes and lots of driving, could change in character and land use.