Working From Home – We’ll Never Reach the Same Equilibrium Again

Working From Home – We’ll Never Reach the Same Equilibrium Again

You Can Never Go Home Again.  Or to Office. For Pretty Much the Same Reason.

Everybody, including Elon Musk, wants us to go back to the office, but we can never go to the office again. Once we leave a place, neither we are ever the same again.  In economic terms, our subjective valuations have changed, which means the resulting prices have changed, which means we’ll never reach the same equilibrium again.

The fundamental principle of economics is that all valuations are subjective, and subjective valuations change constantly. 

If, for example, I offer you a glass of water, then your valuation depends upon a unique combination of circumstances that will never be recreated; granted, variations may prove insignificant to the ultimate price, but the precise combination of circumstances that generated any particular valuation will never be repeated or shared by anyone else (which is why central planning is utterly ludicrous, but that’s an idea for another day). 

And remember price’s essential property: everybody’s price is determined by the marginal buyer’s and the marginal seller’s valuations. 

That is, if I’m willing to spend $100 for that Coke, then I still get the market price of $1.  The difference between my personal valuation and the market price is consumer surplus.  (Price discrimination minimizes, but can never entirely eliminate consumer surplus, so we all enjoy a “bargain” unless and until we’re the marginal buyer.)

Of course, the same principle holds for the seller.  They get to charge everybody $1, even if they would have sold every unit save the last unit for much less; the difference between the market price and the price at which the producer would have sold is producer surplus, and the producer’s circumstances will never be recreated or shared with other producers either.

The trick, therefore, for both consumers and producers is to do the best job they can at hiding their true preferences; the consumer wants to pay as little as possible, pretending that she’s the marginal consumer who may or may not buy, and the producer wants to charge as much as possible, pretending as best it can that each sale is the marginal sale it may or may not make.  [Even coupons and sales are often an elaborate bluff, attempting to trick the consumer into believing that a particular price won’t be available for very long or absent particular conditions.  At best, such discounts operate as price discrimination – reducing, but not eliminating producer surplus.]  

The problem with allowing people to work from home, even temporarily, is that both sides gained greater insight into the other’s true preferences. 

Employees learned that they were doing more than absolutely required to retain their jobs, and producers learned more about which perks and payments were required to retain employees – there’s no going back for either, so there’s no going back to the office because both sides’ preferences have been changed by that new knowledge.

Imagine, for example, the hypothetical employer who paid ridiculous rent for their offices in New York or Silicon Valley; they did so, at least in part, because they believed the best employees wanted to work there.  Now, of course, they’ve learned that isn’t true – they know which employees care about that particular perk, and they’ll never forget what they’ve learned. 

If you can attract and retain the right talent without the expense of an office in Manhattan, why waste money?

Or imagine a hypothetical employer who was paying for childcare.  Once they’ve stopped paying because childcare is closed, why would they resume paying for that expense?  Indeed, if you’ve managed to make-do without childcare and the parents who need it, why not indulge your biases against women, who are more likely to need childcare?  Given the potential “benefits” of discrimination, such information – and such an easy excuse – might be very valuable indeed.

Or consider the hypothetical employee who always thought face time was an important part of their career. (Who hasn’t gone in to the office just to make sure they know you’re in the office?)  They aren’t likely to go back now that they’ve seen it isn’t necessary or that they’ve developed alternatives.

Indeed, many employees learned more about themselves. 

They’re mothers who decided they’d rather be with their kids, or they’re mothers who decided they’d rather not be with their kids – ultimately, it doesn’t matter which way they’ve changed, it’s just that they have changed.  It’s simply impossible to go through such a radical change without changing your preferences.  Eat a box of donuts, you may want more donuts or you may never want to see a donut again, but your preferences will change.  Same with getting locked up with your kids: your preferences will change.

Similarly, costs have changed.  Both sides invested substantial sums in making work from home possible; they’re not going to ignore those expenditures going forward – in part, because of the sunk cost fallacy; in part, because the cost of remote work really have changed.  As everybody knows, the current keyboards we have probably aren’t the most efficient, but now that everybody’s learned to type on these keyboards, who’s going to change? Nobody.  It’s the same principle here: massive investments in the infrastructure required for remote work aren’t going to disappear, so our costs and our preferences have changed, which means there’s no going back.

Now I wouldn’t want you to think that I’m being cynical or pessimistic; to the contrary, our ability to change is our greatest and most important attribute as humans, but it’s also a bit sad.  We wouldn’t be human if we didn’t adjust, but we also wouldn’t be human if we didn’t mourn what we’ve lost.  Part of the joy from any Coke is the memory of when that Coke would have been worth $100.  Because we were dying from thirst.  Or because we were sharing it with our first love.

And part of the joy from working at home should be our memories of when we didn’t.  I think that’s what Thomas Wolfe was trying to say:

“We can’t go home again because of the change in it and in ourselves, but it’s still home, still part of us.  And that’s a beautiful thought.”

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Chris Paige is a former Olin Law & Economics Scholar at Yale Law School, and a former academic pollster.

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