Nick Bloom | What Workers Want

Hi everyone, I'm Sarah Gua, general partner at Greylock. You're listening to Gray Matter, where we share stories from company builders and business leaders. This is part of our Work From Anywhere series exploring how we in the business world are adjusting to the global pandemic. Today's special episode features economics and management professor at Stanford, Nicholas Bloom, whom I so enjoy talking to because he's just a goldmine of data based insight. And he's that weird guy who's been thinking about and studying distributed work for more than a decade, back when it was fringe and who's of course been closely tracking office reopening plans. Let's talk about the future of hybrid. Nick, super excited to have you on the podcast. Would you mind introducing for our listeners yourself and a little bit about what your research areas are?

I'm Nick Bloom, I'm professor of economics at Stanford University in California. You can probably hear. I'm British hopefully. I've been in the US for 15 years. I've long worked on management practices, in part spurred by working at McKinsey a long time ago and for a long time actually be interested in this weird niche called working from home, which was like of complete boredom to anyone until suddenly you can imagine March 2020, it became like the hottest topic around. So I'm now spending most of my time working on that, talking to Execs, collecting data, etc.

It's been incredibly interesting as we keep an ear to the ground with our portfolio and the leaders in the startups in our ecosystem. But what are you hearing as people make these decisions about how to come back into the office and not what are you predicting firms will do?

I'll just give you background. I've been serving thousands of firms and individuals also talking to a lot of, I've been doing a lot of consulting. So most firms have decided, I would say something like 2/3 have opted for hybrid. Within tech, that's an even higher share. So tech has gone heavily for hybrid. So here the setup is you say we're going to come into work, let's say Monday, Tuesday, Thursday, work from home, Wednesday, Friday. So for example, Google just announced exactly this, the 3:2 plan. So three days a week in the office for most people, two at home. So that's by far the most common. There are some people that more in like investment banking for example, have said we hate hybrid. You've got to come back in. There's good reasons for some of these firms to say that. For example, if you're trading, you need high speed Connections, you're dealing in confidential data. There are other firms that have said we love remote, like Quora would basically stay remote almost permanently. But I would say the vast majority are saying hybrid. And then there's a whole range of debates about how you make that work. At the basic level, most firms are all remote now, but they are going to get people back into the office for the majority of days, but definitely not all of them.

That's also similar to what we're hearing, that most workplaces, especially in technology, we should talk about the industry variation as well, are going to be hybrid. What do you think is going to be hard about that? What are leaders worried about? Or what are the issues people are asking you about?

So I should first say, why hybrid? So hybrid, I've been advocating this since literally the lockdown. I wrote a blog piece in May 2020 and many tech firms, tech has been really advanced on this. So for example, Mark Zuckerberg made a statement last May as well. So to me, hybrid seems pretty obviously the way forward. And the reason is it's a nice trade off between two challenges. So you get a big advantage in person on A, innovation and B, culture. So, you know, just about every manager I speak to says, you know, you really want face to face meetings to be creative and innovative and it builds bonds and builds culture. So you want, you know, a few days a week on that. But there's also a big upside from working from home, which is A, you save the commute, which is a lot of time, the average American spends an hour a day commuting, and B, for work that's actually individual or maybe like one on one, like we're talking now, it's fine, it's maybe even better remote. So certainly if I'm reading a report of working, it's quieter at home than in the office. And so hybrid's kind of the best of both worlds if you organize it properly. So what that means is within a team, around people you work with, you make sure you're all in on the same day. So you quite literally, the team manager says, hey, everyone's going to come in Monday, Tuesday, Thursday, and that way all the team lunches, training events, leaving dues, client things, and anything that were big meetings are on those three days. The other two days, Wednesday, Friday, say, you know, those are my days to my quiet reading, et cetera. So at that level that works pretty well. There's a big debate around choice. That's basically what hybrid is the overwhelming majority because it trades off two tensions around. We need some face to face, we need some home time. And it's kind of the sweet spot. And for all, three days a week may not be right for all firms, it may be four, it may be two, but it's somewhere in the middle. It's roughly 50, 50. I've been doing exec ed at Stanford on this and talking to a lot of firms. So I'll tell you the choice issue. So the choice issue. And I've even changed my own mind since the beginning of the pandemic. So here's the choice issue. The choice issue. If you look in the survey data, you see very clearly there's a huge variety of preferences over how many days people want to work from home. So for example, I think it's 27% of people basically, so they never want to work from home ever again post pandemic. They're fed up with it, it's boring, it's isolating, it's terrible. They tend to be younger, single people are empty nesters. Then there's a bit over 30% actually say the exact reverse. They say we love working from home, we want to carry on working from home five days a week. They tend to be kind of late, middle aged or middle aged, married with kids. Yeah, I guess like me and living in a house. And then the majority, which I should say would include myself when I come in something like one, two, three, four days a week. So you think on the one hand, like we should let people choose. You know, this is America. We like freedom of views and it's going to make the employees happy. And I've heard many execs, particularly in tech, actually say that there are two problems, one obvious, one less obvious. The obvious one is the mixed. You know, what I'll call the curse of mixed mode. So mixed mode is when, you know there's five of us on a call, three in the office, two at home. You have the three in the office, you're all in some little conference room, two at home on separate screens. It's like it's not an equal thing. You know, you can see three tiny heads. So when you talk to managers, say, aha, we've got a solution to that. We're going to do what I call, you know, the American in Germany example, which is as an American, when you go to Germany, if you're out for dinner with four Germans, they all speak English because, you know, they just like humor you and speak English. That's similar that if there's just one person at home, everyone in the office has to connect in on their, on their laptop so that they're all on equal footing. Fine, but there's a problem with that, as you can see, which is of course, once the meeting's over, everyone in the office stands up, grabs a coffee and the meeting effectively continues. So mixed mode is still somewhat problematic. The much worse thing is what I'll call diversity, which is if you look in the survey data, what we see, for example, amongst college educated respondents to our surveys, which is about 60% of the labor force, if you look at people with kids 12 or under, women report almost 50% higher share than want to work from home five days a week than men. We also see people living further from the office, disabled people. There are certain groups that clearly have a stronger preference for working from home more days than others. So that's fact one, that kind of is what it is. And then the other fact is from years of research, we know that if you're in a team whereby some people are coming in every day and others are working from home, those working from home face a big promotion penalty. So for example, I did a large randomized control trial out in China several years ago. We randomized volunteers into working from home, and those that were randomized into working from home for four days a week, their promotion rates were half those in the office after 21 months. So that's an enormous difference. Now, otherwise identical, they've been literally randomized. So if you put that together, you can see there's a huge risk with the choice plan that five or 10 years from now you have all the single young men coming in five days a week rocketing up the company and let's say people who married with young kids, particularly women, choose not to and then just don't get promoted. And I think that's pretty difficult to deal with. So I'll pause. But that is a hugely contentious issue of where firms are deciding on choice individually, choice at the team level or no choice at all.

We're thinking a lot about the sort of second class citizen problem, is how we're referring to it internally at Greylock. And I think one thing that you and I were discussing was like, is it too ambitious to think that we can actually solve some of these problems if we to some degree constrict the choices to put people on an equal playing field and then improve the, you know, the tools and processes for hybrid teams in China?

Years ago I had a graduate student called James Liang, who's now the CEO of Trip.com and so he did a big randomized control trial on his firm and we randomized hundreds of people. You know, huge scientific experiment. You only get that if the CEO is, you know, a PhD student. It was amazing setup, but so we did lots of interviews.

Super cool.

Yeah, it was really great. And James is a fantastic guy and you know, I know probably, you know, a bunch of venture firms have invested in James firm and I think done very well over the years. So we actually interviewed and tried to find out why do people that work from home not get promoted as fast. And I've talked to a lot of friends and colleagues and firms. So I think there are two reasons. One is fixable, one is harder to deal with, so. Exactly right. So on the fixable one you can use data to try and make sure that people working from aren't just overlooked. So one of the two reasons we found why they didn't get promoted as fast as they just forgotten about. And so you can use data to try and think more carefully about who's in your promotion pool and consider them whether or not they're physically in the office that day with you. The other thing was much harder, which is it looked like from ctrip and I've heard this anecdotally as well that you do develop managerial skills being there in person. So it's kind of like the flip side of why people are more productive at home because they're not having all those lunches and coffee chats and what seems in the short run maybe to be gossip and in the long run is actually really important to culture building in the firm. And you know, if I'm in with you every day, I have a good sense of what you'll, you know, your outside situation is and your thoughts and you know, your abilities, etc. And I probably would be a better manager for you. And that's really hard to address because fundamentally if you're working from home, you may be great at your current job, but you may just, you may be even better at your current job. You may perform better than people coming in because you're more focused, but you may lose out on somewhat implicitly kind of, you know, development that means you would work well as a manager.

One of the companies I work with is Remotion, which is explicitly trying to enable people to focus on this cultural health and sort of social fabric of organizations problems. And it's interesting because they've also been running and looking at survey data and it's just been a fascinating year in terms of the what leaders are worried about cycling very quickly and because Now I think more and more leaders are recognizing the connectedness and creativity and growth problems are actually the ones that they're going to have to deal with, not the productivity problems. And you know, we'll see if the investments work. But I think a lot of people are taking the risks.

Now when I've been advising firms, I've generally said this is an enormous revolution, so it's easy to go wrong, it's going to continue to churn. So I would be slightly risk averse and kind of, you know, go slowly and it's the exact reverse of go fast and break things, go slowly and learn from other people's mistakes. So I would probably do it centrally. And the reason to essentially is, you know, at the center you say, say corporate team, you guys are Monday, Tuesday, Thursday, industrial, you guys are Monday, Wednesday, Friday, residential, you guys are, et cetera. Because then you can make effective use of office space. You can also think which teams overlap. So if I think corporate, industrial, I want them in on the same days, I may give them exactly the same three days and then within the team, everyone sticks to those three day. So that sounds like a very centralized plan, but it is. But it means you can A, design your overlap and use office space effectively. And B, you don't have this diversity crisis because the opposite is let. It's a complete free for all, everyone can choose, then you can't really shrink the office. And then you have all kinds, you know, there are all kinds of issues that come up with it. I'm not saying that's where we end up, but I would honestly centralize in the short run and then relax out from there because the reverse is really hard. You know, you're opening Pandora's box if you say people can choose. If you want to work five days a week and you want to move to Hawaii or Alaska, go ahead because you know, if you decide that's a problem, it's very hard to unwind it.

Yeah. One of the things I think is so interesting right now is in my professional career, I think in everyone's, there's never been a time where there are such divergent attitudes about the level of risks people are willing to take on workforce strategy to take advantage of the opportunity. Opportunity. Right. The window of what was normal or what was accepted in terms of workforce strategy was rather narrow. Right. Like you were off in your, your little corner with remote work and everybody was like, oh, that niche thing. Right. And I will say, like we have very large companies in the portfolio and former portfolio that said, the Entire office is like, it's, it's a. We work right. Hotel in, hotel out. And we're basically remote through our tools and people can choose to do what they wish. And so I'd say, like there is a real range. I think people are taking some of the risks you are advising against, but I think those people are really going to need to lean into tools that if you're going to be a very decentralized. That way you are, you're going to need to be technology first. Right. And we'll see how well that works.

It may work out. I mean, look, it's like taking a gamble. The other thing to point out, that's changed in the last for me, in the last six months. And I mean the markets even aware of this, as in the New York Stock Exchange and nasdaq is it's very obvious now that the labor market's become extremely tight. You've seen as of today, actually the data coming out showing there's the highest number of open job vacancies there's ever been. And this points towards firms having to offer some working from home day perks. In our survey, it turns out people value the ability to work from home two days a week at about 8% of earnings. So if you're trying to fish employees out of a tight labor market and you do not offer working from home two days a week, you know, you decide everyone has to come in five days, you're going to have to pay at least 8% more to get. It's just become prohibitively expensive. So I suspect tight labor markets are just going to force working from home a couple of days a week onto firms because otherwise they're going to have mass quitting and you know, they're just going to find it impossible to fill positions.

Yeah. One of the interesting things we've seen is as you said, I think some leaders recognize choice is going to be challenging to deal with, but they also look at their workforces of highly skilled people who are, you know, they've been given that choice by the pandemic and they say, what do we do Right. Like, we need to keep these people. So to some degree a piece of it is being forced upon us. One thing I'd love your point of view on or any learnings you have from the data is like how you think this will impact like different levels of the org.

I remember Mark Zuckerberg talking About this in May 2020 is for new hires. This is a slightly different world. So I would advise new hires coming in more Days, maybe not full time, but imagine you're on the 3:2 plan. You may say for new hires, there's going to be one day extra week when it's just you guys and we're going to do training events or you're going to work just basically to socialize you and get you up to speed. So that's one group. And maybe, you know, there are people that are very technically expertise, probably aren't aiming for further promotion within management, can probably easily spend three days a week at home if they're in some technical job. The other thing that's come up a lot in terms of firm organization is what's like to generate a huge increase in outsourcing and offshoring. So the number of firms I've talked to that have said, you know what, it's been kind of amazing having these teams working from home for five days a week for a year. It's been really great. I wouldn't say it's perfect, but they've worked really surprisingly well. And I've been thinking, if they work really surprisingly well, remote, why don't we move them to insert country name India, Mexico, whatever, or outsource them. So in some ways, like China in the 2000s, a huge increase of trade from China and manufacturing offshoring, I think we're likely to see a huge uptick now in services offshoring in part also because the restrictions on travel and immigration. So another sector that I assume from what I'm hearing anecdotally is kind of exploding is service sector firms that are offering basically outsourcing services either within the US or abroad.

It's interesting, you know, one framework we have for sort of the change in workforce strategy internally is the future of work is more distributed, right? You can describe it as hybrid or remote, but more distributed than it used to be in different structures. And that's very interrelated to it being more global. Because if you're going to be somewhere else, then you might as well get the cost advantage. Which I think is something that people do not like to talk about in these sort of discussions of, you know, the soft and fuzzies of workforce strategy. Right. But there are extraordinary developers and support people and salespeople and many functions elsewhere. Right. I think it's also flexible, right? Because people say if we have to intermediate the work we're doing by scoping it more clearly or communicating through digital tools, then like, you know, does it need to be a full time employee actually to do this thing? And so I think that the set of changes is actually like, quite related. And so when we talk to CEOs about how this is happening, they're like, yeah, well, you know, we're going to do contractors, we're going to do global, and we're going to let people work. Three, two.

Right.

It's kind of.

Yeah, exactly right. Offshoring, outsourcing, both of them are just exploding. And the other issue that has come up is it's a lot easier to be multinational because suddenly now we're all much more familiar and eased. You know, ease with zoom and video calls. And if you're, you know, imagine the firm has a policy of being at home mostly Wednesday, Friday. That's the perfect day to have multinational, you know, conversations with the Europe and the US office because it's very straightforward to do it because you're on a level playing field. So, yeah, I've had many multinational firms have said it's harder to communicate within my office in the us but it's a lot easier suddenly to commune. I find it easier to communicate with Portugal now, oddly enough, than I do with, you know, my teammates in the office.

That's funny. So, Nick, you're a Brit. You, you know, you're running studies in China. You're talking to American and global companies, like, what geographic variation do you think we will see around these shifts?

So I've seen some data, I'm collecting my own data. The best stuff I've seen is partly anecdotal and partly I saw a paper from the World Bank. So there's two main things driving this. One is just the level of development. It seems kind of obvious, but more developed countries a, have better infrastructure on broadband, people are richer, they're more likely to have a house that you can work and have space and more like computer at home. And they're also more likely to do the types of jobs that enable working from home. So maybe it's, you know, once you think about it, it comes pretty apparent. But the U.S. for example, has a lot of graduate jobs that work on computers that can be done at home. If you go to US talking to a company has a big subsidiary in Indonesia, there's a lot of. It's more physical, manual stuff. You basically can't do it at home. So one huge angle is development. So as you go from kind of northern Europe and the US down to southern Europe into the developing world, working from home shares goes down because it's just less applicable and harder. The other second angle, this you hear more anecdotally, it's slightly Tough to get data on. I'm trying to collect it is culturally some Asian countries, particularly Japan, you hear stories about there's a huge importance of FaceTime. And if that's true, I believe that I don't know if you've seen it from your portfolio companies at all that in Asia the uptake's been lower. Now. One reason, of course, they live in small apartments. The Americans tend to have a lot of space and big houses. But I hear anecdotally cultural factors. Another reason why it hasn't taken off as much given what you'd expect by the level of development.

Yeah, I do think one thing that is a little bit sort of understated right now is the degree of cultural change for leaders who have operated in a very different way over a long period of time. Even in our portfolio of people who think of themselves as extreme innovators and like we do too, there are a lot of people who said, well, I'm an office culture guy, I'm an office culture gal, right. I like to see, I like to see butts and seats. And you know, there's a piece of it as we were talking about that is the data would show that culture, creativity, progression, like there are things that we need to enable more differently if it's going to be remote that are not automatically solved by people using, you know, Zoom and Slack and such. But some of it I think is going to be just like attitudes in different companies that are going to come from leadership and some of them may also be like geographic.

The other thing. I had a fantastic and fascinating conversation Marissa Mayer about a year ago now. So I kind of reached out to her to interview her, to ask her about what happened in Yahoo in 2013 and what we could learn from it. And it was really interesting and it's a great parable for the importance of management. So Marissa said when she took over at Yahoo, they've been through tremendous upheaval and churn and they didn't appear to have the best performance management system in place. So she starts putting this stuff in place like good performance tracking of individuals. And halfway through this process she discovers this group of people working from home. And some of these people full time working as in their permanently home, apparently not logged into their computers as an opened up and turned it on for like over a week. So this is not just low level slacking, this is complete permanent goofing off. And so she basically cancels it and then at some point relaxes back a bit. But the parable of this from talking to her is there's really two ways you can manage people. There's what's called input based management. I sit in the office and I physically watch you and I check, are you typing away furiously? Do you appear to be productive? Are you kind of asleep or talking to friends? Or there's output management whereby I say, sarah, I don't care what you do and where you are. If you get your job done, that's great and if not, you're in trouble. Now, input based management's horrible at home because you can't watch people. And for firms that relied on it, you can think of it as basically bad management. But if you're input bad management, working from home is a real challenge. Whereas if you have proper performance based output management, it's not that difficult. You never stare at breathing down people's necks in the first place. So from talking to companies, it seems that management, particular performance management, is very complimentary for making this a success. A lot of firms are going to beefing up data collection and HR because they're like doing the reverse. They're saying, okay, it wasn't great before the pandemic, it definitely needs to be good now. That's, you know, beef that up.

Yeah. And I think like there's different ways to do data collection that I think will be effective and not. I'll give you an example of not. I'm sure you've heard of this too, especially early on in the pandemic. We talked to a number of leaders that basically wanted to see whether or not people's computers were open all the time or if people were typing. Right. And perhaps because I spent too much time in engineering culture, but you know, it's kind of like engineering metrics. You shouldn't measure lines of code.

Right.

Because anything that is even a bad output metric or an input metric that can be gamed by engineers, it will be right.

No, totally. I actually see that surveillance software as remote input management. And it's. Yeah, I agree, it's not. It doesn't work at all. So it's like I can't see that you're working. So I'm going to try and do it remotely. But it was a bad idea from the outset and it seems creepy now to do it. I totally agree. So that thing has kind of died. I interviewed a surveillance software company back in July last year and they said business has never been better. And it was very, you know, it's pretty, it was pretty worrying, but I think things have dropped back off.

Yeah, I'm sure Marissa's question back at Yahoo during that period of time is like, how did we not notice that these people had no outputs? Or that should have been the very first question, right?

Yeah, I mean I, I was totally on board with what, you know, she basically put an output performance evaluation system and once it's up and running, then you can let people work from home, say three days a week. I'm two days a week. You know, I personally, even though I was like the working from home person before the pandemic, was never advocating five days a week. Most people don't even want that. Again, coming back to the earlier discussion, most people want to see their colleagues. It's depressing and isolating, but I think if you're going to work from home two days a week, you just need to be assessed and output and then at that point it works. Well.

What other advice would you have for managers about how to adjust to this?

I mean, another thought is on office space that comes up a lot. The very obvious things obviously sign short run leases because things are extremely uncertain. I have data on lease length and that's fallen on average from nine to seven years. So everyone's doing, it's pretty obvious, don't sign long leases now. If you do get a big discount. The second thing is, if you think about the way offices are going to work with hybrid work, the office should now be a place that's really going to have two activities. Most of the time it's collaborative work. So you want a lot of open spaces, meeting rooms, and a bit of the time you may be off in a little cubicle basically taking a zoom call, in which case you want tiny cubicles. What you don't want is the old Mad Men style era of executive offices because people aren't really going to be sitting on their own in the office doing individual work because that's going to be on their home days. So in terms of office design, it actually goes completely contrary to what was there during the pandemic to stop infection spread. It's actually on open plan spaces and collaborative spaces and you don't want perspective screens and people in cubicles. Then the other comment is in terms of offices, there's been the net demand for office space in the US is slightly down, not massively. You'd think it would be hugely down because you think, well look, everyone's going towards working from home. We know in aggregate we're going to go from 5 to 20% of days working from full days work to home. So that's a 15% drop in footfall into offices. But you have to remember that's being offset by an increase in demand for space as in reduced density because of fears of contagion. So net, net it's about equal. So what most firms I'm talking to, they're taking having working from home days. They're using that to de densify the office. So you know, it's not just elevators, it's reception areas and kitchens, et cetera. Turns out the one piece of office space that's kind of cursed is high rises. So if you think of, you know, skyscrapers, they're like, you know, those things, they're still basically empty because take Salesforce Tower or some huge building in New York. A, to get to the front door you've got to take the subway. You can't do that in the morning and evening rush hour without being packed in sardines or the tube in London. And then B, by the time you get to the front door, how do you get up to floor 40 without taking a packed elevator? And elevators tend to be jammed in the way up in the morning and down in the evening. So those buildings are in real trouble. And if I own space in that and I was going to renew a lease, I'd be looking for a massive discount. I mean like I don't know, 30, 40, 50%. Because in reverse, in fact, what tech firms often have these kind of campuses that you can drive or bike to and you can walk upstairs if you want are actually quite popular. So that's the other twist. It's like it's not that the demand for space is cratered, is it's cratered for high rise buildings and city centers.

Yeah. One thing we've been talking about at Grillock for the last year is also, you know, if we make these predictions now, what are the second order effects and the third order effects and can we invest in them? We were talking about the donut effect and the impact on, you know, residential real estate as well. Can you explain that?

Yeah. So it's very, very clear in the data. So I'm working in fact with an undergrad here, quite amazingly, Arjun Rahmani. And we've been pulled two different sources of data. One is Zillow so zip code prices by month. And the other is we did a Freedom of Information act on the US Postal Service and got there change of address data by, for businesses and households by month, by zip code. And you see really clearly in both data sets the doughnut effect. So just to explain it, what's happening Is a central business district, the real core, downtowns, large cities. So think of New York, Chicago, Louisiana, D.C. san Francisco are seeing massive outflows of households and of businesses and price drops, rental very obviously, but even resale prices, these suburbs are seeing huge increases. And then places far away, like, I don't know, Topeka, Kansas or Tulsa, Oklahoma are going up a bit. So what's happening is the story that kind of ties it all together is people are not leaving US cities. People are not really permanently fleeing New York and San Francisco. What they are doing is moving out to the suburbs. It makes total sense because if you're going to work from home two days a week, you can basically commute a bit further. And you also need space for a home office. And so the whole world and businesses including is moving out. Now the E commerce economic impact is rental rates are down in city centers and also things like retail traffic. So we estimate New York, we'll probably see in San Francisco drop of about 10% of retail sales in city centers. So it's not cataclysmic. It's not like we are going to see back to the 1980s whereby city centers are dangerous, ruled by crack gangs. Maybe you're going back 10, 15 years. City centers have been on an upswing since 1980, and maybe their relative price is going to go back to where they were in 2005. So they're still expensive, they're just less so. So I think the market has already done this. But if you could go back in time, it's pretty obvious you'd want to short city centers and go long in the suburbs. And already the property markets are doing that. I suspect it may continue a little bit, actually.

What's your prediction for. Or maybe you're seeing it in the data for what we'd think of as secondary cities. And if there's a lot of movement.

There, they're up a bit, not much, I mean, quite surprisingly. So we broke it into the top 12 cities, which kind of goes to New York, to San Francisco, that's 1 in 12 and then the next up to out to 50. So a place like Kansas City at like, you know, 30 and then the remaining whatever, 300 MSAs. And outside that, they're kind of small towns. So what you see is this doughnut effect is very heavily driven by the top 12 cities. There's a bit in Midland, really not much in the smaller ones. There is actually, in terms of. This is what's kind of interesting in terms of movement of individuals, people and businesses. They are slightly moving out from big cities, not massively a bit. So you see a slight exodus, but in terms of prices, the reverse is going on. So you may think that's surprising, but I think what's happening in the data is the industries that are heavy in big cities like tech and finance have done really well. So the people that work in tech and finance have become dramatically wealthier over the pandemic and afford to buy much nicer houses and apartments. And that's why they're driving up prices in San Francisco and New York. But they tend to have lower density. So there's probably a lot of lower income people moving out and middle income into Tulsa, Oklahoma, et cetera. So if you want to have the hottest property market in the entire US it will be the suburb of New York and San Francisco. Those things have gone up by like 50, 100%. Tahoe apparently just now become effectively a suburb of San Francisco, is up 100%. And the worst property markets, oddly, are the central business districts of the very same cities. The reverse was happening for the last 40 years that people moving into the center, they moved out at speed. And since it's about purchase prices and businesses are permanently moving, this thing is not going to entirely snap back. Some of it will, so it's not going to permanently stay like this. Some of it will snap back. But certainly 10 years from now city centers will be less expensive and lower density than they would have been without the pandemic.

So what you are not seeing yet, which was a prediction by many earlier in the pandemic, is that the sort of second tier of cities, massively rising companies opening offices in Kansas City and such.

Not really. I talk to probably like you talk to a lot of journalists and they love anecdotal stories about digital nomads. But just literally in the data, given this is tech, in the data from the US Postal Service, change of address and Zillow pricing data, we do not see that. So in fact, prices are going up fastest overall in the large big cities. And there's some very shallow movement out of them, but honestly, not a lot. I think the reason is until big companies leave large cities, nothing's going to happen. So if you are the Goliath national bank to take that fictional company for How I Met yout Mother, or let's think of a real company like Google or something, you know what? You're probably not very tempted to open an office in Tulsa, Oklahoma. You're probably sticking with Silicon Valley and the Bay Area and New York and a few Other large metros, because that's where a lot of the grads want to be. They're just now tending to live a bit more out in the suburbs and a bit less in the center. And I think you'll see what LA is like, maybe the development of kind of multipolar cities. So you'll see cities where there's a kind of cool area where, you know, the young, single, 20s somethings live in an area where, you know, 30s go with really nice restaurants and maybe 40s and 50s, 50s, I don't know, the art galleries. You know, you can imagine that we don't all need to cram into the center. You can spread out and LA has a bit of that. There's different parts of the city and that may be what the suburbs turn into, because if a lot of people move out with money, the suburbs will come more fun now. There'll be more restaurants. Think of weekday dining. It'd be easier to go to downtown Palo Alto General, you know, a Wednesday, because there's a lot of people working at home and so there'd be good restaurants.

I do think that perhaps there is a virtuous cycle or like a secular virtuous cycle that hasn't shown up in the data yet. Considering the compression of how quickly this has happened in that as companies enforce or move to a workforce strategy that is aggressively more distributed and then invest in the tooling that enables that, then they may become more open to new locations, as you said, that are fully remote or just secondary offices.

Possibly you could argue that, look, if I'm Google, say I do care that on the three days a week you're in, you actually are networking with other people. If I open an office in Taclobahoma with 15 people in it and they just network with each other, that may end up being completely insular and really unproductive. So in some ways the hybrid puts more emphasis on you really do need to be socially connected on those three days a week you're in the office. So they will be like exhaustingly social. By the end of each one of those three days, you'll come home and want to put a towel on your head and say, I don't want to talk to anyone for half an hour. You know, I spent all day in meetings, meeting after meeting. But that's the trade off in return for having the two days of quiet, you know, serene thinking on your working from home days. But that probably won't work if you're disconnected. Another thing I've heard, by the way, is people talking about you're going to work remotely for four weeks and you're going to be allowed to live in Alaska and then come in, you know, a week where you do. The problem with that plan is most of these meetings you need for people, big groups, you can't wait for a month. So I say, Sarah, we've got a new, you know, new product coming out or there's a disaster. This needs to fix. We all need to get together, huddle as a team. You can't say let's do it next month. So I think hybrid has to be more or less every other day in the office, every other day at home and then it's very easy to shuffle tasks around because most stuff isn't so urgent, it can't wait a day. Right.

So for that future I painted, that actually involves more economic opportunity or more jobs in these secondary cities. Like companies are really going to have to figure out the networking and the connectivity across offices and with the rest of the organization. That's a tall order.

Yeah, I mean I had the same thoughts. I thought early on this would happen. We just are not seeing it in the data and we have Data up to March 2021, so it could still happen. I don't want to rule it out, but so far we're a year into the pandemic. Final thought that's kind of interesting. Another long run trend is the technology around working from home is dramatically improving. So I have data from the US Patent Trademark Office and we've been looking at scraping the number of times the word working from home comes up or remote work or video calls in patents and you see it's about 1% before the pandemic and then it suddenly just starts to explode from March 2020 onwards. So there's clearly a massive charge of people into innovating around working from home technology. Which means what we're experiencing now will clearly get better. So if you look back 20 years, things like Skype in 2003 was a huge step forward. You have video calls over the Internet and then Dropbox and cloud around 2010 so you could file share those kind of massive innovations, I think we're going to see more of them. So who knows what it will be. If I knew I'd be investing as I guess with all of us. But five, ten years from now, almost certainly some fantastic new working from home tech is going to come out because companies I know they're for, I mean the market for working from tech because gone up 4 or 5x. So of course the R&D dollar is pouring into that and the startup funding has exploded. So that's exciting. But it also means this thing is only really likely to go in one direction. I think we're going to get better at it and so that's another force pushing us towards continued working from home.

Yeah, Nick, we don't know and we are investing in it. Right. But it's certainly something that we believe in. Just because people want the choice and the potential economic benefits and social benefits are very high. But you know, it will not be trivial. You've obviously been thinking about this area for a long time, but you also have such a good nose for data. As to how we can actually understand what's happening and you know, be factful in our understanding of it. What research of yours should we look out for or what? What else are you interested in understanding in the coming months?

Well, thank you. Economists are data nerds. I know there's an entire field called data science, but it's kind of econo data science are more or less one and the same. I'm just continuing to collect data on how this thing unwinds. Actually not long after the beginning of the pandemic with Jose Barrera and Steve Davis, we started up a survey of initially two and a half thousand, now 5,000Americans per month just to collect data. We have another survey of firms with Atlanta Fed. They're just really interesting seeing how you can see people charging home. You can see them slowly unwinding. A lot of the stuff from that that's fascinating is on views on people's say on social distancing. So one question that I when I give talks often I use the polling feature in zoom I think is almost a new innovation. I ask people the same question we asked these in massive surveys you always get the same answer which is post Covid after you've had the vaccine, what's your behavior going to be? And there's a kind of scale where the highest score is completely return to pre activities and the lowest is continued social distancing. You can reverse it doesn't matter what's high or lowest but the the kind of two ends of the spectrum and what you find is over 3/4 of people say they won't fully return and they say they're going to avoid subways and crowded elevators because they're just, they seen too many sneeze videos. I mean honestly they're too terrified. And so that kind of stuff is striking. That's true. That has huge implications for New York, London, you know I used to commute every day to the welcome Back in London on the tube, and according to that data, most people will be too nervous to get on a crowded tube train. If you travel on the tube in Russia, you know that, you know, your face is like pushed against the glass half the time. It's so packed and it's clear that one person sneezing, everyone catches whatever. And you used to accept it. But there are some pretty interesting things to watch. I don't know how much that will carry out, but that could be another massive impact of the pandemic is the distaste for density that makes certain activities really hard to carry out. And I think that's big business implications as well.

Awesome. Thank you so much for joining us, Nick. Super fun. And we'll just keep watching the world world as this unfolds.

Great. Hey, lovely to talk as always, Sarah.

That concludes this episode of Gray Matter. If you enjoyed listening to this conversation and want to hear others like it, please subscribe to gray matter on SoundCloud, Spotify, or wherever you get your podcasts. You can also find new episodes and blogs on our website, greylock.com and of course you can follow us on Twitter at greylockvc. Thanks for listening.