Ranking How National Economies Adapt to Remote Work

The lockdowns due to COVID-19 have underscored the degree to which some people are better able to work from home than others because of their occupations, home situations, or other factors. And what is true of individuals is also true of regions and nations: Some countries are in a better position than others to thrive while complying with social distancing.

Our MIT research team recently constructed an index that analyzes the economic impact of remote work in 30 countries. The results show that developed economies will likely do better — primarily those with a mix of industries and occupations that are more conducive to working from home, along with supportive conditions such as internet access and high-quality connectivity.

At both the macro and micro levels, these findings have clear implications for government policy makers and business leaders. Even as countries reopen their economies, there is a reasonable chance of subsequent shutdowns due to infection waves in the future — or to other natural disasters after COVID-19 has waned. Moreover, many companies are considering a permanent shift to working from home as either a requirement or an option. Whether by choice or because of public health considerations, the shift in where work gets done is real, and governments must understand the implications and take steps to position their economies accordingly.

Analyzing a Pivotal Shift in the Nature of Work

In deciding how and whether to implement social distancing measures, governments must take into account the economic costs of doing so. But those decisions affect business leaders at large global organizations, who determine how many employees to hire and where and what the company should produce, as well as investors, who determine where to allocate capital. Regions where working from home is harder may be more susceptible to layoffs, depressed economic activity, and lower demand for products. Similarly, people who own equity or debt in regions that find it harder to switch to online work are likely to suffer as local businesses and homeowners see revenues and wages decrease.

Our index has four components. The first looks at the mix of occupations in each nation and the degree to which those occupations require people to work in close proximity to one another. For example, physical therapists, dentists, and barbers simply cannot do their work without being extremely close to other people. Flight attendants, waiters, and other personal service providers are similarly constrained, as are many medical professionals. National economies with a higher share of these professionals will see a bigger impact from social distancing. Richer countries tend to have a higher share of workers in high-proximity personal services. For example, Spain, Ireland, and the United States have more than 10% of their labor forces in such occupations, while China and Brazil have less than 5%.

Conversely, other professions are more conducive to social distancing and working from home. Contrary to intuition, these are not solely white-collar occupations. In fact, our analysis shows that many low-tech occupations (such as agricultural workers and loggers) and high-tech professions (statistical analysts and social scientists) have little need for physical proximity.

The remaining components of the index are three broader economic and demographic factors: internet access and quality, the percentage of households with a child in the home, and the percentage of employed workers who already work from home on occasion. (See “The Research.”) To be clear, the four dimensions we analyzed are not the only factors at play, and other conditions could contribute to or detract from a country’s ability to shift to working from home.

Developed Economies Adapt More Easily

In general, the results show that countries in the developed world will likely have the easiest shift to working from home. (See “The Impact of a National Work-From-Home Order Varies by Country.”) Although these countries tend to have a larger share of people working in high-proximity personal services — for which the demand grows as a country becomes richer — their more risk-prone occupational mixes are outweighed by strong scores in internet quality, experience working from home, and demographics.

For example, Luxembourg, which finished first in the rankings, has the highest internet penetration rate of any country in our sample, and it ranks fourth in share of the labor force with experience working from home. For a developed country, Luxembourg also does very well in terms of its occupational mix, due to a high share of scientists, engineers, and business and administration professionals.

Sweden ranked second, in part because a very large share of the country’s working population already works from home at times (29.4%, higher than in any other country in our sample). Sweden’s strong labor unions, pro-worker laws, and social policies are also potential factors that give employees a higher degree of labor flexibility.

Rounding out the top five are the Netherlands, Canada, and Belgium. Estonia finished sixth. Estonia’s employment mix is slightly more suited to social distancing than Sweden’s, and its internet quality and share of workers who have experience working from home are above average. Estonia is well known for its success in moving many government services online.1

The United States ranked 11th and illustrates the trade-off that rich countries experience. Among the 30 countries in the analysis, it finished about average in terms of internet quality and share of households with children, and a large share of the workforce already works from home occasionally (the second most in our sample). However, it ranks last in occupational mix, with a larger share of jobs in the U.S. requiring physical proximity to other people.

Developing countries all finished lower in the rankings. Nigeria ranked last, and Pakistan was next to last. Both were held back in their rankings by a very large share of households with young children and poor internet quality. Brazil and China were also near the bottom.

China ranked 25th. Like many middle-income countries, its occupational mix tends to help it in the rankings (it finished in sixth place along this dimension). However, China is held back by lower internet access and quality (where it finished 18th) as well as having many intergenerational households; China has the third-highest percentage of households with a child under the age of 15, a factor that can pose challenges for people trying to work at home.

Those results illustrate the degree to which a country’s occupational mix contributes to — but does not solely determine — its position in the rankings. Developing countries have the advantage of fewer service-oriented jobs that require close proximity, but internet infrastructure gives developed economies a substantial advantage. Internet access is doubly important in that it also facilitates employees who were working from home before the current pandemic. And developed countries tend to have lower fertility rates, which reduces the number of young children to distract employees at home.2

Preparing for the Next Disruption

Our results show that no country in the world is fully prepared for all of its residents to work from home. But there are clear steps that stakeholders can take to mitigate the economic fallout of future large-scale shocks.

Government leaders can follow Estonia’s example by digitizing government services and subsidizing the expansion of internet access. (Estonia made sure every school in the country had internet access by 1998.) These moves had both direct and indirect effects on the country’s ability to deal with the COVID-19 crisis. Directly, better internet quality makes it easier for large swaths of the population to work from home. It also means that important business services can happen regardless of geography, even when government workers themselves are working from home. Indirectly, managers and employees who are accustomed to interacting online with schools or governments will be more comfortable handling their business obligations the same way.

Governments can also help companies prepare for the next crisis by designing the right incentives — and disincentives. For example, well-intended bailout programs to support businesses and regions that were not prepared for COVID-19 may be creating a moral hazard that discourages businesses and local leaders from making investments that would make them better prepared for the next crisis. Similarly, many countries’ business investment programs unintentionally discourage companies from making needed upgrades to become more resilient. When a company decides between replacing a legacy server or updating its processes and moving its digital services to the cloud, it is choosing between two investments. However, some governments treat only the former as eligible for information and communications capital investment deductions, thereby discouraging adoption of cloud and work-from-home capabilities.3

Another way governments can help is by discouraging regional overspecialization and overconcentration. For example, economic development programs have often emphasized urbanization or a region’s comparative advantages. These steps are often essential for economic growth, but COVID-19 has shown how precarious such growth can be. Cities tend to have a higher share of workers who specialize in personal services than suburban or rural regions, making them more susceptible to disruptions. Similarly, regions that specialize in industries that feature occupations requiring close physical proximity and easy international travel, such as tourism, are more vulnerable than regions with more balanced economies.

At a company level, of course, there is great heterogeneity in how well organizations support employees in working from home. Part of this disparity is inevitable — certain industries, like personal services, face much greater challenges in moving online. But some aspects of how prepared a company is for facilitating online work are a choice.

For example, some businesses allowed, and even encouraged, employees to work from home before the crisis, and these organizations have learned from their initial experiences. Technology is a clear area in which some organizations have built the right foundation and others have not. There have been countless anecdotes about downed IT systems and interrupted Zoom calls. Cybersecurity is a priority as well. Demand for top white-hat hackers and digital security experts will continue to grow. Looking further into the future, companies should explore virtual and augmented reality technologies as a way to substitute for some aspects of in-person interactions that do not readily translate to a two-dimensional screen.

In addition to examining their technology, leadership teams should carefully assess the geographic distribution of their labor forces. Multinational companies should consider distributing workers who perform similar but essential work across multiple countries. Businesses should balance the safety created by such an arrangement with any economies of scale or comparative advantages they would give up.

Within business units and functions, managers should gauge how the tasks within a specific role or job category can transfer depending on the circumstances. For example, can a worker supervising in-person operations now support different processes remotely? Are the processes and tools in place to support that transition, such as software, documented best practices, and Slack channels? Experimenting to see what is possible in advance of a crisis can be highly valuable.4

This pandemic has brought challenges to all of us, and we should count ourselves lucky if the economic challenge is the hardest one we face. Losing access to a physical place of work can be difficult, but by taking the right steps in advance of the next disruption, government and company leaders can minimize the economic fallout.