The pandemic surge toward remote work, it was once hoped, would bring in a more egalitarian America, where workers no longer had to live in pricey coastal cities to advance in their career. But four years on, the remote-work revolution has had some unexpected effects—and one of them is a polarization in where bosses and frontline workers live.
That’s according to payroll processor ADP, which tracked the locations of teams that worked together before and after the pandemic. While the “prevalence of long distance or cross-metro work—a close cousin of remote work” increased during this period, according to ADP Research Institute economist Issi Romem, it also split where different cohorts of workers live, to the point where pricey cities are becoming more and more management-heavy.
Large cities, generally those with downtowns, have always been considered leadership hubs. It’s understandable given that those in leadership positions and managerial roles seem to prefer to be where the action happens, where the decisions are made. But following the pandemic, the presence of workforce leadership within expensive cities has gotten more concentrated.
“More expensive cities have, on average, become increasingly more specialized in managerial tasks since the onset of the pandemic, while more affordable ones have become increasingly more specialized in individual contributor and frontline work,” Romem wrote in a new analysis.
At issue is a figure ADP developed called the leadership ratio, which measures how much a metro skews toward managers versus frontline workers (the former means a higher leadership ratio; the latter, a lower one).
Home values could be a factor behind this, he said in his study. In a city where homes cost twice as much as in another, the more expensive city’s leadership ratio would have jumped 5% in the three years following the onset of the pandemic. Whereas, “leadership ratios for both cities would have fared similarly before the pandemic,” Romem wrote.
Basically, before the pandemic, it didn’t matter much whether a city was bigger or smaller, more expensive or less expensive, he told Fortune—the leadership ratio didn’t really change, and not at any significant rate. “It was rising slowly in a way that correlates that slow increase in the prevalence of cross-metro work,” said Romem, who is also the founder of labor and economics firm MetroSight.
In other words, since remote work took off, the more costly cities—San Francisco, Seattle, Los Angeles, Boston, Washington, D.C, and New York—saw meaningful and significant increases in their leadership ratios, Romem said. (In Romem’s research, when an employee lives in a different metro than their manager, it’s referred to as cross-metro work.) “Now that cross-metro work is becoming that much more prevalent and remote work has been normalized en masse,” Romem told Fortune, more expensive coastal cities are much more management-heavy. And it’s not only coastal cities, Austin is definitely becoming a leadership hub with each day that passes, if it’s not already, Romem explained.
Last year, the shifting of work was one of the factors driving a $2 trillion gain in the housing market, which is now worth $47.5 trillion, according to Redfin. A new kind of remote-work city emerged, sometimes referred to as a “secondary city,” and it’s considered to be a more affordable metropolitan option. That phenomenon drove much of the increase—whereas “pricey metros and pandemic boomtowns” drifted.
“The suburbs came back into vogue during the pandemic while cities fell out of favor—largely due to the shift to remote work and the housing affordability crisis,” the authors of the preliminary Redfin analysis wrote. A recent survey from payroll processing company Gusto and Stanford University also found that, on average, workers are living farther away from their jobs than ever—27 miles—and one in 20 workers lives more than 50 miles away.
“We basically smushed 30 years of this trend into about two years,” Gusto principal economist Liz Wilke told Fortune.
This divergence has had many positive effects, said Romem. “You can have a career on Wall Street and live in the Midwest now, which you couldn’t really in the past,” he said, adding that “the career penalties for staying close to your family are less than they would have been pre-pandemic.”
Like it or not, the geographic spread of workers also has implications for the return-to-office debate, according to Wilke. “RTO is going to be very, very difficult. If people now live this much farther away, on average, from their employers, it will be very hard to actually enforce that policy,” she told Fortune.
But the polarization of housing costs and general cost of living will also affect what can happen in different cities across the country, Romem told Fortune. If your work can be done from anywhere, why live in California, where the average home value is almost 120% higher than the national average and the median rent is 36% higher?
“If any work can be done from anywhere, why pay more for it to be local?” Romem said.
Employers know that their nonmanagerial employees can do their work and live in more affordable places. That also means firms in the most expensive places have an advantage, Romem said.
“Previously, their alternative was to hire costly workers locally, and now they can pay less than that and get the cream of the crop somewhere else in the world or somewhere else in the country,” he told Fortune. “It hurts employers in the cheapest places, who now have to compete with those deep-pocketed, high-wage firms.”
Still, it’s not hard to see the ultimate outcome of this geographic sorting: Eventually, only high-paid, high-powered managers will be able to live in expensive cities.
“Any type of business in the classical cities that relies mostly on cheap, easy labor—that just doesn’t exist there anymore,” said Romem. “And that gradually happens across an entire spectrum of types of work.”
“The pandemic, and the normalization of remote work, has accelerated it,” he added.
