Working from home, wages, housing prices, and welfare

This paper studies the effects of working from home (WFH) on wages, housing prices, utilities and welfare in a simple model. The model consists of two types of workers and two cities. High-skilled workers can WFH or work onsite, but low-skilled workers work onsite. Production takes place in the central city, and workers who live in the suburbs commute to work onsite or WFH. Even if WFH does not change workers’ productivity, it makes the suburbs more attractive due to no commuting, increasing the housing price in the suburbs and decreasing it in the central city. It increases the utility of high-skilled workers but may increase or decrease the utility of low-skilled workers. WFH increases social welfare if the commuting cost is high and decreases otherwise. If WFH is less productive than onsite working, it decreases the housing prices in the central city and makes high-skilled workers better off. If WFH is more productive, it increases the housing prices but also increases the utilities of all workers, increasing social welfare.