Wednesday Jul 15, 2020
EP39: Work From Home Injects Over $1 Trillion Into the Economy
There's a whole bunch of commuters that are used to driving to cities. And I think it would be good and very timely talk a little bit about some of the things that we've learned and this massive economy that is forming from the non-commuter economy, the non-commuter economic forces. Chris will perhaps give us a little bit of hope, as far as what the trends are with this new stay at home economy.
In downtown Seattle, there are office buildings and those office buildings right now are pretty much empty as of today, July 14, 2020. And a lot of people thought this whole COVID thing would be over by now. I think with a record number of cases per day coming in or individual states like Florida are now number four in the world is where the country is. There's a kind of sobering up going on with regard to what’s happening. One of the interesting things is that we talked about it a little before is that the big companies always lead the way on this sort of thing for a bunch of reasons.
One is they've got the best information.
Two, they've got the best lawyers and their lawyers advise them as to what's why somewhat safe to do.
Three, they can often work the numbers better than the rest of us. And so what to us might be a small saving to them can be quite material.
Here's what we have today, roughly 48 million knowledge workers in America and they used to commute by car about 26 minutes each way.
So that's .87 hours of car time commuting. Anybody who's lived near a big city and commutes knows that is an understatement. That's just over 200 hours spent commuting by car which adds up to about 10 billion hours for those 48 million knowledge workers.
This has been time boldly wasted.
Commuting and that multiplied by the $50 an hour that most knowledge workers are paid, which clearly is less than they're worth and nobody ever gets paid what they're worth. That's $505 billion of labor that's being wasted commuting. And then if you throw in the car and just take the federal government's mileage reimbursement rate of 57 and a half cents per mile which accounts for gas, maintenance, wear and tear, tires.
And you take the number of miles committed 29 per day. It's about 6670 miles a year. That's $193 billion of commute costs and that's just raw costs again in the economy that's considered to be positive. Well, then it must have been worth it to them. But you know, it's not worth it to anymore.
Let's throw in a little something here for knowledge workers with children. This is really an illustration. It's not a huge number, but it's a big enough number. Knowledge workers with children are at about 40% and you've got to have some childcare costs averaged at $8 per hour. That alone is $33 billion.
The direct commute costs, just for the knowledge workers, which I will call pure waste is $731 billion.
That's a big number. And then if you look at the rest of the commuting workforce - 62,000,000 other people and they commute about the same amount of time each way. But what if we could actually improve their commute by 25% and what if they're being paid an average or they're worth an average of $35 an hour and you multiply those numbers together with those 53,940,000 commute hours.
Times $35 an hour and you take 25% of that you get yourself another $114 billion.
And so if you had $114 billion for the non-knowledge workers up with the $731 plus billion for the knowledge workers, the direct savings, we're getting pretty close to a trillion dollars - $845 billion dollars of direct costs. It's a big, big number. And it was considered to be essential, but we just have to do this right, and it's not considering everything else is not considering the environmental impact. It's not considering the geopolitical impact and what it means to have an economy that generates such a dependency on oil which doesn't always come from exactly where you would want it to come from, neither is the money always used exactly like you would want it to be used.
Ignoring all that it's $846 billion roughly that could be saved and is being saved. Today, this isn't a suggestion or something we do in the future. This is just saying, look what happened, look what's happening right now that 813 billion dollars is effectively being put in the pockets of consumers, one way or another, mostly as their own time. But we know that people figure out a good things to do with their time - the gig economy is about that. But people they value their time and we should consider them when their time is saved. They're getting value.
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The complete transcript of this episode is below:
Corey Frank (00:37):
Somewhere in the Northwest is Chris Beall. Chris, how are you? Good afternoon.
Chris Beall (00:42):
I'm doing great. Yes. My undisclosed location is here in Port Townsend in Washington, where one more time, I'll look up the sky there and tell you that they say the blue hole lingers longer here. And apparently it does. It's pretty sunny.
Corey Frank (00:58):
Well, that background does not look like Port Townsend. So, that is false advertising at its finest. And I have a feeling we're going to get a bait-and-switch here. Pretty soon when you get around with all of your spare time to putting up a new virtual background, but today, maybe the point of that virtual background is to talk a little bit about all those people. Because if you look over your left and your right shoulder, I can see all those little commuters and I can see all those little commuters taking the ferry and maybe driving in, maybe trying to find some parking and maybe, trying to fuddle with their face masks as they go up to the third floor and try to put their face masks back on as they go to the Starbucks.
So there's a whole bunch of commuters that are used to driving to cities much like the one over your shoulder there. And I think it would be good and very timely talk a little bit about some of the things that we've learned and this massive economy that is forming from the non-commuter economy, the non-commuter economic forces. And I think we were talking a little bit about that before we hit record here. Let's just dive right into that Chris, and see if we can maybe give them a little bit of hope as far as what the trends are with this new stay at home economy.
Chris Beall (02:13):
Coalino downtown Seattle, pretty much office buildings and those office buildings right now are pretty much empty. Today is the 14th of July 2020. A lot of people thought this whole COVID thing would be over by now. I think with record number of cases per day, coming in where individual States like Florida are now number four in the world where there're countries sobering up going on with regard to what's happening. One of the interesting things is that, we talked about it a little bit, for the big companies always lead the way on this thing for a bunch of reasons. One is they've got the best information. Two is they've got the best lawyers and their lawyers advise them as to what's wise and what's safe to do. And three, they can often work the numbers better than the rest of us. And so what to us might be a small savings to them can be quite material.
So, the big companies in the Seattle area, I'm thinking of Microsoft and Amazon in particular, but there's a lot of others have pretty much declared that work from home is going to be an option. And maybe even permanently, I know at least one of them, their official principle is number one safety and number two choice. And there was no time limit put on that. And in fact, that's one of the reasons I'm here in Port Townsend that it freed us up as a couple to move to where we would want to be together, having no concern whatsoever for the commute just having a concern for the quality of life and having to have good internet, right? That's our new highway that we commute on, but you can drive through Seattle right now at what would have been rush hour and there's no rush hour anymore.
And I think it's going to stay that way for a while. And I decided, why don't I just go ahead and I'm going to share my screen here. And Susan Finch gave us some... She did a great job on this, and it was really quite something. I had an orange spreadsheet that I put up on LinkedIn, and it actually had a pretty good sized error in it. But even when you correct the error, you still get numbers that are so big they're mind blowing. So, Hey Corey, so let's take a look here at what it really costs to commute or what it used to cost to commute for everybody, and then how much we're saving. So there's 48 million knowledge workers roughly in America and they commute by car about 26 minutes each way. So that's 0.87 hours of car time commuting. Anybody who's lived near a big city and commutes and knows that this is an understatement, but let's just take it as the number.
And so it's a little bit low, but we'll accept that's almost 200 hours. It's almost 10 billion hours of commuting, 9.568 billion hours spent. And I will say boldly wasted commuting. And that multiplied by the $50 an hour, that most knowledge workers are paid, which clearly is less than their worth, right? Nobody ever gets paid at their worth. That's $505 billion of labor that's being wasted commuting. And then if you throw in the car and just take the government's number, the federal government's mileage reimbursement rate of 57 and a half cents per mile, and you take the number of miles committed 29 per day. It's about 7,000 miles a year. That's $194 billion of commute costs, which I would call pure waste, totally not 731 billion. In the economy, that's considered to be a positive, right? Somebody spent all that money for gas, they spent all that money for wear and tear on their car and for tires and this and that.
Well, then it must have been worth it to them, but it's not worth it to you anymore or if you don't have to commute. And then I thought I'd throw in a little something here for knowledge with children. This is really an illustration. It's not a huge number, but it's a big enough number and knowledge workers with children and can say 40% have them and you've got to have some childcare costs at eight bucks an hour. That alone is $33 billion. So the direct commute costs just for the knowledge workers, which I will call pure waste, that adds another 32 billion plus dollars and you get about $731 billion of waste.
And then look at the rest of the workforce. There's 62 million people, approximately commuting and the rest of the workforce, they're going to be kind of $35 an hour labor and that's it an awful lot of commute hours per day, that's 53 million almost 54 million commute hours. And so say they got a 25% improvement from all those knowledge workers being off the freeways and off the streets and out of the parking. Now you're down to a pretty big number again, $114 billion of additional savings in total. It comes up to about $846 billion.
Corey Frank (07:03):
So if COVID has been going on, one of the bright aspects of COVID from an economic perspective is certainly that it has forced these numbers to the top and the only people that perhaps are a little bit better are the parking lots and parking attendant, parking meter and oil change workers of America here. But these are real dollars that can go back into the economy, go back into the environment, go back into industry, go back into better tool sets, better technologies to enable workers to perform probably at a higher rate at a higher productivity rate than they did even before they jumped into the steel coffin every day.
Chris Beall (07:49):
Yes, exactly. You know, getting in that 3000 pounds of steel to move your three pound brain to get it closer to somebody else's three pound brain after there are 3000 pounds of steel move that somewhere is a little bit weird when you think about it, right, as a way of getting things done, you and I didn't have to move any steel at all. And we had this conversation here today, and nobody who's listening to us had to do it either. It shows that you can exchange information and get work done. It also shows something else. That's interesting that predict something else, I'll predict that anyway. I don't know if it does, but I'll just go ahead and predict it. And that's this, that money is primarily going to end up flowing into local communities into neighborhoods, because if you're not committing to a distant place, well, by definition, you're staying in a nearby place and you'll still be buying stuff.
So the notion that you're buying more good stuff, that's of value because a big chunk of it involves your car and 26 minutes each direction really doesn't make any sense, it doesn't hold water. If you've got extra time, you're to be using that time locally, if you don't have to commute. And that means we'll have a flourishing of local businesses. And I think this whole question of what's happening with restaurants and bars and all that stuff and hair salons and so forth is you're going to see just more of them doing better in local neighborhoods and more people walking to dinner. Maybe not always eating at home like we do here, but walking to dinner or walking over to have a drink or walking over to get their hair or their claws done or whatever it is that they want to have done. Maybe even walking to get groceries like I used to do in Reno. So I think it really ends up being a flowering of neighborhoods that comes out of this.
Corey Frank (09:38):
So getting those three pound brains more collectively, more localized, it's big money, it's big business?
Chris Beall (09:44):
It is. And it's big economy. Yesterday, we've been here in port Townsend, living out in Cape George for two weeks and three days and yesterday our neighbor brought over, we just met our neighbor day before, brought over to big wonderful Dungeness crabs all cooked up and ready to eat. Now there's economic value in that. And the fact is if we were commuting, if either when my fiance or myself or commuting or on a plane right now or doing any of those things, there'd be nobody to bring those crabs to and that economic value of those two big Dungeness crabs, which by the way, were just, they're pretty delicious when they came out of the water above, I don't know 45 minutes ago, and somebody cooked them up and brought them over to your house.
That's real economy too. And I think we have forgotten a lot of the facts of economy. It's about what are called satisfied services. It's about what works for people, not just about how much money to spend for it. So there's an assumption that it's all about transacting, but sometimes it's just about doing things for each other. And people do that more when they're around each other, as neighbors than they're likely to do with the more or less strangers that are at the other end of their commute.
Corey Frank (10:54):
So I'd imagine that there's another reciprocal effect in temperament, if not blood pressure alone?
Chris Beall (11:00):
Yes. Last time I was in San Francisco, this was pre COVID. It was an hour and 42 minutes to get from Downtown out to a freeway. After that, fortunately, I only had an hour and 16 minutes home, so it wasn't too bad in a three hour commute. And that mental health thing I think is really important too, and it does come down to dollars and cents at the end. I know somebody's a member of the family works as a clinical psychologist with kids with behavior problems. And he says his caseload has dropped by more than half because kids are home with their parents and what the parents learn to do with the kids to help them out, to help their behavior can actually be a plot because the parents are there. Now think of what we spend overall on mental health and what helping kids with behavioral issues earlier in their life could do 50% maybe of an overly large number. This is just one therapist's experience, but 10% would be a pretty big number in terms of economic impact and improved mental health for the nation's children.
Chris Beall (12:57):
There is a contrarian view to all this, which is folks like to be in the office because they like to talk to people in the office. And I think that's true of some people. My guess is those are the people that are actually not there anymore when you're working from home, so that you can have this productivity gain of 47% as measured by Prodoscore. So Prodoscore is an amazing company offering an amazing product that actually measures productivity at the desktop level. And some people would say, well, clicks and sending emails and doing this and doing that. That's not a real measure of productivity. And they're thinking in the micro sense, but if you have a measurement of everybody on your team before and after the day, they want to work from home and you knew how much they did, how much did they read?
How many emails did they send? How many spreadsheets did they work on and how much did they do with and all that stuff before and after is always meaningful when it comes to productivity. While you can quibble over an individual and say, "Oh, that's just busy work." That tends to be by the way, people like me who don't work very hard and go "oh yes, I'm so brilliant that I can just sit around and produce value by getting on podcasts or something like that." In reality, before and after means a lot and Prodoscore measured before and after work from home to the day and found this surprising number of productivity gain, obviously for knowledge workers of 47%. Primarily this is speculative because those people are not dealing with what I call social Sam. Sam is a nice gender neutral name for that person who comes over to your desk four or five or six times a day.
And just has one little question or one little tidbit to share with you. So they turn your desk into their water cooler. And 47% is a big number. And when you do the numbers here, they get really big, really fast. So yes, social Sam hates it when they don't get to go to the office, they prefer a shorter commute, they sure want to have all people there to chat with, now they don't. So say those people that they want to chat with, knowledge workers generate or are associated with average revenue of $200,000 per year per employee. Again, we got the same 48 million of them. And that means that there is increased revenue potential just from that 47% increase in productivity of $4.5 trillion. Those are trillions there. I didn't get that wrong. And someday I'll tell you what a trillion dollars is in hundred dollar bills stacked up.
I guarantee you, it goes well past the orbit of the moon. It's a big number. And so, if you consider that the average gross margin of companies that employ knowledge workers is about 47% itself, that's kind of funny, isn't it? But productivity gain, average gross margins rate is about the same, so you're multiply 4.512 trillion times 47% and you get $2.12 trillion of profit dropping into those companies from the productivity gains from these workers. Now, how are they going to harvest that profit? The way you always harvest profit, that you harvest it in the form of growth, you do more, you do better or in the form of cost savings. And if there are cost savings, we know that always produces dislocations and dislocations produce economic pain for individuals that have got to be managed by something. Governments tend to manage them by pumping money into the economy.
But at the end of the day, productivity is a good thing for the economy and it's a good thing for the companies that execute in it. So now I add up the commute savings to that $2.12 plus trillion of productivity gains, and you have yourself just under $3 trillion of total impact from work from home. And if you compare it to various other things, it's a lot bigger than the stimulus of 2008 by a big margin, it's almost as much as the total outstanding debt of US companies. It's more than the college loan debt. It's some pretty big numbers here, but we come right down to it. This is the big surprising number is we stopped commuting and we're more productive on a per hour basis by the way. Now, some people will say, "well, we're working longer hours, wearing ourselves out."
That's not what this is. This is productivity gain on a per hour basis. That's what Prodoscore is actually measured. And I know anecdotally, a lot of people I talk to say, "yes, it is weird. I'm getting more done." And I think they're getting more done because we all know it takes 26 minutes to go back to doing what you were doing when you get interrupted. Well 10% of the workforce goes around interrupting people and they do it several times a day. That's a lot of interruption. That's a lot of 26 minutes to get back online, get back on track. So anyway, I just thought I'd share that with everybody. And you can quibble with the individual numbers, but I think directionally and magnitude was we're talking about the biggest injection of value into the economy.
Yes. In some interesting ways, cost savings on one side productivity and another with the profits driven productivity. But the biggest one you and I have seen in our lifetime and fast is already happening, that's what I want to emphasize. This is not a tomorrow only thing. And one more thing is interesting as people are saying, "yes, but..." Yes, we're stuck at home and it's terrible. Well, that's the COVID related disease management, a form a risk management. I guess I'll call it diseases not what's happening at that point. It's a risk. It's the management or mitigation of risk of disease. That's gone someday, we don't know when, but it's gone someday. When it's gone this commute economy, the lack of commuting and the work from home will still be around because the big companies have spoken and everybody has to compete with the big companies for talent and now talent can work from anywhere. And I'll make one final prediction.
There is a lot of concern about social and economic justice nowadays. There's been a lot of concern for quite a while about wage disparities. How much do people make doing different things in different places. The fact of the matter is it's got to be good for all of those issues with talent anywhere can work anywhere because that kind of liquidity simply makes more opportunity for people who are talented and hardworking and want to get the job done, whatever the job happens to be. They don't only have to be limited to the jobs that are right in their area. Now mind you, there has to be improvements in many places in terms of infrastructure, access to internet, so forth, but it's a lot easier to improve access to internet than pick families up and move them across the country to places that they're not familiar with, that maybe they won't feel very comfortable at.
Corey Frank (19:59):
That's great point. I'm sure we're going to hear over the coming months of who does this, we've had the man-cave people would put up man-cave, porn about the beautiful flat screen and the jerseys in the fridge. And imagine we're going to have the same type of thing with a the office cave, the ideal office scenario, social collaboration amongst what's the best chair and the best height and raised desk let alone productivity tools. Because yes, I can imagine especially those that are in deeply collaborative positions where they're on Zoom calls or conference calls much to the day where previously they had conference room sessions or whiteboard sessions. Those are the ones that are going to maybe struggle the most from a collaborative type of work environment. And it's going to be clear that there's going to have to be some new breakthroughs and some sharing of best practices when it comes to making those as comfortable and as creative as possible.
Chris Beall (20:55):
You know what's funny about work from home having done it for a long time is, I'm not a fan of regular meetings, right? Holding weekly meetings, they tend to proliferate. They tend to attract parasites. And so I don't think they're great. It's easy to get away or to dispose of some of those regular meetings when they don't have the ritual of the office around them. And to let people pull information when they need it. It's one of the principles that our company runs on us. If you need to know something and you don't have that information, you need to know it from somebody else in the company, they don't owe it to you, you owe it to yourself to go get it from them. And so there are short interactions that are easily scheduled when you send a request to somebody for something, and they're working from home and they're in say a Zoom meeting.
Well, they finish that meeting. They can take a minute or so and satisfy your request for information. And they may do that with the phone call. Don't underestimate the power of the human voice, not just with those invisible strangers, but with your invisible or visible, that's what we do with Zoom, friends. The people you work with, it's amazing how much information you can get to move around with voice. And if you don't pack the day with meetings, people have time to get some of those interactions to happen. Think of it as like the oil in an engine. A little bit of room around the meetings, lets this cooling and friction reducing oil in the form of conversations flow and people will figure out how to talk to each other. And you want to get de-siloed, I'll tell you when everybody is working remotely, the silos go away and people start talking to each other more which is a wonderful thing in a physical office, it's very hard to avoid physical sorrow.
Corey Frank (22:41):
Right, I love it. This is fantastic stuff Chris, even with these numbers am going to check myself on the number of zeros here, because this is massive. And even if I'm an average size $10 to $25 million company with 50 inside sales reps and 10 field reps selling B2B, this is a brand new way to think of an increase in my bottom line in my top line for doing something that most folks want to do naturally anyway, which is just being more productive. I think one of our first episodes, we talked about the need to have people feel like they're accomplishing more and to feel like they're really doing a good job and it's in its inherent. No biophysiology to feel that way. And in too often, I think a lot of the encumbrances that we've placed on the work from an office environment burdens us to feeling our best sometimes because of all the things that don't really matter, the political, the manifestations of org charts, and promotions and elbowing and all that other stuff. And this certainly just allows me to feel good about my productivity in a different way. Doesn't it?
Chris Beall (23:54):
It does. I mean, Deming said that we work for pride of workmanship and the ability to get more done. That's meaningful to us without interruption or unnecessary interruption, I think just helps our professional mental wellbeing and helps us personally. There's another thing too, which is just a lot of evidence that says, hey being outdoors, being in greenery, so to speak, I'm looking out here right now and all the trees that surround this place that I'm living now over that direction somewhere, there's a Rocky beach that I can walk down to, there's nothing to keep me from taking my phone, plugging in an air pod or two into my ears and having some meetings yesterday, I had two and a half hours of conversations with people while trotting around barefoot. And is that good for my mental and physical health? You bet I'm not exactly a young buck. I'm 65 and change years old. And for me to get a couple hours of exercise and while talking to people is a great thing. And that is very hard to do at the office.
Corey Frank (24:54):
We'll leave it there for this episode. This, this was a heady one lot of numbers, lot at stake, and certainly a lot to consider as we move forward with hopefully an end to COVID insight. Regrettably the cost has been extraordinarily high. What you're doing here, Chris, and certainly with what the ConnectAndSell team continues to do is have to look for that axle grease to at least help them make the best of a real tough situation for folks. So great stuff has always with that, that ends this week's episode of the Market Dominance Guys for Chris Beall. This is Corey Frank from UncommonPro wishing you a great and successful week.
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