How working from home reshapes cities

Abstract

In recent decades, economic activity has become increasingly concentrated in major global metropolises. Yet, the rise of working from home threatens this dominance of cities. Using multiple high-frequency datasets on spending, commuting, migration, and housing, we provide global evidence that remote work has dispersed economic activity away from city centers. We label this the “Donut Effect,” which is much larger and more persistent in cities with high levels of remote work. Using detailed household microdata from the United States, we show that three-fifths of households that left city centers in big cities moved to the suburbs of the same city. This is likely explained by the rise of hybrid work, in which employees still commute to the office a few days a week. The enduring popularity of hybrid work into 2024 suggests that the Donut Effect will persist while also leaving broader metropolitan areas intact.