Remote work and high-proximity employment in Mexico

We show that in Mexico, larger shares of potential remote work at the municipality level are related to lower post-pandemic employment in high proximity consumer services, a large sector that mainly employs low-income workers. We use a triple difference event study design where we compare employment in high and low proximity sectors across municipalities with different levels of remote work potential, before and after the pandemic. Our results are not driven by changing patterns of consumption associated to Internet access during the pandemic. Since high proximity employment tends to locate in places where the propensity to remote work occupations is larger, such as cities, our estimates imply that remote work may have slowed the employment recovery from the pandemic in certain regions. A counterfactual where we reassign remote work potential equally across municipalities results in a more robust recovery in Mexico's service-intensive central region, which faced the steepest, most persistent drop in service employment. Our results suggest that if remote work remains an important feature of labor markets, consumer service sectors in cities in the developing world may face challenges stemming from these new work arrangements in the post-COVID era.