Is Remote Work Working Out?

The Issue:

Remote work became a necessity for a very large share of workers at the beginning of the COVID pandemic. The experience has provided a valuable opportunity to study how remote work impacts both firms and workers, and about the prospects for a new balance in working modalities. Will the pandemic experience change the way we work in the future? What are the distributional implications when there are limited opportunities for many people to work from home? How will working from home affect workers' sense of isolation and companies' productivity?  Evidence from the Survey of Working Arrangements and Attitudes (SWAA), offers important insights.

There was an estimated twelve-fold increase in full paid days worked from home between January and May 2020.

The Facts:

• The share of workers laboring from home rose dramatically at the outset of the pandemic and, while it has diminished, continues at a much higher rate than before March of 2020. As shown in the chart, there was an estimated twelve-fold increase in full paid days at home between January 2020, when it was 5 percent, and May 2020, when this number rose to 60 percent – in other words, an increase in roughly one day per month to 12 days per month. This was not spread evenly, of course, with frontline workers and others not having the opportunity to work remotely. Since the beginning of 2021 the number of full-time paid days at home has stayed within the range of 40 percent to 50 percent.
• There are three modes of work, and the division of workers across these modes is largely correlated with education and income. Estimates from the SWAA, a monthly online survey run jointly by the University of Chicago, MIT, Stanford, and ITAM in Mexico that began in May 2022, suggest that after COVID 55 percent of employees will need to work fully on-site because jobs such as those in manufacturing and retail do not allow for working from home. These workers tend to have less formal education and to be lower paid than those who able to work from home. About 15 percent of workers will be fully remote.  They work in jobs such as IT support and back-office functions and are often contractors. The remaining 30 percent of employees will be in hybrid situations, splitting time between working on site and working remotely. These are professional and manager-level jobs, employing people with more formal education and who are better paid than those in the other two categories. In fact, the variation in the opportunity to work remotely is almost entirely driven by differences in education and income levels rather than gender, race, or age. Working from home is viewed by many as a perquisite of a job, with an estimated value of about an 8 percent pay increase (more so in tech and finance jobs), equivalent to the compensation from a pension or a healthcare plan. But because the option of working from home tends to be less available to lower-paid workers, the shift to working from home benefits better paid workers more than lower paid workers on average.
• About one-third of employees would like to be fully remote post-COVID, a little more than one-fifth would like to be fully on-site and the remaining 45 percent prefer a hybrid arrangement. Along with this breakdown, the SWAA further asked, for those who preferred hybrid arrangements, the number of days people would like to work from home.  Of the 45 percent who preferred some work from home, about one fifth (22 percent) preferred working from home one day per week, about one third preferred two or three days per week (31 percent for each) and the remaining 16 percent preferred working from home for four days per week. The most cited reason people liked working from home was time saved commuting – when asked to list the top three benefits of working from home, this was cited by 60 percent of respondents. (The average American commutes about one hour each day.) Two other often-cited reasons are a flexible work schedule and less time needed to get ready for work, cited 49 percent and 47 percent of the time, respectively. Three other reasons listed in the survey were a preference for a quieter environment, spending more time with friends and family, and having fewer meetings (cited in 38 percent, 37 percent and 16 percent of responses, respectively).
• There are differences in preferences for working from home by age and gender. There is a greater preference for in-person work among the youngest employees and those over 55. Those in the middle age group who have young or school-aged children have a mildly higher preference to work from home – for them, the desire to be around because of childcare somewhat outweighs the challenges of being in a more chaotic, nosier environment, despite the fact that those people tended to find it difficult to work from home. In terms of gender, the levels of work from home during the pandemic for men and women have been very similar and have tended to rise and fall together.  Post-pandemic, people want to work from home more than what employers are likely to allow, and the gap between the desired and allowed work from home is almost 50 percent larger for women than for men.  The reasons for this are not fully known, but could be related to occupational structure, industrial structure, full time versus part-time work and discrimination, among other reasons.
• Despite concerns at the outset of the pandemic, working from home had a positive impact on productivity. Evidence from SWAA finds that hybrid working from home increases average productivity by about five percent.  In fact, the productivity gains seem to be rising as companies and employees learn how to take advantage of remote work opportunities. In-person work helps with creativity and innovation through formal and informal meetings.  It can also be good for fostering an esprit de corps.  But this seems to be outweighed by the benefits of less time commuting and preparing for in-person work – about 40 percent of survey respondents said that they spent more time working because of the time saved by not commuting, and time that would have been spent in meetings may be more productively spent otherwise. Hybrid working offers the benefits of both meeting in person on days spent in the office and saving commuting time on days worked from home. Perhaps as a consequence of these increasing productivity gains, employers' plans for the average number of days per week working from home have increased from less than 1.6 days in early 2021 to more than 2.1 days in February 2022.
• The shift to remote working has had some spillover effects, but not necessarily those that were the focus of concern at the outset of the pandemic. There was a view in the early days of the pandemic that commercial real estate would take a big hit.  But companies are not planning to cut office space by much, likely because they still need to accommodate workers who come in less than five days per week and scheduling to save space is challenging. Two large surveys of companies that I helped run, one with the Federal Reserve Bank of Atlanta looking at Chicago and the other with the Bank of England looking at Nottingham, have both found reports of office space demand dropping by only 2 to 3 percent. In terms of residential properties, there is evidence that people are relocating out of the dense centers of large cities towards lower density suburbs, or even more remote exurbs or very rural locations.  A co-author and I call this the "donut effect" as big cities like San Francisco, New York, Los Angeles, and Chicago have lost about 10% of their population from the city centers.  One potentially big effect that demands careful policy consideration is the impact of remote working on public transport as urban transport networks like the New York Subway, commuter rail, and BART in San Francisco are seeing permanent reductions in usage. BART predicts that its ridership will be down 30 percent in the long run.  Revenue shortfalls from declining ridership are very damaging to systems that have high fixed costs. Public transportation helps keep cars off the road and reduce traffic congestion and disproportionately serves the lower-income and middle-income communities.

What this Means:

The growth of working from home has generated a boom in the development of new technologies that increasingly supporting remote work, and these technologies are likely to continue to improve – in fact, the flow of new patents supporting working from home doubled within the first 18 months of the pandemic. The shift to remote work will have massive impacts on society. Outsourcing and offshoring will grow as footloose fully remote workers gain locational flexibility. One consequence is workers' continued move from city centers to suburbs and more rural locations. There are also potential effects that will increase labor supply. Older workers, those caring for young children or older relatives, the disabled and those living in rural areas gain easier access to employment, particularly part-time employment. The greater ease of working shorter and more flexible hours from home is also very appealing to many people who would otherwise not be in the labor force. These increases in the supply of labor could drive growth. Finally, working from home is a huge welfare benefit to the roughly 50 percent of employees who can do this, saving them over an hour per day in time that would otherwise be spent commuting and getting ready for work. This should continue the trend of greater time devoted to leisure activities, something we can all look forward to.

https://econofact.org/is-remote-work-working-out