The pandemic's past and future impact on working from home
The pandemic sent about half of all workers from the office to home, and new research predicts that much of the impact of the WFH migration is here to stay
The 2020 pandemic created a seismic shift in the global working world, and no change was more significant than the mass migration of workers from office to home. The shift in work location has been met with mixed reactions from CEOs. “Not being able to get together in person, particularly internationally, is a pure negative,” said Netflix CEO Reed Hastings. In contrast, Dana Canedy, CEO of Simon and Schuster, stated that “I’m getting my work done, and so are my colleagues. I don’t have an issue with it.” BlackRock CEO Larry Fink does not think his firm will go back to the pre-pandemic model: “I don’t believe BlackRock will be ever 100% back in office. I actually believe maybe 60% or 70%, and maybe that’s a rotation of people, but I don’t believe we’ll ever have a full cadre of people in [the] office.”
As we consider the many viewpoints about what has happened in the last year, and as the end of the pandemic comes into view, two broad questions are worth asking. First, what really happened in 2020 during the great work from home (WFH) experiment? Second, what will happen when offices reopen? New research from Jose Maria Barrero (ITAM), Nicholas Bloom (Stanford), and Stephen J. Davis (Chicago) gives us an answer to the former question and a sound prediction to the latter.
Their new paper is based on monthly field surveys the researchers started conducting in May of 2020. The surveys tracked respondent demographics and WFH experience. In all, the authors collected 30,000 responses from working-age Americans. The educational level of respondents varied: 10% did not finish high school, while 50% held at least one graduate degree. Their modal respondent was a man, 40 to 50 years old with one to three years of college, who earned $40 to $50 thousand in 2019.
Let’s start our review of their research by looking at what happened during the pandemic.
WFH hours multiplied ~10X
As we all would expect, the authors observed a dramatic increase in WFH hours far beyond anything ever seen prior to the pandemic. Across ten survey waves from May 2020 to March 2021, they found “an average of 48.6 percent of all paid working days were provided from home, about 10 times the pre-pandemic share.” WFH “peaked in May at 61 percent of paid working days and fell back to 43 percent in late October, before climbing back to 51 percent in November.”
WFH activity is most closely related to education level
There is a strong positive correlation between educational level and WFH activity. Indeed, WFH is “more than twice as high among those earning at least $150 thousand in 2019 as among those earning $20-50 thousand.” WFH varies little by gender or by age, except for “a notable drop among persons 50-64.” WFH is somewhat higher in “service-producing sectors, households with children, and Democratic-leaning states.”
Attitudes toward WFH improved significantly
“Two-thirds of respondents report improved perceptions of WFH among people they know,” note the authors, with less than 7% saying perceptions have worsened. As expected, the higher the income and pay levels, the greater the improvement in views of WFH. Nonetheless, the authors find that stigma against WFH decreased across most work settings during the pandemic.
WFH is changing technology decisions and innovation
During the pandemic, platforms such as Zoom, Slack and Teams became household words, as hundreds of millions of people took their learning and work online. Making this change happen was a steep increase in corporate spending on technology. Indeed, the authors estimate that U.S. corporate spending on WFH software rose more than 10% (as a share of GDP) during the pandemic, even as overall business investment fell 16%. Furthermore, as one would expect, the pandemic resulted in a rush of innovation in new WF platforms. The paper cites an analysis showing that the share of new patent applications that advance WFH technologies more than doubled from January to September of 2020, significantly surpassing its previous peak and following an upward trajectory since the onset of the pandemic.
Overall, the pandemic moved a massive percentage of work from the office to the home, especially for highly-skilled, highly-educated workers. With that conclusion as background, let’s look at what the research suggests will happen in the future.
Technological shifts will stick
The large increase in WFH technology adoption and innovation will create a positively reinforcing circle that will continue to enhance WFH platforms’ technological capabilities, making WFH even easier. As the authors note: “By improving the quality and productivity of remote work, this re-direction of technical change will reinforce the shift to WFH even after the pandemic ends.” Indeed, other research published in 2020 has shown that WFH increases as the direct price of WFH platforms decreases, significantly when greater adoption and productivity further increase the ROI of WFH technologies.
Most employees want some form of WFH to continue post-pandemic
By and large, note the authors, managers “want employees on premises three or more days per week to support innovation, employee motivation, and company culture.” Managers tend to “regard physical interactions on premises as essential but think three or four days per week onsite is sufficient.” This is good news because nearly “80% percent of those able to work from home want to do so at least one day per week,” note the authors, and about “30% percent want to work from home all week. Moreover, about 50% of employees “who can work from home in their current job (and nearly forty percent of all respondents) want to split the workweek between home and employer premises.” Interestingly, this perspective is widespread: “Men and women, old and young, high and low earners, college graduates and non-college workers, and those in “blue” and “red” states prefer WFH 40 to 50 percent of working days.”
Employees are willing to pay to work from home...
A fascinating finding from the research is that almost 2/3 of employees want to hold on to the option to work from home and are willing to pay something for that option. More than half see it as “worth a pay raise of 5 percent or more,” and “nearly one in five see it as worth a pay raise of 15 percent or more.” In sum, the vast majority of workers “would like to work from home at least one day per week, and more than half express a willingness to accept a sizable pay cut for the option to work from home part of the week.”
...and employers will let them
Given the positive changes in attitudes to WFH, the enhanced value placed on WFH by workers, and the ever-increasing ROI from WFH platforms — the authors predict that “American workers will supply about 20 percent of full workdays from home in the post-pandemic economy, four times the pre-COVID level.” This outcome will be a boon to all workers but will benefit the high-earners the most, who will see an average WFH level of about 2.2 days per week, compared to only 0.8 days for those at the lowest end of the wage spectrum.
WFH will hurt businesses located around offices
As most office workers know, work offices create and support many ancillary businesses — from restaurants to dry cleaners to parking garages. The authors present some sample predictions of this change in two major urban areas:
...respondents who work in Manhattan (San Francisco) spent an average of $288 ($168) per week near their workplaces before COVID. The plans of Manhattan (San Francisco) employers imply that 35 (43) percent of post-COVID workdays will be supplied from home. Multiplying by the net daily number of inward commuters – 2.3 million for Manhattan and 200,000 for San Francisco – yields annual spending drops of $12 Billion for Manhattan and $0.8 Billion for San Francisco. Scaling by 2019 taxable sales in each location, we project that greater WFH in the post-COVID economy will reduce consumer spending by 13% in Manhattan and 4.6% in San Francisco.
Of course, fewer visits to the office also mean less time commuting, and the authors predict that “WFH will reduce aggregate commuting time by about 435 million hours per month in the post-pandemic economy.”
Indeed, this is a conservative estimate, they note, because: “Our current figures also understate the drops in and around major commercial districts, because our commuting numbers do not include persons who commute from, say, uptown Manhattan to the downtown financial district.” Given that the “average one-way commute time is less than 22 minutes for persons earning less than $30,000 and about 44 minutes for those earning $150,000 to $250,000,” once again it is high earners who will get the highest economic benefit from the increase in post-pandemic WFH.
Overall, this shift to WFH raises serious concerns about the future of urban centers, note the authors, “especially those characterized by high inward commuting rates and large employment shares in jobs that are suitable for remote work.” As an FT article noted today, this issue:
…is of “vital importance to cities such as New York, which have built their economies on densely packed office towers, and the investors who own such buildings. If more people work from home, demand for office space could fall and those properties may be worth far less. Already, rents are under pressure, thanks to a glut of unwanted space that companies are dumping on the sublet market.
WFH will be a net positive for the economy
In the coming post-pandemic economy, predict the authors, the increase in WFH hours will boost true productivity by a significant “3.6 (0.2) percent on an equal-weighted basis and by 4.6 (0.2) percent on an earnings-weighted basis.” If correct, these would be major improvements brought about by higher worker satisfaction, reduced commuting time, and more “output per unit of time devoted to working for pay.”
In closing, the authors note that their research leaves many issues unresolved. Indeed, some workers found WFH stressful due to children who could no longer go to school. Moreover, the authors’ calculations might have missed “the benefits of in-person interactions that contribute to firm-level productivity.” Caveats aside, the authors predict that “much of the COVID-induced shift to WFH will stick long after the pandemic ends.” Other experts agree, notes the same FT article:
Phil Kirschner, who led WeWork’s outreach to big companies, and is now a workplace consultant, sees more dramatic changes afoot. The pandemic, he argued, has merely confirmed a shift towards a more flexible work life that has been under way for years — but one that many chief executives refused to acknowledge. “The desire for more flexibility is not new. What’s been holding it back is managers who wanted to see workers in front of them to be assured they were productive,” he said. “And now that bandage has been ripped off.”
Early in the pandemic, James Gorman, CEO of Morgan Stanley, said WFH would be a test that, if given a choice, he would never have willingly accepted. A year later, given the largely positive outcome of this unwanted experiment, most leaders I speak with believe that much higher levels WFH activity are here to stay. Therefore, with WFH being a new and defining feature of the near-future workplace, managers will have to reconsider and redesign many basic management practices. If that prediction is correct, then from performance and productivity measurement to innovation and risk management, the effects of the pandemic on corporate leadership and employee management have barely started to emerge.
Jose Maria Barrero, Nicholas Bloom, and Steven J. Davis. Why Working from Home Will Stick. NBER Working Paper No. 28731, April 2021. DOI 10.3386/w28731