What We’re Learning About Work-from-Home and Productivity Growth

US productivity numbers have been pretty terrible of late. While the stats are subject to revision, of course, five straight quarters of negative year-over-year productivity growth—the longest such losing streak since records began in 1948—isn’t super encouraging. Every bit of help in turning things around should be welcome. Likewise, we should take a hard look at public policies and business practices that seem sub-optimal.

There’s more evidence that working from home, or WFH, belongs in that latter category. Well, at least full-time WFH. In the new paper, “The Evolution of Working from Home,” economists Jose Maria Barrero, Nicholas Bloom, and Steven J. Davis find that fully remote work is associated with about 10 percent lower productivity than fully in-person work. Their explanation:

• Fully remote work can make it more difficult to communicate and innovate. It’s not surprising that it’s harder to build relationships and share ideas when people are not working together in the same physical space. (“In-person work can lead to serendipitous meetings with colleagues in meetings, the break room or at the proverbial watercooler, generating more connections. While working remotely, these kinds of interactions are less common, so fewer new connections are created, and social networks become more static.”)
• Remote workers may be more easily distracted than in-person workers. They may be tempted to check their personal devices, watch TV, or do other non-work activities while they are supposed to be working. (“Anyone that has taught large classes online is aware of these challenges of having to compete with distractions that are easier to minimize when teaching in person in the classroom.”)
• Remote workers may have fewer opportunities for mentorship and learning. Less face-to-face interaction with colleagues can make it harder to learn from them. The researchers highlight a study that looked at remote work at a software company. Pre-pandemic, employees housed with teammates got more feedback on their code than those in a different building. But when all employees worked remotely due to COVID-19, location differences disappeared as all team members received 50 percent fewer comments. The decline was greatest for junior employees, indicating remote work can impede learning, especially for less experienced staff.

But the exact mode of WFH seems to matter. “Hybrid working appears to have no impact on productivity but is also popular with firms because it improves employee recruitment and retention,” according to Barrero, Bloom, and Davis.

One other point worth noting: “Fully remote work also lowers other business costs, namely floorspace, but also wages if the business can now access cheaper labor in farther off domestic and international locations.”

Finally, what’s next with WFH:

In the longer run, we predict the amount of working from home will continue to grow, primarily due to technological improvements and changing norms. In 10 to 20 years we could see 30 percent to 40 percent of working days being done from home, continuing the long-run trend of growing levels of working from home, which has roughly doubled every 15 years going back to the 1960s. The pandemic led to an additional one-off five-fold jump, but also jumpstarted a surge in research and development into new hardware and software products to support working from home. Thus, we expect the rate of technological change in remote work-friendly innovations to fuel a new phase of work-from-home adoption in the coming decades.

I suppose the exact share of WFH that is full versus hybrid will be determined by a number of factors, including labor market tightness. My lingering concern is that we are only a few years into this experiment and it’s impossible to know the long-term productivity impact of, say, less mentoring and serendipitous meetings. But maybe we’ll develop an app for that.