Working From Home Is Both More and Less Productive

Studies show productivity both rises, and falls, with remote work, but Morningstar expects work-from-home workdays to tick down a bit further.

Yan Barcelo 14.12.2023
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Questions around work from home (WFH) have surfaced since the coronavirus pandemic lockdowns in 2020, but recent studies and media coverage have made it more controversial than ever. Given the amount of news out there around this issue, one might be forgiven for thinking that a large majority of workers have deserted their office towers to take refuge at home. This is not true.

Preston Caldwell, Chief U.S. Economist at Morningstar, boils it down to more modest proportions. “We estimate that around 24% of U.S. workdays were worked from home as of mid-2023, up from 8% before the pandemic. Fully remote workers account for 12% of workdays. Hybrid workers constitute 24% of the workforce and spend an average of 50% of working days at home, thus contributing 12% of remote workdays.”

Some Studies Find Working from Home Reduces Productivity…

A few recent studies have thrown a negative light on WFH. One, published in July 2023, finds that, “The productivity of workers randomly assigned to working from home is 18% lower than those in the office.” Quite alarming, until one realizes that the workers involved were data-entry clerks specifically hired for the study, and so were not representative of typical office workers.

An older study conducted in Asia, dating from July 2021, finds that “Hours worked increased, including a rise of 18% outside normal business hours. Average output declined slightly, thus productivity fell 8-19%. (…) Employees with children at home increased work hours and had a larger decline in productivity than those without children. Women had a larger decline in productivity, while those with longer company tenure fared better.”

A recent EY-Parthenon report, using Bureau of Labor statistics, indicates that the U.S. has suffered an unprecedented five consecutive quarters in productivity decline. Is that because of WFH? Not quite. EY-Parthenon chief economist “acknowledged that imperfect hybrid arrangements could be a possible cause of the productivity plummet”, writes Fortune. But the key factor hinges on the record job churn rate – the Great Resignation – that followed the pandemic, where new employees unfamiliar with job responsibilities forced productivity down.

…Other Studies Find Working from Home Increases Productivity

Other studies show a rise in productivity. One study by Stanford economics professor Nick Bloom, who specializes in WFH, reported a 13% to 22% increase in productivity. The context is very similar to the previous study reported here: participants were call-centre workers operating in a very structured context.

A recent paper that reviews the whole field of WFH reports three studies indicating “that working from home one or two days a week improves productivity and leads to happier employees”. The authors say, “Jobs and tasks differ greatly in their suitability for remote work, as do workers, managerial styles, and workplace cultures. Thus, there is no sound reason to expect the productivity effects of remote work to be uniform across jobs, workers, managers, and organizations.”

Caldwell sums it up nicely : “Evidence on productivity shows that hybrid is likely optimal for the typical office worker. Still, we do expect work-from-home workdays to tick down a bit further.”

Of course, as in any situation, WFH has advantages and drawbacks. Bloom points to lower quit rates on the part of remote workers, but promotion rates are also lower. More senior workers fare well in a WFH setting, while an office context is definitely better to bring new employees on board. Many remote workers thrive when working from home, claiming a better work-life balance, increased focus and productivity; others just can’t bear the loneliness or the solicitations of a domestic setting.

Could Remote Workers Be Replaced?

Jacques Warren, founder of Montreal-based Kwantix, laid off his eight employees and closed his office one month before the pandemic hit. He replaced all his permanent employees with independent contractors that he hired everywhere on the planet, in India, Ukraine, France and elsewhere. “They are more expensive by the hour, but I find in the end that I’m more profitable. I don’t have to pay for people even when there is no work to do.” Where he could expend $20,000 to train an employee, now it’s his “contractors’ responsibility to keep their skills up to date,” he points out.

Warren believes his experience serves as a warning to many at-home workers. “From the moment when you don’t want to commute to an office, you find yourself as a lone individual in a very large job market, he says. Once an employer realizes that hiring someone 10,000 miles away can be as good if not better than hiring someone 10 miles away, what keeps him from doing so?”

And the offshore job market is thriving, having skyrocketed by 286% in the second half of 2021, states Forbes Councils member Pedro Barboglio. A Morgan Stanley report on India indicates that “the number of people employed in India for jobs outside the country is likely to at least double, reaching more than 11 million, as global spending on outsourcing swells from US$ 180 billion per year to around US$ 500 billion by 2030”.

Though finding one’s job to be outsourced is a possibility to keep in mind, there’s no reason to panic, advises Morningstar’s Caldwell. “The hybrid workers are not really susceptible to outright offshoring, so we’re really just talking about full-time remote being a vulnerability, he proposes. I do think that for many roles, even if firms were comfortable hiring someone thousands of miles away, they would still seek someone with a western education and cultural background in order to ensure adequate compatibility with their team.”

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About Author

Yan Barcelo  is a veteran financial and economic journalist with more than 30 years of experience, writing for many publications in Toronto and in Montreal, including CPA MagazineLes Affaires and Commerce.

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