The explosion in working from home triggered by the pandemic is the biggest change to U.S. labor markets since World War II—and it is here to stay.
Working from home accounted for only 5% of all workdays before the pandemic. It was often disparaged as “shirking from home” or “working remotely, remotely working.” But now it’s common to find employees up and down the job ladder—from rookie hires to the CEO—working from home at least part of the week. As of December 2022, almost 30% of paid workdays happen at home.
There is much to celebrate about this rise of working from home.
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Employees are perhaps the biggest winners. According to our monthly Survey of Working Arrangements and Attitudes, employees value the ability to work from home 2-3 days a week at 8% of pay, on average. That’s a huge benefit, worth nearly $5000 a year for someone with an annual salary of $60,000. Employees save, on average, 65 minutes a day in commuting and personal grooming time when working from home. People also appreciate the flexibility and greater personal autonomy that comes with working from home.
Other evidence tells a consistent story. Indeed, in a recent experiment with 1,600 employees of a large tech firm, quit rates fell 35% among persons randomly selected to work remotely two days a week. Employees literally voted with their feet to stay at the firm when they could work from home.
Firms can also be winners in the work-from-home revolution. Offering remote work options has become an important tool in recruiting and retaining staff, and in moderating wage-growth pressures. In addition, well designed remote-work practices raise productivity. When employees all come into the office on the same days to work together, for example Tuesday to Thursday, and stay home on Monday and Friday to focus on deep work, research suggests productivity rises by about 3% to 5%. This occurs in part because employees use about half of their saved commuting time to work, and in part because deep work is more efficiently done in a quiet home environment.
Working from home can also promote diversity in workplaces. Employees who are workplace minorities with respect to race, gender, age, religion or politics are keener to work from home a few days each week. So, firms that offer remote-work options will find it easier to recruit a diverse workforce.
People looking to rent or buy a home in the city are also winners. Rising remote work has led many professional employees to leave city centers for the suburbs. This has generated a “Donut effect” which research with Arjun Ramani shows has moderated rent and house price growth in city centers. Employees who only need to be in the office two or three days a week can tolerate longer-commutes in return for a home-office and more outside space. Longer-run research by Jordan Rappaport suggests this should spur the construction of millions of houses in the outer suburbs, driving down house prices there. Remote work makes it more attractive for developers to build housing on empty land in the outer suburbs of biggest cities, spurring a exurban housing boom.
Finally, the big shift to working from home saves over 6 billion miles of commuting per week, which comes with a massive reduction in transport emissions. Moreover, by encouraging video-conferencing, work from home also reduces business travel, as remote-savvy workers and clients are now much more open to remote meetings. For sure, meeting in person has advantages over video calls. But the advantages are often too small to justify two days of travel for a one-hour meeting.
So, what lies ahead? Work from home will follow a Nike swoosh. A modest drop in the near-term as the economy slows and labor demand weakens, followed by a gradual rise in the role of remote work. A recession could knock remote work back to 25% of workdays. Many seasoned managers who rose up the ranks in a time of in-person work would welcome that development. It’s what they know and like. But there’s no chance of a return to the pre-pandemic status quo.
Remote work has expanded about six-fold in the U.S. since the pandemic struck, and it has expanded around the world for college-educated workers. That amounts to a huge increase in the demand for products, services, and technologies that support communication and collaboration at a distance. Not surprisingly then, hardware and software firms have cranked up their efforts to innovate in ways that help people and firms work remotely. For example, research with Yulia Zhestkova and Mihai Codreanu finds that the share of U.S. patent applications for technologies that advance remote-work capabilities has doubled since early 2020, and it remains on an upward trajectory. Thus, we anticipate that remote-work capabilities will continue to improve.
Having researched working from home for 20 years, the impact of moving from telephone calls and emailing files in the early 2000s to video-calls and cloud-sharing files in the 2020s is clear. It makes working from home easier. The next 10 years may bring even bigger changes, with more progress in connectivity, remote-collaboration software, and audio-visual hardware. One CEO of a major software firm told us they are working on a technology to “allow virtual touch with your hand reaching through the screen.” That might be a joke, but in Silicon Valley you never know.
In short, the future will see a further shift to remote work, with much potential for happier employees, more productive firms, more affordable homes, and less pollution.