Working From Home Is Powering Productivity

Source details

Working from home (WFH) increased about tenfold following the outbreak of the pandemic and has settled in at about five times its prepandemic level.
The pandemic-induced jump in WFH could counter the long-run productivity slowdown and deliver a surge in economic growth over the next few decades.
The analysis is framed using Solow’s decomposition of growth into factor inputs (labor and capital) and productivity, with WFH affecting each channel.

Hybrid work is worth about an 8 percent increase in salary according to surveys across the United States, Europe, and Asia.
Typical workers spend about 45 hours a week in the office and close to another 8 hours a week commuting; working from home three days a week saves about five hours a week, about 10 percent of total weekly work and commute time.
WFH raises labor force participation among marginal groups (those with childcare or eldercare responsibilities, those close to retirement, rural residents).
Approximately 2 million more employees with a disability are working in the US following the pandemic, with increases concentrated in high-WFH occupations.
Prime-age female employment in the US has risen about 2 percent faster than prime-age male employment since the pandemic.
Collective labor-supply effects from WFH could increase labor supply by several percent.
Preliminary US survey analysis suggests perhaps 0.3 to 0.5 more desired children per couple when both work from home one day or more a week, implying potential long-run fertility increases.
WFH’s inclusion effect: remote roles enable firms to hire beyond local labor markets, increasing match quality and potentially labor supply at scale.

Reduced office occupancy implies potential release and repurposing of office space; in major city centers about half of the land is covered in office space, and office occupancy is now 50 percent below prepandemic levels.
More intensive use of home capital (space and equipment) can reduce demand for transportation and office capital, allowing redeployment to other uses.
Driving speeds in morning commutes have increased by about 2 or 3 miles per hour, reducing the need for additional transportation infrastructure and saving commuters a few minutes a day.
Allowing partial or full remote work opens up currently underused land for housing, as longer commutes become acceptable when in-person attendance is required only a couple of days a week.
Collectively, capital contributions from WFH could raise output a few percent over the coming decades.

Hybrid work (typical for about 30 percent of the US, European, and Asian labor forces) generally shows a roughly flat impact on firm- or individual-level productivity due to offsetting positive (quieter environment, fewer commutes) and negative (less learning, innovation, communication) effects.
Fully remote work, adopted by about 10 percent of employees, has mixed micro impacts depending on management quality; early-pandemic studies found both large negative and large positive effects in different contexts.
At the macro level, WFH increases labor market matching: firms move from hiring the best local to the best regional (hybrid) or global (fully remote) candidates, improving productivity—illustrated by going from 10 to 10,000 qualified candidates for a position.
The WFH surge has curbed commuting traffic volumes across the US and Europe by an estimated 10 percent, reducing pollution (notably low-level heavy particulates) that health studies link to cognitive and productivity damage; lower pollution can therefore increase growth.
Aggregate macro productivity effects from expanded labor market inclusion and pollution reduction are likely positive even if micro productivity impacts are neutral for many firms.

A positive feedback loop: more WFH expands market size for remote-work-related goods and services, prompting innovation and adoption of better technologies (cameras, screens, augmented and virtual reality, holograms) that further raise productivity.
The share of new patent applications at the US Patent and Trademark Office using “remote work,” “working from home,” or similar terms was flat until 2020 but has started to rise, indicating technological improvement targeted at remote work.
Scale effects: increasing from 5 million to 50 million people working from home daily attracts major hardware and software firms, start-ups, and funders, accelerating productivity-enhancing innovation.

Retail spending has fallen in city centers but relocated to suburbs; overall consumption expenditure has resumed its prepandemic trend.
Large reductions in commercial office valuations represent losses for office-sector investors, but repurposing office space for residential use could make downtown living more affordable in the long run.
Greater affordability could aid essential in-person workers (firefighting, policing, teaching, health care, food, transportation) who were priced out of city centers during earlier cost increases.
The author’s assessment: winners from WFH “massively outweigh” losers; firms, employees, and society have reaped substantial benefits.

The 2020 surge in WFH has helped offset the prepandemic productivity slowdown and is boosting present and future growth.
If AI yields additional output and WFH-driven market expansion continues, the era of slow growth could be reversed.
The author expresses optimism about the broad benefits of WFH, based on observed labor-supply gains, capital reallocation potential, productivity effects from global matching, pollution reduction, and technology-driven feedback loops.

Source: "Working From Home Is Powering Productivity," NICHOLAS BLOOM, F&D Magazine, September 2024.

Remote Work’S Growth Gift
- Remote Work’S Growth Gift (Markdown version)
- Remote Work’S Growth Gift (PDF)