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Research: Little evidence remote work harms productivity

Written on Feb 2, 2024

A move across dozens of industries from on site to remote or hybrid work shows little signs of harming productivity, according to research from the Federal Reserve Bank of San Francisco. Nor does the shift in the workplace necessarily spur output. 

“We find little evidence in industry data that the shift to remote and hybrid work has either substantially held back or boosted the rate of productivity growth,” researchers at the Fed district bank said in a study. 

“Industries that are more adaptable to remote work did not experience a bigger decline or boost in productivity growth since 2020 than less adaptable industries,” the researchers said after studying the relationship across 43 industries between the ability to telework and growth in per hour gross domestic product. 

The U.S. labor market rapidly moved to teleworking during the pandemic, with paid workdays performed remotely surging to as high as 60% from 5% before the onset of COVID-19, the San Francisco Fed researchers said. By December, the proportion fell to 30%, they said. 

Results from studies on the impact on productivity from teleworking widely vary. In several surveys, many workers have said their productivity rises when working remotely, the San Francisco Fed researchers said. 

Still, “some workers might face more disruptions, such as childcare demands or inferior equipment,” the researchers said. Also, “idea sharing may be more difficult online, and workers may need to devote time to learning new skills.” 

The New York Fed found in a case study released last year that output fell 4% among employees who moved from office to remote work at the start of the pandemic. Workers provided poorer customer service and faced difficulty consulting with colleagues, researchers said. 

“Remote work not only reduces the quantity but also the quality of calls,” New York Fed researchers found in a case study of the performance of 1,965 call-center workers at a Fortune 500 company. Their data ranged from a period before the pandemic until after COVID-19 forced a shift to all-remote work. 

“Career trajectories” sink for remote workers, the New York Fed researchers said. Prior to the pandemic, their promotion rates were just half of their in-office peers as they engaged in fewer training sessions and held fewer one-on-one meetings with managers. After call-center offices closed, however, the gap in promotion rates disappeared. 

While the impact on productivity may be hazy, the number of U.S. employees who expect to work remotely has doubled since the start of the pandemic, according to Why Working From Home Will Stick, a National Bureau of Economic Research study published in 2022. 

This widespread expectation and an unusually tight labor market pose a challenge to CFOs and their C-suite colleagues — how to attract and retain employees with a remote-work option without undercutting teamwork, innovation, company culture and profit growth. 

Remote work has gained broad but not universal acceptance among CFOs and other top company decision makers. Over time, in the aftermath of the pandemic, 20% of full workdays by the labor force will occur in a remote setting compared with just 5% prior to the onset of the coronavirus, according to the NBER research. 

“Re-optimized working arrangements” in the post-pandemic economy will push up productivity by 5%, authors of the NBER study predicted. Yet “only one-fifth of this productivity gain will show up in conventional productivity measures because they do not capture the time savings from less commuting,” NBER said. 

After several quarters of stagnation, U.S. labor productivity growth quickened during the third quarter to 5.2% in the biggest quarter-to-quarter gain in three years, according to the Labor Department. 

“Continuous innovation is the key to sustained productivity growth,” the San Francisco researchers said. 

“Working remotely could foster innovation through a reduction in communication costs and improved talent allocation across geographic areas,” they said. “However, working off-site could also hamper innovation by reducing in-person office interactions that foster idea generation and diffusion.” 

The vast range in the viability of teleworking across industries complicates efforts to accurately measure productivity gains. 

Data processing, finance, insurance and professional services such as scientific and technical work are the most “teleworkable” industries, the San Francisco Fed researchers said, while accommodations, food services and some retailers are the least viable. 

“Our findings do not rule out possible future changes in productivity growth from the spread of remote work,” they said. “The economic environment has changed in many ways during and since the pandemic, which could have masked the longer-run effects of teleworking. 

“The future of work is likely to be a hybrid format that balances the benefits and limitations of remote work,” the researchers said. 

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