The Work from Home Illusion: Is It?

Work from Home is receiving significant media push back due to several recent studies. But the conclusion The Economist magazine drew from them is simply wrong.

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Introduction

As I was preparing to write about a different topic, an article on my twitter feed caught my eye. It was about several papers that have been recently released on the topic of working from home. When I saw those papers, I knew straight away that someone, in the near future, was going to draw some wildly wrong conclusions from them. And on June 28, The Economist magazine did just that with their piece “The working-from-home illusion fades”. This article has quite a few errors and incorrect conclusions that need to be addressed. Let’s begin.

Overview of the Economist Piece

The Economist article argues two points:

1. Offices are essential for businesses to perform well: “Unfortunately for the believers, new research mostly runs counter to this, showing that offices, for all their flaws, remain essential.”

2. Productivity is lower: “It is not more productive than being in an office, after all.”

Drawing False Conclusions

The Experiment

The main research cited by The Economist was done by Emanuel and Harrington (2023). They looked at the performance of call center workers of one of the largest companies in the US. At this firm, prior to the Covid pandemic, some call center workers worked from an office while others worked from home. Using call log data and workers’ schedules, Emanuel and Harrington were able to track how many calls per hour workers were responding to, while controlling for factors such as spending time on work training or other company tasks.

Prior to the Covid pandemic, workers who worked remotely took 12% fewer calls than workers that worked in the office. It is worth noting that remote workers were paid less ($14 vs $16 per hour for onsite workers). The difference in productivity can be attributed to two different components – 1) working from home may be simply less productive, and 2) individuals that select work from home jobs are less productive (for example, they might have other pressing issues such as taking care of a dependent).

During the Covid pandemic, all workers were forced to work from home. The workers that used to work in the office, were now also working from home. Compared to their office level, the number of calls they took per hour dropped by 4%. The productivity of the workers who were always working from home did not change because of the pandemic. This suggests that moving to a work from home setting reduces productivity by 4%, and the conclusion drawn by the Economist is that it means people work worse at home.'

False Conclusions

The conclusion stated by the Economist, however, cannot be inferred from this study. Why? There are many other elements at play that might be impacting the results. Let’s go over several of them.

Firstly, the workers that previously chose to work in the office, might be a type of person that works better in the office. During the pandemic they were forced to work from home, which is something they might not have wanted to do, because they do not work as effectively at home. On the other hand, forcing someone that prefers to work from home into the office was not analyzed in this study, and thus we do not know how people that prefer to work from home would fare in an office. Their productivity could drop further. 

Secondly, Emanuel and Harrington investigated what could be the cause of the 4% drop in productivity of the individuals that moved from the office to working from home. Part of it is related to the fact that workers spend less time on the phone, making actual phone calls. Workers also spend a bit more time on each call. Being on the phone longer can be attributed to the fact that the call center workers found it tougher to connect to their managers or receive assistance from others for challenging calls. But this is more of an operational issue – remote call center work was a smaller component for this business (only 344 remote call center workers vs 1592 in office workers). Given that, the business was not tailored to working at highest efficiency with remote workers. Over time, if the company was forced to remain remote, the performance metrics would most likely improve, especially relating to issues such as receiving assistance from managers. 

Thirdly, the Covid pandemic was an extreme event that did not allow any in person meetings or training. As there are benefits from learning from others, things such as in person training and meetings will resolve some of the issues of learning from others. Emanuel and Harrington did find that a lot of new workers hired during the pandemic complained about the lack of assistance from others.

Fourthly, the productivity measure specified by Emanuel and Harrington, number of calls per hour, might not actually be the appropriate metric for measuring performance. What matters to the business is the number of customer calls that are addressed rather than how quickly they are addressed. In a world of remote work, businesses may choose to adjust to the new reality. For example, in the call center situation, rather than having set call center hours from 9am to 5pm, as the firm in the paper by Emanuel and Harrington does, the call center could be open for longer hours, which would allow it to deal with the same number of calls by offsetting any lower productivity (i.e. fewer calls answered per hour). 

The Economist actually cites a study, without acknowledging its findings, that found this pattern – Bloom, Liang, Roberts and Ying (2013) showed that workers that went remote did 13% more work, of which 9 percentage points was due working more minutes per shift, as people were sick less often and took shorter breaks. Thus, the key question is whether this metric – number of calls per hour – is actually a worthwhile measure. Moreover, another metric investigated by Emanuel and Harrington, suggests that customer call satisfaction is the same regardless of where the employee is located. 

Overall, the only conclusion we can draw from the Emanuel and Harrington study is extremely narrow: moving everyone at this company to working only remotely without any long run adjustments will reduce per hour productivity by 4%. This is an interesting finding, but it is not a finding that has wider implications in terms of business decisions regarding office vs remote. 

Interestingly, when factoring real estate costs of maintaining the offices for the call center, the decision to keep office workers might not actually be good from a financial perspective for the business. Additionally, any cost savings generated by shutting down offices could be invested into further training. Only then would we be able to do a fair comparison, as the business decision the firm faces is striking the balance between the number of remote and in office workers, taking office cost into account. Further studies are needed to determine whether offices are a good or bad investment for firms.

Adverse Selection

In the Emanuel and Harrington study, it was noted that the workers that worked remotely prior to the pandemic were 12% ‘worse’ than in-office workers. What accounts for this large gap? This is where adverse selection comes in. Adverse selection is a situation that occurs when two parties (the worker and the firm) have private, unobservable information, typically about themselves. When entering into a transaction (in this case, employment), the party with more information will be able to benefit at the expense of the other party. For example, workers that choose to do remote work might have significant family responsibilities that may hinder their productivity. The firm does not know that and thus, from purely the firm’s perspective, hires a less productive worker. In this way, workers that might have lower productivity self-select themselves into work from home jobs. The Emanuel and Harrington study suggests that this is the case – “lower productivity” workers choose work from home. However, whether adverse selection for remote workers occurs is still up for discussion. 

Adverse Selection – Selection Bias

The Economist cites another study, Atkin, Scholar and Shinde (2023), who conducted a similar analysis as Emanuel and Harrington. They looked at workers doing a typing task and measured productivity using typing speed combined with accuracy rates. Atkin et al. found that workers that choose to work from home are 18-19% less productive than their office counterparts. It is worth noting that similarly to the Emanuel and Harrington study, we have the same issue regarding whether “typing per hour” is the appropriate performance metric (rather than, for example, the total amount of typed text).

Atkin et al. mention that the sample of workers they used for their study was workers that were comfortable working either at home or in the office. This is a potential issue of selection bias, as it removed people who would (or could) only work at home from the sample. Excluding these individuals from the sample could skew the results as it may exclude the workers who would be best at working from home. Atkin et al. did find that including these individuals would significantly change their results – instead of a 19% drop in productivity, there would be only a  10% drop. This implies that individuals who can only work from home are more productive than people that can work either in the office or remotely. Moreover, left unaddressed is whether people that can only do remote work are actually very productive, maybe as good or better than office workers.

Training

Atkin et al. were also interested in determining what could be the cause of the drop in productivity between office and remote workers. Nearly two thirds of the drop in productivity can be attributed to the fact that they work from home – the productivity drop is observed immediately on day 1 of working. The remainder of the drop in productivity can be attributed to learning on the job – office workers learn better than remote workers, and office workers productivity further improves. But nearly all of the learning occurred in the first week – after week 1, there were no further relative increases in productivity between office and remote workers.

Atkin et al. also conducted a test to gauge the ability of workers prior to starting at the firm, along with a survey of whether they preferred to work in the office or at home. Interestingly, the people that preferred to work from home scored better on the ability test (a typing test) than the people who preferred to work from the office.

Using Work from Home

Regarding other metrics, Atkin et al. found that both remote and in office workers spent the same amount of time working – 33.5 hours per week. They were prohibited from working more than 35 hours, thus limiting the choice available for workers. Remote workers also did less of their work during typical work hours – in office workers did 97% of their work between 9am and 4pm, compared to 47% for remote workers. This implies that remote workers use their flexibility afforded to them and adapt their schedule. 

Conclusion

The Economist used the studies discussed above to claim that offices are essential and that remote work is less productive. They also chose to dismiss the results of the Bloom et al. study that showed the opposite. This is what writing to a conclusion looks like.

To emphasize, the research The Economist cited did not make the same bold claims The Economist did. The researchers’ conclusions are much narrower and they do not claim their results are applicable much beyond the context they studied.  

There are multiple reasons why these studies do not demonstrate whether remote work is beneficial or not:

1. The studies focused on a very specific measure of productivity of tasks per hour that might not be appropriate in a world with remote work. Instead, focusing on completed tasks might be better.

2. The studies focused on more mechanical or routine tasks (calls and typing) that are not reflective of many other jobs that might require more creativity. Working from home can potentially be beneficial in other jobs, such as ones that require creativity.

3. The businesses in the studies did not treat work from home as their primary method of functioning. We have decades of experience in working from offices, while working from home is a relatively new idea and processes could be improved.

4. A mixed model, where certain training and occasional in office meetings might alleviate many of the issues caused by remote work.

5. The studies do not take into account the fact that people end up taking fewer sick days when working from home, and general well being might be better in a longer time period.

These are just some issues that would need to be addressed to determine if working from home actually results in output drops.

The conclusion drawn by the Economist might also be terrible business advice. Research has shown that workers are willing to take an 8% pay cut to have the flexibility of working from home. Taking into account the cost of office space, the decision to keep offices, even if productivity is lower when working from home, could be, financially, the wrong one. The study by Emanuel and Harrington does argue that, optimally, all firms would have full remote work since they'd be able to save significant costs. 

Lastly, and most importantly, none of these studies, nor The Economist article, touches upon one of the biggest benefits of work from home – it gives the opportunity for many people to work who otherwise wouldn't be able to. This is especially true for many people with disabilities who need accommodations that they may have at home. Workplaces that require people to return to office, even if only a few times a week, might significantly deter these people from working. Additionally, people that have to take care of dependents are also pushed out of these jobs. In the studies, many people that worked from home were parents. Parental involvement in raising children is well documented to be extremely beneficial to child development. The benefits to society of this are immense.

The Economist article is harmful because it significantly misrepresents the conclusions of the studies by implying the researchers are making a statement about whether working from home is beneficial to businesses and society. Not only did The Economist actually not read the study in its entirety (the Emanuel and Harrington paper says work from home would be the business efficient outcome for the call center), but The Economist significantly extrapolates the outcomes to a much broader question about work organization techniques (office vs remote) without openly stating all the assumptions they're implicitly making (such as focusing only on routine tasks, ignoring selection bias, etc.)

Firms are concerned about lower productivity of workers and the dilution of knowledge between workers. This concern is natural. However, although offices do potentially deal with some of these issues, they’re a bad tool to solve the problem of productivity and knowledge diffusion, as there are definitely better ways to address these concerns without having to resort to offices. In a way, it is similar to non-competes, that we talked about a few months ago – they’re also a bad solution to a valid problem. Just like non-competes, we shouldn’t be encouraging this solution.

Opinion: Why is this important

Working from home could turn out to be a minor labor revolution that may end up being more impactful to the economy than even the recent AI technological developments. Working from home liberates a lot of labor that previously was unable to participate in certain jobs, giving many people additional opportunities and the ability to pursue a fulfilling life. The last large labor revolution was the incorporation of women into the workplace thanks to women’s rights activists, along with the significant improvement in domestic appliances. Although working from home will impact fewer people, it is also a revolution. Just because working from home has teething problems, as with any technology, we should not reverse our progress and simply return to office-centric approaches to work. 

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Interesting Reads from the Week

1. Article: Alice Evans discusses how housing prices may have pushed more women into the labor force.

2. Article: With the Supreme Court ruling the student loan forgiveness plan is not legal, it’s worth revisiting what we wrote about  the economic impacts of this forgiveness would have been. 

3. Article: The US Supreme Court made a ruling on Harvard’s affirmative action policies. Most consider the ruling to be the end of affirmative action, but a closer reading of the ruling suggests that affirmative action might have stronger legal footing than ever. 

4. News: Norway has discovered a large amount of high grade phosphate rock, equal to the world’s current known reserves.. This material is used for the production of solar panels, batteries and fertilizer.

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Cover photo by Ken Tomita

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To Compete or Non-Compete (April 30, 2023) – why non-compete clauses do not solve any issues, but only create costs.

Community Civilian Interventions (June 12, 2023) – cities have always been interested in improving safety in neighborhoods. Civilian government interventions have been proposed as a solution instead of police. However, civilian interventions work best if local government presence is strong.