Stanford professor on the new remote work economy: A ‘productivity disaster’ and ‘ticking time bomb for inequality’

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One of the biggest changes brought on by the coronavirus pandemic has been the inundation of working from home — and it doesn’t come without challenges.

As an economics professor at Stanford University, I’ve talked to dozens of CEOs, senior managers and policymakers about the future of work. This has been built on my own years of research, including a two-year study of a major Chinese travel company called Ctrip, which found that working from home made employees 13% more productive and 50% less likely to quit.

But what’s happening today is very different from Ctrip’s success due to four factors: Children, space, privacy and choice.

A slump in productivity and innovation

For many, working from home has been a productivity disaster. (My 4-year-old regularly bursts into the room hoping to find me in a playful mood, shouting “doodoo!” in the middle of conference calls.)

The Ctrip analysis took into account that employees were only allowed to work from home if they had a home office. The room could not be a bedroom, and no one else was allowed into the room during the workday. Most of the people I’ve been interviewing are working in their bedrooms or shared common rooms, with noise from their partners, family or roommates.

A collapse in office-time will also lead to a slump in innovation. In-person collaboration is necessary for creativity, and my research has shown that face-to-face meetings are essential for developing new ideas and keeping staff motivated and focused.

The inventions we’re losing today could show up as fewer new products in 2021 and beyond, lowering long-run growth.

An explosion of mental health issues

Removing people from physical social interaction often leads to depression.

After nine months of allowing employees to do their jobs at home, Ctrip asked employees whether they wanted to keep working remotely, or return to the office. Half of them wanted to go back, despite their average commute being 40 minutes each way.

The reason? Social company. Employees reported feeling isolated, lonely and depressed at home.

A good place to look at this is research on retirees, which has found that both physical and mental health typically goes down quite precipitously after people stop working.

The rise of working from home presents similar phenomenon, though not as stark because, in retirement, you can at least engage more in outdoor activities with friends. Those options are less likely today thanks to social distancing norms. 

Not everyone can work remotely

In a recent study that I conducted with the Atlanta Federal Reserve and the University of Chicago, only 65% of Americans reported having fast enough internet capacity to support workable video calls.

And 50% of respondents — mostly managers, professionals and financial workers who can carry out their jobs on computers — reported being able to work from home at an efficiency rate of 80% or more.

The others have such poor internet at home, or none at all, that it prevents effective telecommuting.

Taken together, this is generating a time bomb for inequality. Our results show that more educated, higher-earning employees are far more likely to work from home — so they are continuing to get paid, develop their skills and advance their careers.

At the same time, those unable to work from home (either because of the nature of their jobs, or because they lack suitable space or internet connections) are being left behind. They face bleak prospects if their skills and work experience erode during an extended shutdown and beyond.

The bright side of a work-from-home economy

Despite the drawbacks, there are a few silver linings. For starters, the stigma of remote work has evaporated. Before Covid-19, I’d frequently hear comments like “working from home is shirking from home,” or “working remotely is remotely working.”

Another upside is a boom for suburbs and rural areas. Given the need for social distancing, most of the firms I’ve talked to are thinking about halving the density of offices.

This would lead to an increase in overall demand for office space in suburban industrial parks with low-rise buildings, as opposed to skyscrapers in big cities. If I were a company right now planning the future of my office, I’d be looking to the suburbs.

Finally, investments in telecommuting technology have paid off significantly. By now, we’ve had plenty of experience working from home. We’ve become adept at video conferencing. We’ve fine-tuned our home offices and rescheduled our days.

In short, we’ve paid the startup costs for learning how to work from home, making it far easier to continue.

Nicholas Bloom is a professor in the Department of Economics at Stanford University and the co-director of the Productivity, Innovation and Entrepreneurship program at the National Bureau of Economic Research. He is widely known for his research on remote work and best management practices.

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