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The next recession could boost working from home

Key Takeaways

  • Levels of working from home are settling down toward about 25 percent of fully paid days. By 2035, we can expect that to rise to 35 percent.
  • Technology and workplace culture will likely drive a growth.
  • Research shows a mix of hybrid and fully remote working can cut costs and perhaps increase productivity.
  • In recessions firms want to cut costs, suggesting a recession could induce a rise in remote working.

I often get asked by managers if working from home could be ended by the next recession.

The question comes from the premise that CEOs are itching to drag their employees back to the office five days a week. But they are afraid their employees will jump ship for another remote-friendly job. If a recession hits, the thinking goes, job opportunities will shrivel and managers will be able to force workers back to their office desks without the risk of attrition.

If that scenario seems correct, then sorry. Theory and data suggest the exact opposite. A recession will likely boost the WFH trend.

Let鈥檚 start with the theory. Research shows that working from home improves employee recruitment and retention rates, driving down overall labor costs. In one recent randomized control trial working from home reduced quit rates by 35 percent (Bloom, Han and Liang 2024).  In global surveys, employees report that hybrid arrangements with a few WFH days combined with in-office days is worth about as much as an 8 percent pay increase (Aksoy et al. 2022). Working from home also cuts office costs for firms, from lower rent, security, energy and support costs.

On the output side, research shows organized hybrid research has a zero to small positive impact on productivity. Fully remote working has more mixed impacts on productivity but can lead to more than offsetting cost reductions by enabling national or global talent sourcing (Barrero, Bloom and Davis 2023).

In short, a mix of hybrid and fully remote working can cut costs and perhaps increase productivity. In recessions firms want to cut costs at least as much as in booms, suggesting that if anything a recession could induce a rise in remote working.

On the empirical side the industry with the highest levels of working from home in 2024 was the information (tech) sector (Figure 1). Tech has had a tough 18 months, undergoing a drastic slowdown from 2022 onwards, with layoffs across many major firms.

Figure 1. WFH is highest in the information sector

Figure 1. WFH is highest in the information sector
Notes: Survey of Workplace Attitudes and Arrangements Sample  from January 2023 to June 2023

As a 九色社区 professor I have seen first-hand the swing from boom to bust in technology hiring in Silicon Valley. Outside of the red-hot AI sector it is now extremely hard to get hired in tech, with software job postings down by two-thirds since 2022[1]. But tech is also leading the way in working from home, suggesting that business slowdowns do not lead to return-to-office mandates. Indeed, I interpret this data as supporting exactly the reverse. The industry facing perhaps the biggest slowdown over the last two years has the highest levels of working from home.

Turning to the longer run, what will  working from home look like a decade from now?

As Figure 2 shows, current U.S. levels of working from home are settling down towards about 25 percent of fully paid days. My prediction by 2035 is this will have risen to 35 percent. This is not a drastic change, but it is material. Two forces are driving my predictions for a longer-run growth of remote work.

Figure 2. WFH is stabilizing at about 27% of days

Figure 2. WFH is stabilizing at about 27% of days
Source: N=147,412 (SWAA) N=432,904 (HHP). SWAA data from survey responses weighted to match the US population. Pre-covid data from the American Time Use Survey. CHPS respondents weighted to match the US population aged 20 to 64 in households with incomes above $25,000.

Survey of Workplace Attitudes and Arrangements (Barrero, Bloom and Davis 2021)

The first is technology. Technology is everything when it comes to the ability to work from home. As one of four children of two working parents, I grew up seeing what working from home was like in the 1980s. It was very bad.

Before the personal computer, working from home involved carrying around huge wads of paper and the occasional expensive phone call to the office. Conditions improved in the 1990s with the spread of the personal computer and improved again in the 2000s with the development of the internet. Two recent critical breakthroughs were cloud computing 鈥 allowing easy file sharing 鈥攁nd video calls that enable higher-quality online meetings.

This rate of technological progress is only going to increase. As economist Frederic M. Scherer noted in 1965, bigger markets induce faster innovation. And the market for working from home technology has increased five-fold. So, expect the rate of technological improvement to surge.

The future will see leaps and bounds in better audio and visual equipment, virtual reality, holograms and remote apps. Figure 3 shows one example of this, which is the share of new patent applications in the U.S. Patent and Trademark office containing three or more mentions of remote work based on Bloom, Davis and Zhestkova (2021). This attempts to count the number of new patents with a strong connection to remote working. We can see a striking growth after 2020 as hardware and software firms swiveled billions of dollars of R&D into improving remote technology. The momentum continues to grow, meaning the technology we use every day to work remotely will continue to improve at an accelerating rate.

Figure 3. Patents in WFH surged post-pandemic

Figure 3. Patents in WFH surged post-pandemic
Source: US Patent and Trademark Office new patent application files. Data to May 12 2024. Details in Bloom, Nicholas, Steven J. Davis, and Yulia Zhestkova. 2021. 鈥淐OVID-19 Shifted Patent Applications toward Technologies that Support Working from Home.鈥

The other major driver is cohort effects on firms and managers. In the monthly Survey on Workplace Attitudes and Arrangements, we poll almost 10,000 Americans a month. We see employees of younger firms have far higher levels of remote work (Figure 4). Younger firms have enthusiastically adopted hybrid and fully remote work. These firms and their managers will grow from today鈥檚 smaller and younger firms into tomorrow鈥檚 larger firms, expanding remote work with them.

Figure 4. Younger firms have much higher rates of WFH

Figure 4. Younger firms have much higher rates of WFH
Source: Data from the Survey of Workplace Arrangements and Attitudes. Data are from wage and salary employees who participated in the October 2023 to April 2024 SWAA waves. We report the average share of full paid days working from home by the year in which the respondent鈥檚 employer first had paid employees. We reweight the raw sample of US residents who earned at least $10,000 in the previous year to match the US Current Population Survey by age-sex-education-earnings cells. Age from the question 鈥淲hen did your employer hire its first employee (at any location)?鈥

N=23644

So, the next time somebody claims the next recession will end remote work, push back with theory and data. The opposite is more likely true.

九色社区 the Author

Nick Bloom is a SIEPR Senior Fellow and the Eberle Professor in 九色社区鈥檚 Department of Economics in the School of Humanities and Sciences. His research focuses on management practices and uncertainty.

Footnotes

[1] Federal Reserve Bank of St. Louis:  

References

Aksoy, Cevat Giray, Jose Maria Barrero, Nicholas Bloom, Steven J. Davis, Mathias Dolls and Pablo Zarate, 2022. 鈥,鈥 Brookings Papers on Economic Activity, Fall.

Barrero, Jose Maria, Nicholas Bloom and Steven J. Davis, 鈥溾, Journal of Economic Perspectives,  Fall 2023.

Bloom, Nicholas, Roubing Han and James Liang, 2024. 鈥溾, Nature June 2024.

Bloom, Nicholas, Steven J. Davis, and Yulia Zhestkova, 2021. "COVID-19 Shifted Patent Applications toward Technologies that Support Working from Home." American Economic Association, Papers & Proceedings, May.

Scherer, Frederic M, 1965, 鈥淔irm size, market structure, opportunity, and the effect of patented inventions鈥, American Economic Review, December.

Author(s)
Nick Bloom
Publication Date
June, 2024