Abstract: Work-from-home has shown to increase productivity and workers’ well-being in many settings. Some employers are pushing back on it, but since the pandemics both employers and employees have understood how hybrid work arrangements can often be beneficial for all.
Before the COVID-19 pandemic, working from home (WFH) was a rare practice, largely limited to a small number of workers in most countries. In Italy, for instance, only 5% of office workers were allowed to work remotely, while other European countries had higher rates but still below 20%.
The pandemic lockdowns forced companies and employees to adopt new work arrangements, leading to a lasting cultural shift. According to the 2023 Working From Home Around the Globe survey, office workers now spend an average of 0.9 days per month working from home. In April-May 2023, approximately 65% of workers were fully on-site, while the rest were either hybrid or fully remote. As we can see from Figure 1, researchers have shown how this also has a very large cross-country variation.
COVID-19 restrictions compelled employers to adapt to a new work model. In doing so, both employers and employees discovered that many tasks could be performed remotely, transforming the work culture and the nature of the employer-employee relationship.
This transformation, coupled with skill shortages and changing demographics, has empowered workers in some sectors. They now have greater bargaining power and are more likely to demand flexible work arrangements.
The overall impact of flexible work arrangements on productivity and other relevant metrics such as workers’ well-being is still uncertain and is likely to depend strongly on specific job characteristsics. Additionally, remote work requires a different management approach, one that focuses on results rather than physical presence. This shift gives employees more responsibility and freedom, often accompanied by performance-based pay.
Also from a worker's perspective remote work may have disadvantages. For busy families, it can offer better work-life balance by reducing commute time and stress. However, working from home with children can be challenging, and isolation can negatively impact well-being.
In terms of productivity, it's not clear whether flexible work arrangements will increase or decrease it.
A recent study by Marta Angelici and Paola Profeta from Bocconi University in Milan tackled this question. Collaborating with a large private company, they divided workers into two identical groups. One group was allowed to work from home one day per week (the “treated” group), while the other maintained traditional work arrangements (“control” group). Interestingly, the treated group had fewer sick days and higher productivity (see Figure 2). The positive effects extend beyond productivity to well-being and work-life balance. Workers in the treated groups also reported higher levels of well-being. On top of that, men in particular also reported spending more time on household chores and childcare.
Private employers can use high-powered incentives and bonuses as a substitute to close monitoring of workers, enabling flexible work arrangements. If this is the case, we might expect work-from-home to be less suitable for the civil service, where such incentives are often absent. A recent study by Alessandra Fenizia (Georgetown University) and Tom Kichmeier (LSE) examined this by analyzing administrative workers at the Great Manchester Police in the UK. Workers rotated between work-from-home and office work, allowing researchers to isolate the impact of work arrangements. Work-from-home appears to increase productivity by up to 12% in this setting. The increase wasn't due to faster work, but rather a reduction in breaks and distractions.
Not all evidence points in this direction, though. A similar study on data entry was conducted in India. David Atkin and Antoinette Schoar from the Massachusetts Institute of Technology, along with Sumit Shinde from the University of California, Los Angeles, randomly assigned data entry workers to work either from home or the office. They found that the productivity of those who worked from the office was 18% higher.
Nick Bloom from Stanford University found no discernible difference in productivity between working arrangements, even though staff retention was higher for workers allowed flexible arrangements.
In the end, some tasks may require more coordination and collaboration among colleagues. Training new employees may also benefit from being in an office rather than each person working from home in front of their computer.
There is also little evidence that these performance differences translate to company valuations. There is no established empirical link between a company's stock market performance and their work arrangements. Economists argue that working from home increases coordination and monitoring costs, while potentially reducing distractions and improving work-life balance (which could lead to higher productivity, well-being, and retention rates). The overall impact may depend on how these characteristics play out in each specific work environonment.
Even stepping away from academic circles and econometric evidence, it is difficult to fully understand the decision of several large companies such as Amazon, Goldman Sachs or PwC to decrease their work-from-home time and return to the office. In September 2024, as reported by The Economist, office workers in the US reported a 2% decrease in working from home (from 30% to 28%) compared to the previous year.
It seems we're committed to hybrid work. It's difficult to reverse the trend and return to pre-pandemic work arrangements. Several surveys show employees are willing to accept pay cuts for the option of working from home. Demographic shifts will give workers more bargaining power, forcing companies to compete for talent based not only on salary but also on work arrangements. Hybrid work is the most likely outcome.
Overall, the COVID-19 pandemic has permanently altered the way we work. While the full impact is still being assessed, it is clear that remote and hybrid work arrangements are here to stay.
Figure 1. Average working-from-home days per week as from the Global Survey of Working Arrangements in April-May 2023.
Figure 2. From Angelici and Profeta (2024). Work-from-home (treated) employees have fewer days of leave and higher productivity. (Source)
Prof. Emanuele Bracco
Associate Professor of Economics
Dipartimento di Scienze Economiche
Università di Verona, Italy