What new data is telling us about working from home!

Now that we have hit the year mark on the pandemic, we are starting to count the numbers. Much attention has been given to the psychological (Well-being, work-life balance) and the socio-psychological (Isolation, loneliness, etc.) aspects of the pandemic. But what about the economic impact of the pandemic on the workplace? While there has been attention to the more obvious macroeconomic implications- unemployment, retail businesses, etc., not enough is known about the underlying micro-level impact as employees shifted to working from home. I attempt to bridge this by providing some facts and figures and a brief discussion on what it means for decision-makers.

Let me start by stating the obvious. The working from home phenomenon is here to stay as an important option for employees. It is no longer a pandemic band-aid; it is an inherent part of the new employee value proposition. Most surveys show that 1 in 2 employees may prefer to look for jobs elsewhere if they are not given the flexibility of working from home. While many leaders feel uncomfortable (One CEO of a prominent firm recently called working from home an ‘aberration’), 70% of the employees, including those in leadership positions, prefer the hybrid option. Going to a collocated office space is the alternative. Working from home as the primary workplace option. Work has gone to the worker, not the other way around.

I divide new and emerging data into three buckets: Overall economics, employee implications, and leadership issues.

Overall economics: Researchers have shown a 2.4% higher productivity impact (source: Barrero, Bloom & Davis, in Why working from home, will stick) on people working from home in 2020! This percentage increase happened while employees faced considerable handicaps in working from home with school shut-downs and other lockdown measures. If these distractions were not to be there, the number could be even higher. On the contrary, possibly, productivity could go down if people were to return to offices. Here is why! On average, researchers show that employees (sometimes with the support of their offices, but not always) have spent approximately $600 (in the US- would vary elsewhere) each to spruce up the infrastructure of working from home. That is sunk cost. Bringing people back to office space would increase costs...because people are not coming back to their old space of work as is- there are new costs of sanitizing and cleaning the workspace, need for social distancing, touchless controls, incentives to employees to get them to a collocated space, and so on. That would eat into the productivity gains made by people working from home in 2020.

Real estate is another huge productivity play for organizations. 35% of organizations have started downsizing their commercial office space footprint, sometimes even preferring to pay the penalty of the lease cancellations. However, over 50% are still undecided, and that is a huge productivity opportunity lost. Smart CFOs are starting to look at real estate as a variable cost. Others are downsizing their footprint to use the money saved to spruce up the needed space- particularly for those who need to work in the factories or offices. The availability of on-demand, flexible workspaces has skyrocketed and offers an elegant and appealing solution going forward.

Professor Peter Cappelli from Wharton points out that the biggest surge in economic growth in the last century happened after the great depression in the late 1920s and early 30s before WW-II. He speculates that we will witness an era of enormous growth opportunity and innovation coming out of the pandemic, and organizations that do not think forward would pay the price. Leaders should not yearn to go back to 2019 and think of 2020 just as a deviation. Instead, they should look at it as a reset and reimagine the future. The biggest obstacle to the future is not employees working from home but the old management mindset.

Employee implications: The train has already left the station to shift to a more flexible working way – with the home being the primary workplace. In 2017, 9.8% of jobs were advertised as open to working from home. In 2020, that number moved up to 30%, a 3X increase, and that surge continues at an increasing pace in 2021 as well. You can see a complete shift in attitudes- in 2015, a survey in the UK pointed out that 20% of the employees were forced to leave their jobs because their requests for working from home were turned down. A further 32% of those working from home felt discriminated against. 2020 saw the normalization of working from home. One research puts 8% of pay as the benefits workers gain from working from home. In other words, an attempt to forcibly bring back employees to office space will be a drop in pay of 8%! Unless it is offset, there is a clear risk of employee retention. Furthermore, employees may save even more by relocating to suburbs and other lower-cost areas if they do not commute to work any longer. Working from home is the new 401k (a US employee benefit plan).

Here is another piece of data. More women are dropping off the workforce given their caregiving responsibilities. Between careers and taking care of loved ones, women are opting to look after their families. The drop in women’s labor force participation has gone to a 33-year low. The only way for organizations to continue appealing to a sizeable chunk of women (particularly married women with children) is by giving them the flexibility to work from home. We already face considerable issues on gender diversity- any forced return to an office would only exacerbate the problem and have tremendous negative implications on an organization's reputation on diversity. Isn’t it remarkable that most of the reservations to working from home in large corporations have been expressed by male CEOs?

Leadership issues: The shift to working from home has become a litmus test for leaders. Several leaders have embraced it, and some have even gone to the extent of declaring that working from home is the new normal. Yet, others are averse to the idea. Some apprehension is legitimate; for instance, while productivity is up, employers feel creativity and innovation are down. But here in lies the rub. Organizations are designed and measured for productivity, not for creativity; in other words, as I have said in my earlier blogs, they are designed to get the most from employees, not the best. Many leaders operate out of the assumption that "my employees do not work if I don’t see them!” Research shows that 38% of the managers feel that their employees perform poorly while working from home, with 22% not being sure. Further, an HBR survey shows that 40% of the managers have low confidence in managing employees remotely. These are 'feelings' - facts show that productivity, employee concentration, and willingness to spend more time at work have gone up!

In other words, Leaders’ reluctance to see the fact that the train has left the station to work from home is a sign of their own insecurities and inadequacies. Yes, no doubt there are issues, but tremendous strides are being made technologically that should make things easier in the coming months. Psychologically, per Adam Grant, such leaders end up with two biases- confirmation bias, which is “seeing what we expect to see,” and desirability bias, which is “seeing what we want to see!”. That is why a prominent CEO recently asserted that “people are yearning to get back to work” despite every survey informing us of the contrary.

To sum it all up. The economics of working from home, much to our surprise, indicate that the shift has not been all that negative. As more workers prefer a hybrid option, it helps in well-being, work-life balance, a greater talent pool access, flexibility of retaining employees, and ensuring that we do not lose women from the workplace. Yes- there are few issues to be sorted through, primarily concerning collaboration, creativity, and so on, but that requires some hard thinking and new tools to address. The real issue is leadership mindset- the inability to change, unwillingness to learn new tools and manage employees remotely. Those who will adapt and change stand a chance.

What do you think?