Person working from home

Work from home: what does the future look like?

Published on 24 May 2023

In this episode, Paul speaks to Professor Nick Bloom, a Professor at Stanford University, former IFS-er and leading expert on working from home.

Nick Bloom

Fully remote typically actually reduces productivity by 10 to 20%, you can imagine why, there's less connection, less mentoring, less training. But there's two massive advantages, one is you get rid of the office, and that's typically 10 to 20% of costs, and secondly, you can hire nationally and internationally. So, say if you're a firm based in London, you can hire in North Wales or in San Francisco and Mississippi, or any of us can hire in Argentina or Colombia, or wherever it is.

Paul Johnson

Hello, and welcome to this edition of the IFS Zooms In, I'm Paul Johnson, director of the Institute for Fiscal Studies, and today we're going to talk about working from home and its impact on people, businesses and the economy. And to do that, I'm delighted to be joined by Nick Bloom, he's Professor of Economics at Stanford University, he's been doing an awful lot of work on this subject, certainly since the pandemic, and indeed since somewhat before that. Possibly even more importantly for our point of view, he is a former colleague of mine at the IFS who started his career here many years ago, and like many of my former colleagues, has gone on to great things, and in his case, great things in California.

Nick, working from home is obviously a big topic at the moment, we've had centuries, I suppose, millennia of people going out to work, into the fields, into the factories, into the offices, but something pretty major changed back in 2020, as those as who could work from home were forced to do so for a period of time. And that will be an interesting historical blip, in a sense, if it hadn't proved pretty permanent, at least in some sense. So, let's start with some sense of scale, what do we know about how many people are now working from home, all the time or part of the time, and how much changed since the pandemic?

Nick Bloom

So yes, working from home has been a revolutionary change, I think it's maybe the biggest change to UK labour markets probably since World War II. So, World War II led to a big increase in female labour force participation, and there's huge changes came on from that, similarly for working from home. To put some numbers on it, probably you know there are two ways to do this: one is the share of full pay days that are work from home - before the pandemic that was about 5%, so, it's pretty rare, some people work from home, but not very often. At the peak of the pandemic that was 60%, which is an incredibly high number, most people that are working are working from home, mostly they're doing it full time. We've now dropped down to about 25%. If you compare it pre versus post, that's a fivefold increase in work from home, which is just a massive jump up.

To put that in perspective in terms of years, working from home was growing pre pandemic, it was doubling roughly every 15 years from a low base. So, what the pandemic has done is basically added about another 40 to 50 years of growth in the space of a couple of years. So, if you look at a chart, you can see you know work from home is slowly rising, then there's an enormous jump, and then it's going to continue rising again, and that's the pandemic.

Paul Johnson

So, that was going to be my next question, we've got a lot of working from home at the moment, since the pandemic there was clearly a period when people were gradually returning to the office, I can see it on, I think I can still see it probably on my journey into work the tubes are getting slightly busier month by month, still pretty empty on a Friday, are we still on the downward trend or are we back on an upward trend?

Nick Bloom

So, we are basically at this point, Summer 2023 post pandemic, we're roughly flat. Everyone kind of gets the idea, so there's a piece in the FT today had about how BlackRock is requiring people to be in the office 4 days a week, so yes there are firms that are currently getting tough and dragging folks in. But also there are companies doing the reverse, I probably talked to a 1000 different organisations and companies since the beginning of the pandemic, now I'm hearing from them saying things like, “all our back office staff, HR, payroll, benefits, some IT support we've just moved them to fully remote, we've got rid of the offices, we're also worried about a recession, so we’re downsizing space.” So, we are basically now at a steady state.

The really interesting thing is if you look 3 to 5 years out, it looks like work from home will be higher than it is now. So why is that? Well, that's like Econ 101, so, what's called market size effect. So, you know that if any market gets big, companies start to innovate to serve that market because there's a lot of money in it. Now I just mentioned the number of folks working from home has gone up about fivefold, which means that all of hardware firms, software firms, a load of startups I see in Silicon Valley, companies like Google, Microsoft, etc, they are focused very heavily now on improving software, PCs, equipment, apps to support work from home. And what that means is the technology now is accelerating at a pretty fast pace. So, for example, if you think of just Zoom, so go back to you know March 2020, there are no emojis, there's no virtual background, Teams, actually, Microsoft’s version only had four windows, they're now a lot more sophisticated. There are companies I'm talking to that are designing multiple cameras into laptop screens, so whatever part of the screen you look at, you’ll have eye line with the person on the other side. I spoke to a virtual reality company the other day that had like a 3D scan of people, so you know that thing in Star Wars where they have, you know, the Jedi Council, well the guy was saying, you know, we're hoping to do this in 5-6 years. The prediction is right now we're basically flat, so 23/24 is going to see some companies hauling people back, but others are closing offices, we’re flatlined. By the time we're like 27, 28, certainly 2030, work from home levels will be higher than they are now. If you're a CEO or a CHR or someone planning space or thinking to the long run, certainly medium or long run, it's like a Nike swoosh, I tell people it's a Nike swoosh, it's dropping a little bit and then in the long run it's going to take off.

Paul Johnson

It's very reassuring to hear economists, particularly an academic one, say we’ve spoken to a 1000 businesses, rather than simply models or analysing anonymous data. From what you get from speaking to those businesses, to what extent is your sense that this is a movement because the workers want to work from home, and therefore you need to have this offer in order to make yourself attractive, or to what extent is actually a view from those organisations that it's cheaper, you don't need to pay for the offices, and actually it can be if anything more productive. To what extent is this a sort of let's make ourselves as attractive as possible to workers thing, and to what extent is it an actually we've discovered this is a more effective way of working thing?

Nick Bloom

So really interesting question. So why don’t I give you some facts and then map out an answer. So, if you look at the UK, in fact or the US or Canada or Northern Europe, all of those kind of developed economies, roughly 60% of people come in every day. So, they cannot work from home, so they're totally out of the equation, think of retail, manufacturing, security, transport, etc. Of the remaining 40%, 30% are hybrid - so the classic hybrid is Tuesday, Wednesday, Thursday in the office, Monday, Friday, working from home. The reason for doing hybrid is employees really like it, in our survey data, we see on average that employees value the ability to work from home two days a week about the same as an 8% pay increase. So, the research data on hybrid shows the impact on productivity is about 0, you're typically not saving that much office space because everyone’s coming in on the same three days, but you're keeping your employees a lot happier, so, it's all about recruitment and retention. So, for hybrid, which probably most of your listeners, you know most graduates, you know, university graduates, professionals are there, that is very much a play about recruitment, retention, keeping employees happy.  

The remaining 10% is fully remote. Most of these jobs are now things like payroll, HR, cheque processing, IT support, call centres. The research data on that shows that fully remote typically actually reduces productivity by 10 to 20%, you can imagine why there's less connection, less mentoring, less training, but there's two massive advantages. One is you get rid of the office, and that's typically 10 to 20% of costs, and secondly, you can hire nationally and internationally. So, say if you’re a law firm based in London, you can hire in North Wales or in San Francisco and Mississippi, or any of us can hire in Argentina or Colombia, or wherever it is. And that fully remote is being very much driven by costs. So, when we talked to companies, their view is typically, you know, fully remote employees, they may be 10/20% less productive, we've seen that in various randomised control trials, but they're 50% less expensive and so that is very much a cost play.

Paul Johnson

Okay, that's really interesting and a variation one doesn't often hear about, I mean the Chancellor, the British Chancellor, has said that he's worried about working from home because it reduces creativity, and I guess that's part of the reason that you're getting that reduction in productivity from those back-office functions. But people also worry about the graduate group that you're talking about. I mean, you've already mentioned, I think, that BlackRock have said they want people in at least four days a week, extraordinary in that, sort of, British politicians are continually saying they want their civil servants in more, they don't seem actually to be able to achieve that. And instinctively it feels like that if you're not in the office, if you're not bouncing ideas off colleagues, and this is very important in the IFS kind of context where we're doing research and working on difficult problems and having to be quite creative about what the next issues are and so on, it does feel like that there is a cost to people not being in the office together. But I guess what you're saying is if you're looking at those professional sort of roles, as long as you're in three days a week, you're getting all of the benefits. Is that a fair description?

Nick Bloom

Yes, certainly what I would call organised hybrid is where things are heading. So organised hybrid means either team by team, or at the company level, everyone comes in on the same day. So, the reason this seems to work is, cast your mind back to 2019 - that seems a long time ago - and think about taking day by day what you did, and break those activities up into those that are best done face to face, and those that you don't need to be co-located. And the first group are things like meetings, presentations, trainings, certain kinds of lunches, etc. And then the second group might be e-mail, preparing presentations, you know, doing PowerPoint, etc. It turns out that the typical person spends 50/60% of their time in the first group. So, you know the beauty of hybrid is if you can get it right, you say, “look, we're going to come in Tuesday, Wednesday, Thursday, these are going to be 3 exhausting days, lots of meetings, presentations, training, lunches, everyone's in, we're going to get tough, we're going to make sure that people come in, so saying I'm going to work from home because there's a World Cup match or I'm cold, is that's not acceptable, you're going to come in for those three days. Then the upside is on Monday, Friday, it's more quiet work that's actually better done at home in a quiet environment, and you save on the commute.” So well organised hybrid looks like it actually – I have, for example a big randomised control trial, where we took 1600 employees, all graduates, and we randomised them by even and odd birthdays whether they got to work from home on Wednesday and Friday, or they had to come in all 5 days, and the folks working from on Wednesday to Friday were about 3 to 5% more productive. So, about half of them wrote code and we could look at lines of code written in the product shipped, and the reason when you interview them is look on Monday, Friday I don't have to commute, I’m typically spending 70 minutes a day commuting - this is the average numbers - maybe 30 of that they spend working more, so the employer gets a bit more time, and they say it's quieter at home, but I get my socialisation, my meetings, my spill overs on Tuesday, Wednesday, Thursday. The Chancellor’s comment and Elon Musk and Jamie Dimon, all these people beating up on working from home, I think that's true if it's fully remote. In order to make fully remote appealing, when I talked to execs why they do it, it's because it's been accompanied by saving costs, because these people have typically moved abroad. On the other hand, if it's hybrid, I think that's just not true as long as folks are coming in normally it's three days a week.

Paul, I could interview you about the IFS, certainly for me at Stanford typically faculty are coming in and teaching is in person, you have to be in person to teach, research seminars have to be in person, meetings, but that's, you know, you typically organise them in three days and the other two we work quietly at home.

Paul Johnson

Yeah. And as it happens, the IFS we've said people have to be in ideally four days a week, certainly absolutely three days a week, we're a young organisation, we're doing lots of creative work and lots of people are getting most of their training here, and that's really important, but it does seem that people appreciate that day.

Nick Bloom

It's interesting when you interview people, so there's another myth that people all want to work from home full time, we've interviewed tens of thousands of people in the UK, US across Europe, actually around the world, and what you normally see is folks want to come into work on average wo and a half/ three days a week. If you look at folks in their 20s, that's even higher, and the reasons that exactly as you say, they want to get mentored, they also tend to want to socialise, often they're single, and these folks don't live in fantastic apartments. If there's four of you in a flat share, no one wants to work from home in their own bedroom, where are you going to work? So, it turns out certainly if you’re a company with a lot of twenty-somethings, probably 3-4 days a week, if you're a company with maybe a lot of people in their 40s, 50s that are established, you can maybe get away with 2-3 days a week.

Paul Johnson

I guess it depends on personal preference. I discovered I actually rather like people through lockdown, I really miss the element of work which was about talking to people about doing what I'm doing now, talking to people face to face. So actually, I don't even do a day a week at home because I get lonely. But also, my job is not one of those where I'm sitting focusing, writing hundreds of lines of code every day in the way that you described.

I guess all this has potential big further implications for all sorts of things, one is the property market where people live, where offices are, but one is, as you said, 60% of jobs you can't do from home. Lots of people like the advantage of being able to work from home, is that going to change relative pay? I mean, you said, you know, that people like another day or two at home is equivalent to an 8% pay rise, do you think the labour market will equilibrate in a sense, with those jobs that you can't do from home, the pay going up relative to those jobs that you can? Is that going to change the way that the labour market works?

Nick Bloom

Yeah. So, you raised two really important big impacts, so I'll start actually with the property market and then I’ll come onto pay. So, it turns out across British, across America and European cities, we see something called the doughnut effect, which is like the American doughnut, which is hollow in the centre. So, what's happened is hundreds of thousands of people have left city centres and moved out to the suburbs, so we see very clearly. In London, if you're in zone 3, 4, 5 out in the suburbs, prices have gone up a lot, right in the city centre they've been flat, we see in a lot of U.S. cities they've gone up a bit, but not as much as inflation in city centres. And why is that? Pre pandemic if I was working five days a week in downtown New York, I basically have to live near there otherwise I have a massive commute. Now, if I'm only there two days a week I can easily move out to the suburbs. So, it's had a huge effect on property markets, and it's reversed almost like 20-30 years of city centre growth. So, I remember I was born in the 70s and you know in the 70s and 80s there was this idea of living out in the suburbs and driving in and out, and that's really disappeared, there’s some of that coming back.

The other thing you raised on labour markets is also really fascinating, because it's also reversed decades of history. So, since the 1980s, inequality has been rising up into, its peaking in the 2019, in many ways, the gap between earnings if you have a university degree and if you don't really peaked in 2019. Around about quarter of that has relapsed in the pandemic, it has come back, which is great news in terms of reduced inequality. The numbers I know best, I know the US numbers very well, is it not the UK the same thing, these trends have been happening, haven't they?

Paul Johnson

Well, certainly we've seen partly because it's very big increases in the minimum wage and national living wage, what we've really seen as a compression in the bottom half of the distribution, so people right at the bottom have caught up with people in the middle. Certainly, a year after the pandemic people right at the top, there seem to be a boom in professional services and financial services, which is pulling the top few away from the rest, though that seems to have settled itself down. The really big issue here, which I might want to come onto, is what's happening in the public sector where lots of graduates working, and if you're looking at hospitals and schools, they're having to go into work, but they're having their pay held back really quite dramatically. And you combine those two things and you've got, I think, a big problem for the public sector going forward.

Nick Bloom

So, that's interesting the US dynamic - my accent is British, but living in the U.S. I-

Paul Johnson

There's definitely a twang there, Nick.

Nick Bloom

As I'd say in the U.S., the story is Econ 101, again it's what you alluded to earlier, it's basically if you have a work from home job, it's a lot more pleasant. So, if you can work 2-3 days a week from home, it's a nicer job, people have tended to put off retiring a bit, folks have gone back to work a bit faster after having kids or after being in university, so that's ended up pushing out a bit labour supply of university graduates. If instead you got to go in every day, particularly during the pandemic that was really pretty unpleasant, you had infection risk, that group's labour supply is actually down versus pre pandemic. What that's meant is there's been a compression of inequality. So, if you look at, say, managers, their pay has gone up 5%, like, you know, Stanford had a pay increase of 4%, but inflation's 8-9%, in real terms we are paid about 10% less than we were just before the pandemic. If you look at frontline workers, look at what McDonald's is paying, or Chipotle, or KFC, or anything, those wages have been going up by 10/15% because they're so short of workers. And so, we've seen frontline employees who have to go in have seen real wage increases. So, in some ways it was very perverse, but it's very much economics kind of in action, you've had this incredible perk which is work from home, which people value about the same as an 8 to 10% pay increase, so, they've wanted to work more, and that's roughly pushed down their wages by about 8 to 10%. So probably everyone listening, many people are university grads, we've had this great perk, the quid pro quo in a sense, is our wages have not risen as much as people in frontline jobs.

Paul Johnson

Interesting question, I don't know whether that's true in the UK, there have certainly been some occupations, lorry drivers is a very obvious one where wages have gone up a lot associated with all sorts of issues around lack of labour supply, whether graduates as a whole, for example have fallen back relative to the median non graduate over the last four years, I don't know. As I say, it’s certainly partly because the national living wage has gone up so much, there's been real compression at the bottom of the labour market. But it also relates to the big problems we've been having here with below inflation pay rises being awarded to, for example, nurses and teachers, who are exactly the people who can't work from home, and exactly from those graduate groups where the outside options, or people they know, are not only getting pay rises on the whole more than they are, still real pay cuts, but get that work from home bonus as well.

Nick Bloom

I spoke to someone that was formerly an NHS doctor and they said they'd left their job to take up a job being an administrator in an office, which is normally, it's like someone who's been through years of medical training and they said they wanted to work from home three days a week, and it was an incredible - wow, I don't know how much this is, you know a generalisation, but you could certainly see that this is a big perk if you're in the NHS you don't get to keep, and at the same time you're holding down wages.

Paul Johnson

Yeah, I think governments going to have to respond to that. One part of the property market that you mentioned is this sort of doughnut affect, of course, I bought a house in zone 2, obviously, didn't I, a year ago, but there we go. If you're not in the office five days a week, it doesn't matter so much quite how far you are from the office. One of the things that seems surprising to me at least, is that the sort of commercial property market, as far as I can see, hasn't suffered very much as a result of this. You'd think that if there was only 60% occupancy or lots of these offices, people would need less space and rents in central London will be collapsing, I don't think we're seeing that.

Nick Bloom

No. So the commercial property market is what's called soft, it's not great, but it hasn't totally collapsed. So, you know, why is that is a great question. So, partly hybrid has typically firms coming in Tuesday, Wednesday, Thursday, as you mentioned, no one wants to come into the office on Friday, so, we're like a more extreme version of 2019, if you remember in 2019, no one's working really Saturday, Sunday, no one is really working evenings, so they have offices that are only occupied for 40-50 hours a week. Now they're just occupied for an even smaller slice, but it's very hard to get away from having no office at all. So, a bunch of companies I talked to are - to be honest, the corporate real estate folks within those companies are really frustrated, they're getting beaten up by the CEO's who are saying exactly like, you know, 50% of our footfall of what we had before the pandemic, but we still have the same footprint, and the answer is it's very hard to have hybrid whereby you have shifts. Now, of course it's possible, you could say, “look, team A is going to come in Monday, Tuesday, Wednesday, team B Tuesday, Wednesday, Thursday, etc.” There's some serious problems with that, one is the teams don't overlap, and often the reason companies exist is they spill overs and ideas and cross fertilisation of kind of projects. Second, you’ve got to have clean desks which a lot of people don't like, and there's some security, if you leave a folder out with sensitive stuff and some other team sees it. And then C, somebody's got to have Friday and someone's going to have Monday. So, there's a couple of teams that are really peed off that you've pulled them in. So, when I talked to execs and it's not just for profit companies, I talked to someone in local City Council, some hospitals, school boards, the UN, the World Bank, all kinds of things, they are mostly leaving it up to teams, and teams themselves are mostly picking Tuesday, Wednesday, Thursday. And so, it's actually really hard to make use of those space savings. And that's saved commercial property.

That's not saying the long run it's not in trouble, because in three to five years I can see more rationalisation, people work out ways around this. It hasn't totally collapsed, it's not great, commercial property is not in a particularly good state, but it's not cataclysmic, however.

Paul Johnson

Really interesting. You've also done quite a lot of work studying sort of effective leadership and management in organisations. I mean, do you see a relationship between the way that well managed firms have dealt with the move to working from home, and other aspects of effective management? Those firms that were being well run have actually moved more smoothly to this and in a way that is more productive, and you've got any sense from talking to all these companies how that works, how the best ones made the transition and where have things gone wrong, if you can answer that?

Nick Bloom

No, absolutely. So, this is another really big issue when I talk to companies is basically the importance of performance reviews. So just to explain, take it very simply, if you're in the office, imagine Paul, you are my manager, I'm in the office five days a week. By walking by my desk, you can basically see am I there punching away at the keyboard when you walk past my computer, is it excel or is it Champions League? Basically, do I appear to be working? And look it's not perfect, it's what I would call 5 out of 10 management practises, but it’s something. The problem now comes obviously if I'm working from home, even two days a week, you have no way to see what I'm up to, so it turns out that companies that use what are called input-based management, seeing what people do, struggled quite a bit when folks went home, particularly fully remote.

Companies that used output-based management, think of performance management reviews, 360s, collected data, looked at what you achieved, did much better. You would say, “Nick, you can work from home on Monday, Friday, as long as you get your stuff done, your projects report, or your sales targets met, or whatever it is, you're fine.” It turns out not only does that work better for managers, it also actually works a lot better for employees, because if you're my boss, I'm at home on Friday, I'm thinking, you know, I'd like to pick my kid up from school or go to the gym or go shopping or go see the dentist, and if I think like Paul, you're watching me to see how fast I reply to emails or do I appear to be at my desk all the time, I can't really do that and it's stressful. Whereas instead, if I'm allowed to go to the dentist and work an extra hour in the evening, I may be very happy doing that. And in fact, that's what we see in the data quite clearly. For example, the randomised control trial, you see work from home employees do about an hour and a half to two hours less on the days they're working from home, but they make up for it on evenings and on the weekends. When you interview them, they say it's really valuable this flexibility, there’s a bunch of stuff - like if you want to play golf, you know I'm not a golf player, but if you want to play golf courses are very busy on the weekends, they may be free on Thursday morning, you go do a round of golf and instead you watch 2 hours less TV in the evening and make up for it.

Paul Johnson

Yeah, and we've heard exactly that, actually there have been reports that golf courses are much more busy on weekday afternoons than they than they used to be. I also ought to tell listeners that even before he's working at home, Nick just admitted to a seminar here that when he was at the IFS before, he managed to crash the network by playing a game on it back in the 1990s. So, some people didn't have to wait until work from home before they were playing computer games during working hours.

And I suppose that's one of the concerns that people have, both managers and I suspect some colleagues that if you are relying on that sort of input base to focus on what people are doing, there's a worry that some people will at least think or worry that other people aren't pulling their weight. And we know that in an office environment the one thing that really annoys people is thinking that they're working harder than their colleagues, or that other people are swinging the lead. So, do we know if this is resulting in changes in innovation in management practises and in HR practises to move towards more output-based focuses, or other ways of ensuring that an appropriate amount of work is set and produced?

Nick Bloom

Yes, there's one fact that I know from research, and I’ll give you the kind of collection of anecdotes, second. But in terms of the actual fact from the research data, what we do know and your initial point is, if you look at data collected on management practises, and I and others have collected data on tens of thousands of companies we see that those that have more rigorous performance evaluation systems had higher levels of work from home adoption, even controlling for industry, size, location, etc, and appear to have better performance. So, in the data it’s certainly the case said if before you entered the pandemic with the good HR system, you performed better. On whether firms are changing, I'm pretty sure the answer is yes. Interesting enough, early on in the pandemic, when I talked to companies was often to like CEOs because there was such a big issue about work from home, it's a very kind of top line decision, now I talk much more to CHR's kind of HR folks, and they are very attuned to this and actually budgets to HR have been going up for precisely for this thing.

Because, to give you an anecdote, I worked at McKinsey years ago and the story is for partners, you should be roughly spending a day a week on performance evaluations. And that's an enormous amount of time, that's a lot of money effectively, but when people are working from home a couple of days a week, that becomes increasingly valuable and important. So, the companies I talked to, I mean, I'm talking to probably 10/15 a week different, and they’re not all for profit, maybe 2/3 are for profit, 1/3 are public sector and NGO's, etc, but they are definitely much more focused on formalised performance evaluation systems.

And to be clear, what's important is about output, so it’s about what have you achieved rather than about inputs. Inputs was a very early pandemic thing, I don't know if you can cast your mind back to - and I'm sure the IFS didn't do this, but April/ May 2020, there's a lot of surveillance software being installed, like how many emails, how many keys strokes, that's horrible. That's input evaluation at a distance. Basically, people have moved away from that, but they have moved much more to we're going to really closely evaluate what you do, and I think it's a win win for both managers and firms. But if anyone's listening, if you're a company you have very weak performance evaluation systems, that's one of the first things to fix if you want to have successful work from home.

Paul Johnson

I mean that's really interesting and really important, and if that's fixed, and your previous work has shown, I think, that companies that do this sort of thing well are companies that do well, that they are effective and maybe therefore being forced into this will improve performance somewhat more broadly.

I suppose the last thing I wanted to touch on, if it's something that you can speak about, is whether this changes at all the sort of, the things that go alongside work. And we've heard that services in the suburbs and further away from cities have more demand, and in central London, certain shops and the place where you go for lunch and so on, the demand is much lower on a Monday and a Friday. Are we going to see a change in the sort of, in the structure of cities as a result of this? Are we going to see, one thing that's purely anecdote, which anyone living in London will know, and I don't know if it's true in other cities, is that London is heaving on a Friday evening, even if no one's been into the office, they're still coming in to go to the pubs and the theatres and the cinemas and so on. Are we going to see them moving more to that sort of role?

Nick Bloom

Yes. So again, there's a broad discussion exactly on this point that cities are going to shift a little bit away from locations to get work done, a little bit more towards location for consumption and living. So, there is a reduction in space for offices, it's not enormous, as we discussed earlier, but it's definitely there. So, one of the drivers of that is in any typical office, about 10% of people have gone fully remote, so those are the hybrid are coming in, they're still in Tuesday to Thursday, so you can't get rid of their desks, but if you think of a typical office, there's HR folks, people doing payroll, a bunch of them have disappeared and there's less people coming in.

Public transit journeys, like for example the tube and the US public transport is down about 30/40%, this looks like it's permanent, so the future looks more like people in city centres they’re ideally living there, they're consuming, they're going out to restaurants, bars, theatres, there's a bit less them coming in to treat it as a place to work.

Now, it's not a black and white thing, but you're correct that Friday is the first day to work from home, so Friday is going to be very quiet in office land. And people are in London on Friday night, I assume most of them have worked in the suburbs and then come in in the evenings, which seems odd, but in other ways, you know, Central London's now just become a location for entertainment.

The other thing that's very interesting is the twist in peak loading, so public transport has seen a big surge towards Tuesday - Thursdays, and a drop in Monday, Fridays, I also speaking to a company called Panera Bread, which is a big U.S., it’s like Pret A Manger, and they said they've seen a huge increase in demand in the suburbs and it's dropping down in the city centre. So, there's been a kind of twisting, it’s not that people have stopped buying sandwiches, lunches, drinks, going out to eat, they just shifted it out to the suburbs and away from the city centres. In the same way that you mentioned earlier, golf playing as throughout the week, people going to gyms, hairdressers, anything that's leisure, you know, shopping centres, anything that's leisure activities, has twisted now away from being so peak loaded on the weekend to being spread in the week. So, the pandemic and work from home has changed the structure of the economy, it's not like necessarily a good or bad thing, the total aggregate of demand is there, but it's shifted out to the suburbs, and it's shifted throughout the week, away from being city centre weekend focused.

Paul Johnson

And remarkable in a way that everything seems to have adapted relatively smoothly, we haven't gone through a period of mass unemployment as people have moved from working in Pret in the centre of London to Pret in the suburbs or whatever the equivalent is. What you're describing is a remarkable change in the structure of the economy in a way that hasn't actually been terribly disruptive in the way that you think of all of the other big changes you can think of to the structure of the economy, or maybe that's partly why we've got such high levels of inflation at the moment, but actually I'm not sure that it is. I mean, it appears to have been something that we've adapted to, or the economy has adapted to swiftly and almost seamlessly.

Nick Bloom

Yes, if you look back, I think if we, you know, look 30 years from now, looking back at the pandemic, I suspect there's been millions of people have died, tremendous number of downsides, one of the few positives from it will be the pickup in work from home, and the fact that people have saved hundreds of millions of miles of commuting, same amount of hours, we've reduced pollution, we've improved quality of life, and you're right, it hasn't been that traumatic a change. Interestingly, the reason I think it's stuck is we had the original pandemic, everyone has thrown home, it turned out to last far longer than we thought. I remember I was teaching a class and I told my class, “we're just going to go home, in three weeks when the lockdown is over, you're going to come in,” you know, we got it totally wrong. So, the lockdown lasted 18 months, 12 to 18 months, varies by location, but certainly for some time, but then as it was phasing out and people were, you know, were re-entering, unemployment rates were very low and the labour market was very strong and it's switched to, as you discussed earlier, the reason we had worked from home is to, is the only way to hire people. I remember talking to a recruiter, and she was saying, “if you're not offering work from home, just forget it, you’re never going to get anyone.” And as that's finally ebbing away, as labour markets and economy return to some steady state, we’ve basically locked in three years of partially or sometimes fully remote and it's just here to stay.

It's like it's been, you know, an astounding journey, but I think it's a very positive thing. And I get asked a lot why we didn't do this in 2015? We probably could have done this in 2015. Interestingly we couldn't have done it in 2005 because there was no Zoom, no Teams, no cloud computing, no Dropbox, but certainly in 2015 we have all the video calling and we could file share, so we were 5/6 years later than we need to, but at least that change has to happen now.

Paul Johnson

Yeah. Remarkable and remarkable in a way that it took that I suppose it needed something as huge as a pandemic to create that shift and as you've set out, there are some potentially quite big but positive changes coming from this in terms of people's lifestyles, but also the potential, at least, for some equalising of wages in the labour market. I think some people worry that there might also be a disequalities of experience in the labour market, you've talked about the sort of back-office staff are never coming into the office, and that might, you can imagine negative long-term effects from that.

But before we close, where next with your research on this? You were incredibly fast out of the blocks in terms of doing a whole lot of work, you've obviously spoken to huge numbers of companies, you've produced a lot of the world’s first and best analysis of the impact of working from home, where are you going next?

Nick Bloom

First, thanks very much. To some extent I had some pre-pandemic work on work from home and I was just extremely fortunate. I didn't, like everyone else, I don't think really anyone pretty much saw what was going to, was happening. The reason I got heavily involved in this is at the outset of the pandemic I noticed that there wasn't a lot of public data on it, so both in the UK and the U.S., the government agencies are, I mean it's hard for them, but they're just not used to rapidly turning and changing the focus, so, I started collecting a lot of data.

The other striking thing I noticed is it just seems to have taken longer than we thought, I was speaking to an exec in a big financial services firm on Monday, like a very large, famous firm, and she was saying like when will this be over? Like when will we stop talking about hybrid return to the office? And I was like, I think it's going to ebb out over 2023, but I keep thinking that each year, I think at the end of 2020 I thought look, people are just going to normalise. So, at this point, it's really a process of collecting data. On things like aggregate levels of work from home it's actually now been flat, it's been about 25%, 30% for the last year, so that's stabilised. We're still seeing churn as company by company, you mentioned some examples, there are companies bringing people back, they're others sending them out. I think it's going to take another few years for this to stabilise.

One advice for listeners, by the way, is if your current firm does not offer you what you want, change company. So, there's another dimension of job which never used to exist, which is the number of days for your employer to allow you to work from home, and some of them are saying you got to come in five days a week, and others are letting you come in two or one. If you survey individuals, there's an incredible spread, so, 30% of people say they want to be fully remote, 20% say they want to be fully in person, and 50% are in the middle. And I think the way this will evolve is like any labour market, some employers are going to offer fully remote, some are fully in person, some are a mix, and people are going to sort, and that sorting was part of what was the great resignation of a lot of churn, and that will eventually settle down and people will end up being matched with their employers, and I think we'll end up in a happier place where if I want to be in the office five days a week, I’ll be in a firm that's promoting that, if I want to be in the office one day a week, I'll be in a firm that's promoting that.

Paul Johnson

I apologise to any employers listening who are about to lose half their staff because of Nick's advice there. But look, we could carry on with this forever, but we are past our allotted time, Nick that was absolutely fascinating, thanks so much for speaking to me about this, thanks ever so much for that, Nick, a fascinating conversation. And thank you to everyone for listening to this episode of the IFS Zooms In, to see more of our work visit www.ifs.org.uk, and if you want to find out more about Nick's work, just look up Nick Bloom on the internet. To further support us, please do consider becoming a member for as little as £10 a month, you can find out more in the episode description. See you next time.

 

 

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Since the start of the pandemic in March 2020, the topic of working from home has been everywhere and has seemingly affected everything. From big companies calling workers back to the office and city centre food chains struggling, to house price jumps in rural areas and zoom fatigue, the transition to work from home is one of the biggest shifts in working patterns in the last century.

But what evidence do we have on the success of remote working? Are people more or less productive at home? And what does the future hold?

In this episode, Paul speaks to Professor Nick Bloom, a Professor at Stanford University, former IFS-er and leading expert on working from home.

Zooming In: discussion questions

Every week, we share a set of questions designed for A Level economics students to discuss, written by teacher Will Haines.

  1. What is meant by the term, 'market size effect' and how does this relate to working from home? 
  2. How should the government respond to the rise of working from home for public sector workers in sectors such as healthcare and education? 
  3. Evaluate the potential microeconomic and macroeconomic impact of the rise of working from home.