Working from home and the COVID-19 pandemic

The huge shift to working remotely, rather than in a physical office, was one of the biggest changes made by the COVID-19 pandemic to how people live.

Working from home wasn’t especially common in the UK before COVID-19: according to the Office for National Statistics, around 5% of employees worked mainly from home in 2019. But during the pandemic, it became risky to undertake a crowded commute, or to spend time in a communal office space, adding to the overall costs of in-person working – and at various points, there were official requirements to work from home if you could. This meant the proportion of people working from home soared: more than 45% of those working were doing some of that work from home in April 2020. 

The remote working trend has now started to fall from those heights, but the proportion of those doing at least some work from home remains much higher than it was before the pandemic. This represents a structural change for the UK economy, and leaves important questions in its wake. 

What will the effect of more people working from home be on inequalities? Will it be good or bad for workers and companies? And, if so – why has it taken a pandemic to get us here?

Narrowing inequalities?

Being able to work from home could reduce some important inequalities: between women and men, for example, or between different parts of the country.

Remote work might be better for those with families. Mothers, in particular, might benefit more from the chance to work from home: we know that women during motherhood generally look for work closer to where they live than fathers, on average. This is a result of women tending to perform a greater share of household responsibilities, reducing the time available for commuting. More generally available remote work would eliminate commuting time for many jobs, meaning working mothers had a larger number of jobs available to choose from: this could reduce gender pay differentials, and mean mothers were doing jobs better-matched to them.

As well as potentially reducing inequalities between men and women, a transition to home working has the potential to reduce economic disparities between different parts of the country. Remote work weakens the link between where people choose to live and their offices. Those who can partially work from home, going into the office one or two days a week, might choose to live out in the suburbs, choosing a longer – but rarer – commute coupled with more space or lower housing costs. This has been referred to as the ‘doughnut effect’, in which suburbs grow at the expense of city centres’ decline. 

Those who move to fully-remote work might choose to live in a different area entirely. UK cities – especially London – tend to be more prosperous than smaller towns, driven by the fact that they’re centres of jobs, and so suck in graduates. If people can now do their jobs remotely, and live anywhere, geographical inequalities could be reduced, with higher-paid workers locating in a greater variety of areas.

And widening other inequalities?

Not every job can easily be done from home, however, something which increases inequalities in other ways: those in higher-paying jobs are more likely to be able to transition into remote work. 

Office work can better be completed from home, and also tends to be higher-paid; key workers, more of whom are lower-paid, continued to work in person during the pandemic. Many of those in lower-paying service jobs – think hairdressers, baristas, or waiting staff – could not work virtually, using government support like the furlough scheme, which did not top people’s income up to 100% of its previous level.

Service workers’ incomes could also be hurt by the general transition to remote work: many in-person services are located near offices, in city centres. If office workers are working remotely, demand in city centres falls, and services like cafes or gyms are put under strain, potentially having to re-locate or shut down.

Inequalities are also widened by the fact that people like working from home. A US study published in 2017 found that workers would be willing to take an 8% pay cut to work from home, on average – implying that being allowed to work from home for the same pay is equivalent to getting a raise. If higher-paid people are more able to work from home, then, their compensation from work will be even higher than their pay cheque implies – they are gaining non-monetary benefits that effectively increase income inequality. 

A shock to the system?

If many people value the ability to work from home, then why was remote work so infrequent before the pandemic?

A study done after the UK tube strikes in 2014, which looks at the routes people took to work before, during, and after the strikes, finds that some people permanently changed their commute in response to the temporarily closed stations. They ended up finding faster ways to get to work, having been forced to experiment with new commutes, and didn’t return to their old routes after the strikes had ended. The shock to people’s working habits during the pandemic could have functioned similarly, allowing some to figure out more efficient, better ways to work. 

As well as gaining information about how productive remote work could be, firms and workers were forced to invest in the necessary equipment and knowledge to make remote work effective during the pandemic. Firms have now provided employees with things like laptops and software to make working from home possible, and time has been put into learning how remote working equipment works. This all makes it less costly to spend a few days a week working from home, since the infrastructure now exists. 

The fact that all firms and employees shifted to remote work at once might also play a role. Work habits are difficult to experiment with in isolation, at least to this extent: individual workers might not have had the choice to work remotely before, and collaborative events – such as meetings, seminars, or talks – might not have been hosted online. When all workers in a company understand how remote databases and virtual meetings work, and all conversations happen online by default, it is more possible to make the choice to work from home.

A lack of information?

As well as these explanations, another reason that remote work was unpopular before the pandemic could be because of what economists refer to as asymmetric information. This is where one person in a transaction has information that the other does not.

Workers might be more easily able to reveal their ability by working in person, where they can be observed by their manager, and demonstrate that they are more productive than average. Higher-ability workers thus have an incentive to work in person, so that they can reveal their ability, and be paid more highly. Those who are less productive prefer to work remotely, where they are better able to hide their lower productivity. This is adverse selection into remote work – a situation where less productive workers select into working remotely. Firms, knowing that those who work remotely are less productive on average, pay remote workers less to offset this. 

According to this idea, workers who are averagely productive choose to go into the office to demonstrate – as economists say, to signal – that they are high-productivity, rather than being paid the lower wage those who work remotely receive. This is the case even if they would prefer to work remotely, or be more productive when doing so. 

The pandemic meant that a choice about whether to work remotely or in person briefly no longer existed – everyone whose jobs could be done from home had to work from home for at least some time, meaning that the choice to work from home was no longer a signal of productivity. 

Undervaluing the office?

These theories imply that remote work was previously being under-used, and that we have now moved to a new, more efficient mode of working. But another argument is that people might now be working too much from home, and under-valuing the benefits of in-person work. This is the result of externalities – situations in which the decision-maker does not take into account the full costs and benefits of her actions in a wider sense. In this case, each individual worker might not be considering the costs associated with her decision to work from home.

One person deciding to come into the office has effects on everyone else there, which she may not take into account when weighing up the individual costs and benefits of her work location: more people in the office may make collaboration easier, or make it possible to have a 5-minute chat as opposed to a formal meeting. The externality of people’s presence in the office is their effect on others’ productivity in this way. It is hard remotely to replicate the benefits of chatting in the kitchen or going for a drink after work.

We might additionally think that the costs and benefits of working remotely are unevenly spread across firms’ workforces, with older, more experienced workers benefitting more, and younger, newer workers bearing more cost. Those who knew each other before the pandemic can rely on pre-existing social networks, so the benefits of going into the office for them may be lower. Older workers are also more likely to have a more spacious home, better set up for work; they are more likely to have partners and children, alleviating the potential loneliness of working from home, as well as creating incentives to balance childcare with work. Younger workers, on the other hand, are likely to have set-ups at home less conducive to work. They tend to know fewer people at work, and will benefit more from informal chats and observation of how more experienced workers work. 

Over the next few years, we’ll see which of these theories proves true, and what the longer-term effect of working from home on inequalities and productivity will be. Evidence so far is still insufficient – we don’t yet know how long-lasting or prevalent remote work will prove. We know, though, that its effects will be wide-ranging.