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Nick Bloom: ‘It is becoming pretty clear now that hybrid working is here to stay’

Future of work

Nick Bloom: ‘It is becoming pretty clear now that hybrid working is here to stay’

The Stanford professor argues that the revolution in homeworking could usher in a new era of globalisation in services

This is part of a series, ‘Economists Exchange’, featuring conversations between top FT commentators and leading economists about the coronavirus economic recovery

It is almost two years since the first wave of Covid-19 forced the world into a mass experiment in homeworking. Yet, as UK office workers are once again told to hunker down at their kitchen tables, there is still no consensus among economists on how a lasting shift to remote work might affect the structure of developed economies — in particular, when it comes to workforce productivity.

Nick Bloom, a professor of economics at Stanford University whose focus is on measuring and explaining management practices, has studied this more closely than most. He has been at the forefront of research into the effects of homeworking since long before the pandemic hit.

As early as 2015, he published evidence from a Chinese experiment in which call centre workers who volunteered for homeworking were randomly assigned to work from home or from the office. The homeworkers saw an improvement of 13 per cent in their performance — taking fewer breaks and sick days, and fitting in more calls per minute. But they were also less likely to win promotion — and half of them chose to switch back to the office when the experiment ended.

With this paper seen as a reference, the pandemic pitched Bloom into discussions with hundreds of companies seeking advice; and gave him ample opportunity to expand on the earlier research. Together with fellow economists Jose Maria Barrero and Steven Davis, he has been running a survey of working-age Americans since the spring of 2020, asking them about their working arrangements, their employers’ plans for the future, their internet access, productivity, wellbeing and more.

Though he makes no attempt to downplay the difficulties of enforced homeworking with children at hand during lockdown, Bloom remains a strong advocate for the models of hybrid work that many employers are now adopting. Speaking to economics correspondent Delphine Strauss — appropriately, on a video call from his home in California — he argues that the revolution in homeworking could boost productivity, narrow regional inequalities, help blue-collar workers win more flexibility and usher in a new era of globalisation in services.

Nick Bloom, a professor of economics at Stanford University, was researching homeworking years before the pandemic hit

Delphine Strauss: What does your research tell you about how permanent a shift we have in working practices and what it will mean for the structure of the modern economy?

Nick Bloom: It is becoming pretty clear that hybrid is here to stay. To give you three numbers which hold for the UK and the US pretty well: before the pandemic all-paid-days work from home was very rare, about 5 per cent of paid days. During the pandemic, it was roughly 50 per cent. Post-pandemic, it looks as if those employees are going to work, on average, two to three days a week in the office and two to three days a week at home, so you get to about 25 per cent of days.

That is a fivefold increase. Pre-pandemic, working from home was doubling roughly every 12 to 13 years, so it is about 30 years of increase in work from home over the space of 18 months. This could be one of the biggest impacts from the pandemic in the long run.

In an odd way we are fortunate on timing, because two technologies that are critical for work from home really only came of age in the last five or six years: file sharing via the cloud and video calls via Zoom and Teams. So, the pandemic has happened at [a] time at which we have good broadband, cheap computers and software to make it possible to work collaboratively.

In terms of [the] long run, one huge impact is on the future of cities. Cities are going to be pushed back a bit but . . . they are definitely not dead, this proclamation that the city is dead is completely wrong.

What we’re seeing now is city centres — zone 1 of the [London] Tube, the southern half of Manhattan in New York, the central part of San Francisco — they have seen an emptying out of individuals during the pandemic by about 15 per cent. If you can work from home three days a week, you do not need to live as close to work and you also want a bit more space. So, a lot of people have moved out to the suburbs, what we call the doughnut effect.

It is definitely not going to mean boarded-up wastelands in a city centre. Property prices, relatively, may fall by 10 or 20 per cent, but they were incredibly high to start off with.

I think it is going to be very impactful for rural areas

One thing that is good in that is that it partly pushes back the affordability crisis, it may make city centres a bit more mixed. There might be slightly more artists, alternative jobs. It will not be entirely dominated by tech and banking because tech and banking are the kind of professions where you can come into work two or three days a week and commute from further out.

More interestingly, there are about 10 per cent [of employees] post-pandemic, we estimate, that will work fully remotely. They are a bit of a mix, mostly graduates but not managers or professionals at the top of organisations. It is more like graphic designers, payroll, HR, IT support, editors, often in quite skilled jobs but [they] are not managing teams and maybe not typically involved in creative processes in teams, so they can work remotely.

I think it is going to be very impactful for rural areas. I think we will see some quite high-earning individuals moving out to much more rural areas because they can work fully remote. That is going to spread the wealth a little bit. The cities won’t miss them because they’re not a large share of cities but rural areas which have only a few per cent of the population to start off with, they are going to see, I think, potentially quite big shifts.

DS: What could these geographic effects mean for employment overall?

NB: I think it is honestly all good. Pre-pandemic, people worried about the affordability crisis. Living out at Stanford, we’d make people job offers and then they’d be very excited, come out here and then they’d talk to a real estate agent, look at around three or four houses and think, forget it, it is so crushingly expensive. The whole of the [San Francisco] Bay area was, as with central London, as with central New York, facing a massive affordability crisis.

That may get pushed back a bit, not massively, but five to 10 years, and the reverse is the increasing [levels] of poverty in deeply rural areas, which I think is one of the drivers of the political polarisation that has crippled the political system and the governments in the UK and US.

I do not think the Trump years were helpful and I don’t think Brexit was helpful and both of those I think were driven by polarisation and the fact that rural areas were getting left behind. And by allowing high earners to move into rural areas and through the trickle down [effect] — if someone goes to [a] rural area earning $200,000 a year or £100,000 a year, they are going to hire more services, eat out more, shop more, have more gardeners. That is going to push more money into the local economy.

It turns out . . . that working from home, on average, probably mildly improves productivity

DS: We have seen some tech companies adapting to this and starting to say that they will cut pay if you move away to a cheaper area. Do you see that blunting the geographic effect of working from home, if companies basically say you can’t move to rural utopia and still keep your city salary?

NB: Not really. I talk to a lot of tech companies and by far the most common model, long-run, will be hybrid. The reason is most tech company employees, particularly the high-paid ones, they’re creatives, they manage people, they interact with customers, they’re in teams. This is pretty high-end work and you can’t really do that so easily on your own. You can for a year or two years, I guess, if forced to by a pandemic. It is not ideal. It is not the most efficient way to work.

There are some people, for sure, that can work remotely. Think of IT support, HR or payroll. Now, would you rather get paid $90,000 or $100,000 a year to do that in the Bay Area or $60,000 or $70,000 to do it in Oklahoma? You are taking a pay cut of 10-20 per cent but your standard of living is way up because the cost of living in Oklahoma is maybe a third [of what it is in the Bay Area]. A lot of people will be happy with that.

DS: There’s been a lot of debate over whether homeworking is going to help or hurt productivity at national level in the long run. Where do you stand on that?

NB: We know the results are incredibly surprising. Pre-pandemic most people were deeply sceptical about working from home. It turns out, and I think there’s a building consensus, that working from home, on average, probably mildly improves productivity if it is well run.

I’ve been involved in two different randomised control trials, one previously and one that is ongoing. In both cases we see moderate, positive impacts on productivity. If you look at aggregate data, productivity in the UK and the US, national productivity is way up versus pre-pandemic.

Every firm I talk to is pretty positive about it. In the surveys we’re running of 5,000 Americans and 2,500 UK workers a month, on average they’ve reported being positive for productivity.

There are certainly people it doesn’t work for. The average numbers we’re seeing for [gains to productivity from] hybrid will be about 3-5 per cent but there’s a big spread. Twenty-five per cent of people are going to find working from home quite negative for productivity . . . maybe even a third. Maybe another third is weakly positive and another third is strongly positive. The average is 3-5 per cent.

The reason that is so important is most people also like to work [at] home two or three days a week. So, the reason hybrid has totally dominated the corporate landscape . . . [is] it appears to weakly improve productivity and keep employees happy. So, it seems like a no-brainer. It’s a win-win on both sides, so it’s dominating.

DS: We’ve now got this big division between white-collar workers and jobs you still can’t do from home. Given that there are lots of people out there who are quitting their job in order to get more flexibility, are employers simply going to have to pay people more to show up?

NB: Yes. This has effectively increased welfare inequality and the reason is that hybrid work, say the three/two plan, appears to be worth about 7-8 per cent of a pay increase in terms of how much people value it — similar to a pension plan or maybe a healthcare plan. Now, that’s going to . . . [people] who are better paid managers, professionals. That doesn’t affect monetary inequality but it affects welfare. They are getting a nice valuable perk there and [others aren’t]. That is definitely an issue politically and it’s one I hear a lot from companies.

A number of managers earlier on in the pandemic were saying: the frontline workers in my firm are really angry, I’m being shouted at because these folks are having to come into work every day, they’re not getting any more money, their conditions are horrible, they’re in masks, they’re facing infection risk. Managers and professionals are safely tucked away at home avoiding the commute.

Now, there are two responses to that. One is to put up pay. It turns out market forces are doing that anyway, because if you look at where the labour [market] is tightest, it is at that bottom end. There are various explanations for it but one is that it just much more unpleasant to work right now in face-to-face jobs and some people don’t want to do it.

The other solution is a managerial one, which I’ve heard from some companies, which is asking to what extent can hourly frontline employees also benefit in terms of flexibility. If you have a retail store that is open 18 hours a day, you can be flexible on how long your shifts are. For security, catering, cleaning, transport, for a number of frontline service jobs, it may be possible [not] only to have their salaries pushed up but also [to] give them some more flexibility. It’s not going to be as good as working from home but it goes part of the way to reducing their commute time.

DS: So, you’re saying that as long as we remain in a tight labour market, this is one of the things that could rebalance blue- and white-collar wages?

NB: This could have been done 10 or 20 years ago . . . saying to people who work in a manufacturing plant, would you like to have three shifts of 14 hours a day rather than five of 10 . . . to save you commuting twice a week? I’ve visited a lot of factories in the Bay area and many of the workers commute for an hour to two hours each way, each day. It’s incredible how far they can drive because there is not much low-income housing near these factories.

I talked to a hospital, for example, that said they polled their frontline workers and discovered that they prefer to work fewer days but longer hours. So, some people came in Monday, Tuesday, Wednesday, some came in Tuesday, Wednesday, Thursday, etc.

I think the combination of the tight labour market and realising that working from home works well . . . has led a lot of firms to be more creative and create, honestly, win-win situations. Work from home is a win-win for graduate and university-level employees and flexible hours is likely a win-win for some shift workers.

DS: We’re still seeing really big differences in the prevalence of remote working between countries though. Are we going to end up with big divisions in workplace culture between countries?

NB: There are a couple of explanations that I think won’t change in the long run. There are variations due to level of development, because if you go to northern Europe and the US, in particular, a lot of the jobs are business services. They can be done remotely. If you go to the other extreme, Africa, lower-income Asia, lower-income Central America, it’s more agriculture or manufacturing. A second factor is infrastructure. I remember talking to a manufacturer that said out in Indonesia, even as managers, the broadband connectivity at home wasn’t good enough for them to work remotely.

But, there is a third story around culture, and if you look at Japan and China versus North America and the US, that also plays a role there. Levels of work from home are significantly lower, even conditional on education, infrastructure etc. Interestingly, I’m working with a very large Chinese company right now that is experimenting on hybrid work from home and it seems to be extremely successful and my guess is they’re going to roll this out and it’s going to be seen as a huge competitive advantage to them in terms of recruiting and the labour market.

So, my guess is, in five to 10 years, a number of Asian markets are going to see this spread out. Firms are going to have to copy pretty fast because otherwise they are going to hear a strong sucking sound of employees out of their firms to their rivals.

There’s a whole literature in economics on how competition tends to spread best practices very rapidly. This is a perfect example: in a competitive market with tight labour markets, if there is something that keeps employees happy and improves productivity, it will spread out.

Asia right now does not have prevalent work-from-home practices among professionals but I think that will change. The only thing holding it back is the size of home apartments. In a lot of Asian cities, home apartments are smaller. That’s partly endogenous. If you have a set-up whereby you’ve got to come in five days and be in long hours, you want a low commute, which means highly dense cities. If a lot of employers in Asia start to allow people to work from home two days a week, people maybe move further out and start to live in larger apartments or houses.

DS: Aren’t there still big differences between European countries, though?

NB: There is a gradient, north to south, within Europe. Northern Europe tends to be more permissive of work from home, southern Europe less so. If you take, say, Portugal, there is just less high-end business. I know they’ve introduced a law promoting work from home but there’s less finance, less tech, there’s more tourism, more agriculture, more industry, which is harder to do remotely. Also, the infrastructure is less good. People probably live in smaller apartments than they do in northern Europe. All these factors make working from home harder.

DS: I wanted to ask you about that Portuguese legislative proposal, which is all about protecting remote workers. Do more countries now need to set up some kind of legal framework?

NB: Not really. It wasn’t obvious to me why the Portuguese needed to do this.

As an economist, if there is something that is in firms’ interest to do, it keeps their employees happy and improves productivity, you’d think they’d generally do it without the need for a government push. It is a bit like government mandating firms are well managed. It’s not really government’s role and even if they’re badly managed governments can’t really push it through.

There’s going to be a huge surge in offshoring and outsourcing once the pandemic ends

I would instead, policy-wise, facilitate work from home. I’d spend money on making sure broadband is well rolled out, that internet providers are competitive, so at least there is not local monopoly. Once you set that up and you allow a reasonable level of housing to be built, so people have enough space, you basically facilitate the ability to work from home. At that point, firms will adopt it naturally. Personally, I’m not in favour of governments intervening by micromanaging companies.

DS: One of the possible consequences of remote work is that employers eventually start to look much further afield for talent and hire overseas. Do you think this will take hold?

NB: If I was to go through the list of big, long-run impacts of work from home, in the top three would probably be the impact of service-sector offshoring.

Manufacturing saw a huge rise in globalisation after China joined the World Trade Organization in the early 2000s. There are a lot of political implications from that, with the rise of [Donald] Trump and the US-China trade war, but that cycle has ended and, in fact, is partly reversing.

Services, I think, are about to go through a 2000 manufacturing moment . . . and the way I come to this is just the number of firms I’ve spoken to that have made comments. I’ve probably spoken to 200-300 companies during the pandemic about working from home.

Often, we’ll hear comments like, the industrial team has been fantastic working remotely for the last year and a half, really great, and in fact now we’re thinking why does this team ever need to come back into the head office? In fact, why do they need to be in this country or why do they even need to be in our company? Can’t we outsource them, offshore them, or both?

So, I think there’s going to be a huge surge in offshoring and outsourcing once the pandemic ends and firms readjust. It won’t happen within six months, maybe not within a year, but within five years we’re going to see a point of inflection. I think it’s going to really benefit countries that are in the same timezone of wealthy European and North American countries.

DS: Does that mean a painful period for white-collar workers in developed economies?

NB: Coming back to what jobs are amenable to fully remote, they are the same jobs that are going to be amenable to offshoring, so they’re likely to be non-managerial jobs that are probably medium-skill — things like base-level IT support, telesales, call centre work, HR, payroll.

Right now, labour markets are quite tight in a lot of these areas. Generally, when you increase trade, employment doesn’t, in the long run, diminish . . . Right now, we’re desperately short of labour supply, so if we can bring forth labour supply and mid-level jobs from abroad, I think that’s a good thing.

The above transcript has been edited for brevity and clarity

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