3 Takeaways - Learn The Latest Findings On How Working Remotely Effects Productivity, Hiring, Real Estate, And More (#158)

Episode Date: August 15, 2023

Working remotely is having a dramatic impact across a wide swath of society — including how and where we live, how business is run, real estate values, hiring practices, and more. But its impact on productivity is minimal. Here, Stanford’s Nick Bloom shares his latest findings on working from home and what we can expect in the future.

Welcome to the Three Takeaways podcast, which features short, memorable conversations with the world's best thinkers, business leaders, writers, politicians, scientists, and other newsmakers. Each episode ends with the three key takeaways that person has learned over their lives and their careers. And now your host and board member of schools at Harvard, Princeton, and Columbia, Lynn Thoman. Hi, everyone. It's Lynn Thoman. Welcome to another Three Takeaways episode. Today, I'm excited to be with Stanford professor Nick Bloom. Nick has done the most thoughtful, data-based, and insightful work on how working from home

has changed us. I'm excited to find out how working from home has changed how we live, how we spend our time, and what we want in a job, as well as how it's changed our homes, our offices, and organizations. Welcome, Nick, and thanks so much for joining Three Takeaways today. Thanks very much for having me on, Lynn. It is a pleasure. Let's start with the employees. Who works primarily from home? It's basically a breakdown by education. So if you look at, for example, North America, Northern Europe as well, roughly around 40% of people can work from home. They're mostly professionals, managers. They typically have a university degree. So I'm guessing most people listening fit into that. And then roughly the other 60% are folks that you might think of as kind of frontline, like working in shops, retail, security, transport, accommodation. They can't really

work from home because their jobs don't allow it. For the 40% of people that you say work from home, are these people fully remote, working five days each week from home, or is it some kind of a hybrid? That's changed a lot. So, you know, I've been working from home for almost 20 years. Pre-pandemic, it was binary. You either did or you didn't. And if you did work from home, you were basically full-time. It's pretty rare, but when you did, you were basically full-time. Nowadays, what we see of that 40%, three quarters of them are doing what's become known as hybrid. That's actually a new word. That's a new post pandemic word. And hybrid means typically you're in the office three days a week. Most commonly, that will be

say Tuesday, Wednesday, Thursday, and you work from home Monday to Friday. The other 10%, they are fully remote. They tend to be sprayed right across Europe, US, in fact, globally. So there's a lot of folks even called digital nomads are working fully remote, could be Americans, could be Europeans floating around the world. Interesting. What do we know, if anything, about the productivity of fully remote and hybrid workers? So hybrid versus fully in the office, that looks like it's about flat. So roughly hybrid, say coming into the office Tuesday, Wednesday, Thursday, working at home Monday, Friday, that looks like people's productivity is about flat. There are some

good sides to that, which is you're saving the commute, that saves people about an hour a day, and it's quieter at home, which those are both positives. There are some negatives, which are you don't get as much face to face time, and maybe you feel less energized because you're at home in the office. It turns out they roughly seem to net off at about zero. So Harvard's about flat. The other thing, fully remote, there is also evidence coming out on that. And that looks like it's negative. There's a range, but I'd say the typical number is folks are maybe 10% less productive working from home. Why? It looks like it's harder to mentor. It's harder to kind of be creative and have the fluid conversations you have in person.

And it's harder to build office culture. Now, before I end, I should say that does not mean that fully remote's a bad thing. Because if you're a company, you're looking at two things. One is how productive the employees are. And let's say, let's just accept minus 10%. Then you're saying, how much does it cost to have those folks there? And you have to be aware that A, you save on office space, which is typically 10%, 20% of overhead. And B, you can hire globally. So it turns out fully remote is like maybe 10% less productive, but maybe 40, 50% cheaper for a lot of roles. And so actually, it's a fantastic proposition for many companies. So interesting. How important is a flexible schedule, a hybrid work schedule for employees?

So this is another big topic. This battle has been raging now for at least three and a half years since the beginning of the pandemic. Initially, which was my view at the beginning, I thought, look, choice dominates. Let employees choose which day they come in. We know that matters. Everyone, including me, loves choice. You like to pick day by day, week by week. And so we should let each person choose. Turns out, as we found over the pandemic and from a lot of the survey data, that when people come to work, the reason they want to come to work is to work with colleagues in person in meetings, presentations. They really hate coming into work to spend four or five hours a day on Zoom. And so the biggest complaint I heard, certainly in 2021, which in 2021,

2022, which is kind of the early days of the return post pandemic or during the pandemic when people are coming in, is they'd say, I came into the office, I spent like six hours on Zoom. What's the point of coming in? I have this unpainful commute. It's dead. It's boring. There's no energy. And so the anti-choice, if you want to have a more positive twist on it, what I'll call it is the organized hybrid means that team by team or at the company level, you set days in and days at home. So a classic thing, maybe like Disney, Disney says, you're going to come into the office Monday to Thursday, you're going to work from home on Friday. In the data, we see the organized approach seems to be winning out. I don't think in many ways it's that surprising. Actually, if you go back to 2019, we basically came in the office five days a week, but everyone agreed that

you're roughly going to do nine to five Monday to Friday. I'd never heard of people saying, what I'm going to do is I'm going to do five days a week, but I'm doing like 7pm to 4am, or I'm going to come in Wednesday, Thursday, Friday, Saturday, Sunday. It just wasn't a thing. And the reason is you come into work with others. So I think we're going to end up at least team by team, mostly in an organized setting. A lot of people seem to have moved. Can you tell us about the move, about how many people have left city centers like New York and San Francisco and elsewhere? And where did they move to? Yeah, so this, again, is fascinating.

So if I was to step back a bit and give you the kind of history. So if you go from 1980 to 2019 across North America, across Europe, there was a big move of people into city centers. So starting with the U.S., take New York. You go back to like 1980 New York. I remember visiting as a kid with my parents, it was, I remember going to the McDonald's on Times Square in the probably late 70s, early 80s. So from 1980, 2019, the central cities became rich and rich and richer. And they became very expensive, beautiful places, in most cases to be in. That's partly unwound, not completely,

but a little bit. So what happened during the pandemic is what's called the donut effect. So a lot of professionals, high-end managers, grads are saying, if I'm only going to go into the office three days a week, maybe two days a week, I can put up with, rather than commuting for an hour, maybe I can put up with an hour and a half round commute or two hours. And in return, I get a home office and more space, maybe a backyard. And as a result, we've seen about a million people across America leave the city centres. More than half, I think it's almost 60%, have actually got to the suburbs of the same city. The rest, about 30%, went to other big cities, about 10% went to rural places. So interesting. How has working from home changed what people want as far as their home?

They want more space, actually. And one factor, of course, interest rates for a while were low. They've risen a lot more recently. Another factor is if you spend more time at home, you care about your house more. And as an economist, for every $100 you earn, you get a choice of what you spend it on. And if I'm now spending four or five days a week at home, weekends and maybe two or three working days, I care much more that my house is nice and has a yard and has enough space. They're also just spending money on nicer houses, bigger houses, bigger apartments and nicer places because they're just spending more time in them.

The boom in work from home has been one of the big drivers of the boom in housing. One other interesting twist is because people are prepared to commute now for further, there's a lot of land around the edge of big US cities that suddenly becomes in scope. That land is kind of hard for folks that are commuting into the centre to use pre-pandemic. No one really wants to drive an hour and a half each way. It's a pretty tiring commute to do five days a week. If you're now doing that two days a week, that becomes in scope. And so another thing I think we'll see over the next five, 10 years will be a building boom right on the edge. This is land that previously wasn't that valuable because a lot of the high paid workers tend to be in the centre of cities. Now it's suddenly become desirable. How is the office changing?

The office has changed. I mean, partly they're empty. Fridays, Ross, I've forgotten his first name, the head of Vornado, one of these big, massive property companies, made this fantastic comment saying, you know, Fridays is dead. We've lost Friday. It's gone. Mondays is on life support. It's kind of like beep, beep. It's like Monday's really empty. Tuesday, Wednesday, Thursday seems to be okay. I'm not sure that's a bad thing. People say, well, offices are only half full. It's worth being aware that even pre-pandemic, there's what, 24 hours a day, seven days a week, and offices are only full for like 50 of them, nine till five, Monday to Friday. Now they're only full typically, probably if you're lucky, for 30 of them. So offices are full less of the time.

When we're in, we're much more focused, not on treating it the way a student would treat a library as a place to come in and give you, you know, kind of the motivation to work, but as a place to meet and engage and have presentations and lunches and coffee. So the office much more rather than as a place to kind of give me like the feeling that I'm there to work hard. People now expect to do quiet reading, writing,

emails, analytical stuff at home. When they come in, it's like lively, interactive stuff. So the office of the future is probably you're in fewer days, maybe Tuesday to Thursday. It's got a lot of meeting rooms, a bunch of open plan area like airports where people are meeting. And you've ripped out much of the cubicle land and much of the individual offices for low-level managers so when i come in my schedule is much more like meeting meeting meeting it's exhausting i mean i agree it's tiring it's very social lunches coffees but the quid pro quo for that is have three days of that or maybe just two and the other days i can work from home and tranquil to some extent. So that's really the office of the future. Think more social, think more kind of meeting space and less like library.

How has downtime or leisure changed? I think Americans that are certainly hybrid, particularly fully remote, have gone to what, you know, I as a college professor, university professor think of as kind of the student lifestyle. If you look at undergrads, my students or my grad students, they are just like whatever. They're getting their work done, but they're often pulling all-nighters. They might be sleeping on the lawn or going to an event or working all weekend. They just kind of come and go as they are. And it's much more flexible and fluid.

And the work-leisure boundary is more porous. Now, a lot of commentators have said, well, work-from-home hybrid is terrible because you like this work kind of leisure boundaries or blurring over and people aren't liking it and there's no separation. On the other hand, if they're choosing to do that, I mean, as a student or as an individual, we could choose to work nine to five. The fact that what we see in the data is people leave work early to pick their kids up, or maybe go play around a golf, pickleball, go to the gym, go shopping, and then work more in the evenings and the weekend. In fact, if you ask people why they

like work from home, number one by far is no commute. So commuting is number one. I think exercise is third. So getting on your commute is the big number one. But number two is flexibility. This work-life boundary is blurring because of that. For people working from home a few days a week, have their loyalties or their connectedness to organizations changed? Again, really interesting. So I've run two randomized control trials, one on people in call centers, and the other was on computer engineers, accounts, finance professionals, basically, all undergrads, a third had a master's degree

in two multinationals. And what we did in both cases is you have a control group that come into the office five days a week and a treatment group who are randomized, even on our birthdays, to allow to work from home between two to four days a week. And what we saw in both cases was quit rates fell a lot between 35 to 50% for people allowed to work from home. And this is, you know, a pure causal effect because these are basically all volunteers and they're randomized. So that tells you you're letting people work between two to four days a week. They like it a lot. Their quit rate falls. It's very appealing. Now, that's not fully remote. So the trickier thing is what do you find in fully remote? There, it's less obvious. So

if you're my manager, if I'm going in every day, we probably bond, talk about kids. You give me more training in person and events. I feel connected to my coworkers, et cetera. If on the other hand, I'm fully remote, it feels a bit more transactional. There's less connectivity. It's probably easier to shop around. It's easier to go for an interview because I just, after the end of our Zoom call, I just move on to the next one and that's the interview and apply online. So I wouldn't be surprised. What we see is hybrid, offering hybrid versus fully in-person reduces quit rates because employees like it. Fully remote is less clear. I wouldn't be surprised if that increases churn, but it's hard to know. We did hear the great resignation.

It was very high turbulence and churn rates in 21, 22. Some of that may have been you're breaking a bit bonds between employees and their co-workers. What do you see as the future of work and working from home? I think in terms of levels of work from home, if I was to graph it out, we have data back to 1965. So 1965, if I was to graph it out, we have data back to 1965. So 1965, there's almost none of it. It's like half a percent of days of work from home, one every 200. So the average person is doing like one a year. It's very rare. That was doubling every 15 years, but from a very low base.

So by the time you get to 2019, it's 5%. So it's gone up tenfold, which is a lot, but it's still only 5%. Going to the pandemic, that just explodes to 60% in April, May 2020. So everyone that was working for them, they're doing it full time, it's now dropped back down to 25% and it's just been flat for most of 2023. So we're in a new normal now, whereby we have a five-fold increase versus before the pandemic, which is a massive jump. It's like 30 years of growth. In the future, I think we're kind of in the middle of a Nike swoosh. So we've seen a bit of a drop throughout the pandemic. It's kind of flattening out.

Looking ahead, certainly three to five years, I'm very confident it's going to be higher than it is now. Why is that? There are two big factors that are easy to explain. One is technology. So work from home is massively dependent on technology. So I've interviewed people. I'm one of four kids. In fact, both of my parents worked and they worked from home when I was growing up in the 70s and 80s. And talking to them,

it was like shuffling pieces of paper. It was not great. It wasn't very nice. There's no personal computers. You felt very isolated at home. Then the personal computer comes along in the 90s. That's a big step forward. Then the personal computer comes along in the 90s. That's a big step forward. Then the internet, really late 90s, early 2000s. And then cloud enables what we're using now, video calls and also Dropbox and file sharing. And so by the time you get to kind of 2015, technology looks kind of like what it is now, which is you can have video calls and share files, but it's progressing.

So if you compare Zoom now to what it was three years ago, there's no emojis, you can't move the boxes around, there's no virtual back. There's a lot of stuff that's added. Cameras have got better. I've talked to a number of startups, software's improving. So if you progress forward three to five years, there'll be much better hardware and software, better technologies. Many of these, it's hard to predict. I heard the interview of the founder of Dropbox. It was a great interview. And he was saying, you know, when I founded it, it was aimed at techies because no one else had more than one computer because everyone uses it now.

So there'd be a lot of things that would come out now, new technologies that make work from home much easier three to five years from now. That's one upward force. The other is what I kind of think of as like imprinting so startups firms that are founded now new firms are much more remote focused as they grow and get into you know tomorrow's small medium particularly large firms they'll bring that with them so i think the future is actually a higher level so i was reading the other day someone from a commercial real estate firm saying well give it another two years we'll

be back in the office and i was like i couldn I couldn't disagree more. We know the data. I've looked at the data now for the last nine months. It's flat. We're not actually going back to the office of the reverse. I mean, I reached out and said, look, if you're interested in making a side bet, I'm open. They never replied. I think that tells you about their confidence and what they're really talking about. Before I ask for the three takeaways you'd like to leave the audience with today, is there anything else you'd like to mention, Nick? What should I have asked you that I have not? Another interesting angle, which is less for the US, more for Europe, particularly Asia, is the connection between work from home and fertility

and kind of slowing down population decline. So US population is still rising. If you look at particularly in Southern Europe and Asia, they're facing real issues with declining birth rates, declining population sizes, aging populations. Governments there are putting enormous amounts of effort now into often paying money, child allowances, putting expensive, you know, kindergartens and creches and things, which that's probably all a good idea. It looks like in the data that allowing people to work from home, particularly having the government support it for two, three days a week,

is not only free, it doesn't reduce productivity, and makes the average employee pretty happy. It also appears to support fertility because it makes it much easier for couples to parent kids. So what I foresee in the next five to 10 years is a big push actually more in Asia, which is kind of lagging right now in work from home levels in Southern Europe, to promote this as much driven by governments getting really concerned about China, Japan, these rapidly aging societies thinking, wow, here's like a policy, costs us nothing, makes people happy, has no downsides, and it has all these benefits. So work from home is clearly one of, would be top of my list of

policies tonight. So interesting. Nick, what are the three takeaways you'd like to leave the audience with today? I think the first is work from home is here to stay. To some extent, it seems amazing. I'm still saying this in 2023, but it's clearly here to stay. I don't think we're reversing. The second takeaway is that there are a mix of individuals. So there's not one size fits all. Roughly 60% of people currently right now can't work from home at all. We should remember them. Of the other 40%, mostly they're hybrid and some are fully remote.

So it's very, very heterogeneous. And finally, certainly hybrid does not damage productivity. Don't believe that wild claims, I call them wild claims we hear from heads of certain banks, some outspoken tech moguls, et cetera, claiming it's terrible. You just don't see that in the data. I've seen a lot of data on this. Fully remote maybe damages productivity by about 10%, but it saves you maybe 30%, 40% in cost. So it's also a great deal. It's just, it's kind of a different flavor. It's not better or worse.

It depends on your strategy. Nick, this has been fascinating. Thank you so much. Lynn, thanks so much for having me on. If you enjoyed today's episode and would like to receive the show notes or get new fresh weekly episodes, be sure to sign up for our newsletter at 3takeaways.com or follow us on Instagram, Twitter, and Facebook. Note that 3takeaways.com is with the number three. Three is not spelled out. See you soon at 3takeaways.com.