Northernlands 2 - The case for remote work
This transcript comes from the captions associated with the video above. It is "as spoken".
In the aftermath of the COVID-19 global pandemic, a slew of
companies have announced that they are going to make the full
time switch to being remote.
Facebook, Square, Shopify, Quora
Slack and many others. At the same time a lot of pundits have
warned that this pivot to remote work is a mistake and they point
to the previous promises and failures of remote work.
Who's right? Hello Northernlands 2. I'm Matt Clancy
and this is the case for remote work.
To start, let's define remote work. In this talk, I mean, work
that's done physically distant from collaborating coworkers.
Now that could be work from your home, but also a coworking space
or even a satellite office, as long as you're not working with
the other people there. The big point is that remote work severs
the tie between the job you perform and where you live.
People have been waiting for this trend to happen for a long time.
One particularly famous book was 1997's The Death of
Distance by Francis Cairncross of the Economist magazine.
That title and the accompanying cover image seemed to promise that
with remote work we'll all work from the beach soon.
But that didn't happen.
And in seeking to understand why there was this disappointment, I
think we've accepted an argument that remote work doesn't work
that's too strong.
A lot of remote works sceptics focus on their experience of
remote work or their imagined experience of it for other
people, and they point out the various ways in which remote
work falls short of being co-located.
to your other coworkers. It's harder to manage workers who
don't have sort of simple performance metrics. It might be
harder to sustain relationships, and culture might be harder to
get spontaneous encounters,
serendipity, creativity. Now, basic economics and I am an
economist says that less efficient ways of producing get
out competed in the market. If remote work is less productive
than colocation, then it's going to get out competed and
disappear. And you can point to a number of high profile
backtracks from remote work that seem to support this
view. Most famously, Yahoo. under Marissa Mayer.
But inefficiency isn't what you tend to find when you actually
look at studies of remote work.
Most studies that simply compare remote and colocated workers
find remote workers are more productive than their colocated
peers. But you have to be cautious with that kind of data
because it's likely the most productive workers are also the
ones who are allowed to work remotely, so that's probably a
correlation, not causation. Fortunately, there are a small
number of experiments that we can turn to for better data.
One of the best studies is by a team that includes the founder
of a large Chinese travel
booking company. This group was able to say "let's just figure
this out with an experiment".
They got 250 volunteers who are interested in remote work and
work at this company, and they assign half of them to work from
home four days a week and the other half - the control group - to
stay in the office and they had to stick with that arrangement
for nine months whether they wanted to switch or not.
The study found the remote workers were 13% more productive
and half as likely to quit as the colocated control group.
The company was so pleased with the results that it rolled out
the policy to the whole company.
Another study looks at US patent examiners, the US Patent and
Trademark office has a similar program where you can work from
home several days a week and like the previously mentioned
study examiners in the program, seems to be more productive than
those who are in the office full time
But, what's interesting is that in 2011 they created a new
work from anywhere program. It completely severed the link
between the job and where you live. You no longer have to go
into the office even one day a week.
More people wanted into that program than there were
spots, and so entry was rolled out in a basically random way.
The study compared the productivity of examiners who
got in to those who wanted in but had to wait for an opening
and they find the work from anywhere program
increased productivity relative to the work from
home group by another 4%.
Now, if you remote work skeptic.
This evidence might not move you very much. Travel booking, patent
examining these might be sort of jobs that are unusually suited
to remote work and the results won't generalize. And I agree,
we need more studies of similar quality on more collaborative
kinds of work, but we do have some studies and what they are
suggest remote work works there too.
For example, Google has this really distributed
workforce, but in an internal study of their own workers they
found no difference in performance or promotion for
employees that have to collaborate remotely and those
that don't. Or last month or last May Stripe announced its
5th engineering hub would be 100% remote. A year later their
remote workers are performing great and Stripe is expanding
the program. Similarly, we can just look at the companies at
the beginning of this talk that have decided to go full remote,
and we assume that they probably had an idea about the
performance of the remote workers during the COVID-19
forced migration remote work, and they must have decided
things were going OK.
Looking beyond tack, turning back to studies, there's one
study on the effect of remote work in Portugal for a broad
range of companies that suggests more mixed results than
what I've said so far, so this paper has data on about 400
firms that switched from not offering remote work to offering
it, or vice versa over the period 2011 to 2016, and on
average, this study finds going remote is actually bad for
worker productivity. Now.
That's the kind of finding a remote work skeptic is not going
to be surprised to hear.
But it turns out this average effect hides a lot of variation
for some firms going remote is good, for others it doesn't make
any difference at all, and for others, going remote is bad.
The firms that tend to experience a productivity decline after going
remote are concentrated in what you might call lower performing
firms. They're smaller, they employed lower skilled workers.
They don't export. They don't do R&D. When you look at something
like firms that do R&D only, they actually see a 9% increase
in productivity when they enable
remote work. So my point is, when you look at actual
studies of how remote work functions, it seems to me
pretty undeniable that it's not inefficient relative to
colocation, at least for some kinds of jobs, and over
the time frames studied.
There's a bit of a caveat in that last sentence over the
A remote work skeptic might believe that remote work is like
this insidious poison. It seems innocuous or even good at first,
but destroys the long term health of a company.
Remote work skeptics often argue it's harder to be innovative and
creative remotely, and I think the critics do have a point here.
Economists have a technical term for this phenomenon
Local knowledge spillovers.
The existence of local knowledge spillovers is
one reason why innovative companies locate in expensive
cities. They want to be close to other knowledge workers. By being
physically close you enable serendipitous encounters and the
exchange of ideas. You help your workers build dense social
networks with other experts in their field and they can get
advice from these people later. And if you need to have a face
to face meeting with another expert, it's really easy to go.
Just do that and for all these reasons, economists have long
believed R&D effort by one firm
spills over and benefits nearby firms that work along similar lines.
But while I'll concede local knowledge spillovers are real
I mean I do think they exist. I want to argue that
their importance has been shrinking, as technology makes
it easier to get knowledge from far away.
So as an example, suppose you live in a medium
sized town and you have an inventive personality. There was
a time when most of your opportunity for learning came
from locally available resources. People, the local
library for example. In that era, local knowledge spillovers
were really important. But now suppose a new rail or airline
opens up and you can travel into the nearest big city more often.
Now you can benefit a bit more from the knowledge in that
larger city, even though you don't reside there. And this is
the kind of thing economists find when they look at the
impact of new low cost airline routes between cities in the USA
or new high speed rail lines between Chinese cities. In both
cases studies find that academics in those cities
collaborate more with people in the newly connected cities. Once
they get the opportunity to do so. Now it's not as good as
living there, but it's better than the situation before, and
that's one example of how technology can weaken
the importance of local
knowledge spillovers. Or now suppose your town gets connected
to the Internet. Your physical proximity now matters even less.
Another set of studies looks at the impact of Internet
connectivity in the 1990s and find when a firm has
more than one location, for example, and those locations get
connected via the Internet.
Suddenly those two locations are more likely to collaborate on
patents. They're going to cite each others work, and so on.
Now, as the Internet develops from the 1990s era, it just gets
better and better at connecting you to distant knowledge. You
start to get repository's of information like JSTOR, Sci Hub,
Wikipedia. You start to get social networks that connect you
to people with interesting ideas. Example, earlier this
year of paper came out about this interesting experiment
using Twitter. The paper compared the citations received
by a set of papers that were
tweeted out by a major Twitter account and a control
group that wasn't. I mean, the study controlled the account.
And that we did papers got four times as many citations after
one year, at least on average. Now the paper came out in the
annals of thoracic surgery, which is a Journal I don't read
in a field I don't know anything about. The nearest
co-author was more than five hundred
miles away from me. How did I learn about this paper?
All these forces: cheaper travel, better access to codified
knowledge in the Internet, make it less important for me to
reside near other people to do cutting edge innovation. And
that actually seems to be with the data show too.
For example, there's a study that reads the text of all US
patents and pulls out the most important sets of one to three
words in each decade. These correspond to different
technological concepts. Things like polymerase chain
reaction or microprocessor, and because they've read all the
patents the authors can see. When these words first show up
in a patent and use that to figure out the age of an idea,
and then they look to see if inventors who reside in big
cities use younger ideas at a higher rate than inventors who
reside in small cities or medium
towns. If local knowledge spillovers matter, you would
think they you know big cities would use these ideas faster
because they're going to learn about them faster from the other
people there, and for most of US history that intuition is
correct, they did, but.
The benefit has fallen, and by the 2000s there's no difference
at all between how quickly big cities and small cities use
these new ideas.
Another study just looks at how common are these
supposed serendipitous encounters? And they survey
hundreds of Norwegian firms and ask them to name the most
important business partner involved in the creation of an
innovative process or product. Then they ask how these firms
met their partner. About 20% of the time it's from a chance or
casual encounter, but when the authors looked to see if these
kinds of encounters are more common in big cities or small
ones, they find no evidence of that. If anything, small cities
have more of these kind of
encounters. Now, one last piece of evidence is simply to look at
the extent to which knowledge workers collaborate at a distance.
Over 1975 to 1990. The average distance between
inventors who are jointly listed on a patent was about 1000
kilometers. In the last 30 years, though, that's crept
steadily up to 1800 kilometers. Or cut another way, the share of
inventive partnerships on patents where the inventors are
100 kilometers away or 500 kilometers away has risen
sharply. Alternatively, you can look at academic collaboration.
The share of US academic papers featuring international
collaborations rose from about 20% to nearly 40% over '96 to
2018, and you know that surely understates the extent of
distant collaboration because you don't have to be an
international team to have long distance collaboration.
So between patents in academic papers, it looks increasingly
like long distance collaboration is just the norm.
My claim is not that local knowledge spillovers are zero.
It's just that their declining in importance and you can point
to other studies that I didn't highlight in this talk that show
that they still matter and that is going to be reassuring to a
remote works skeptic. If you're a remote work skeptic, maybe
you're going to concede now after this talk that, well, OK,
remote work functions better than I thought for some jobs,
and at least in the short term. And it maybe isn't as important
to be physically close to people as I thought, but it's still
more. It's still better to be co- located than not colocated,
even if the effect is not that
much different. However.
A little bit is all it takes if the market is efficient.
Even being a little bit worse than alternative isn't going
to cut it.
But focusing on all these issues actually undersells the case for
remote work. So far I've just been arguing the hit to a
workers productivity when they go remote is small, or maybe
even that they're more
productive remotely. But the proper comparison really isn't
comparing the same person remote or in person.
The kinds of workers you get are themselves going to be
different if you're a remote
company. For one, you might get a cheaper workforce, and that's
something a lot of people focus on is the idea that remote work
might be cheaper. In the US a College educated worker in the
densest part of the country earned an average salary wage
of approximately $25 an hour compared to about $15 an hour
in the least dense part of the country
And it's been estimated that one quarter of the
increased salary for college educated workers is accounted
for by the higher cost of living
in cities. And besides, paying people a bit less 'cause they
live in cheaper areas, there might be other savings as well.
The Patent Office estimated that it saved $38,000,000 in 2015
alone due to reduced office space needs for its remote
workers, and that Chinese travel booking study estimated that it
saved $1250 per worker per year.
On remote workers and also had less attrition, which saved
money on recruiting and
onboarding. But although those are real, remote work doesn't
only have to be about cost savings, it can also be a way to
attract and retain the best employees. Because remote work
is a valuable amenity, and because it let's you access a
larger labor market. So that might mean you're able to keep
keep people you would normally lose by letting them work from
anywhere. When the US Patent and Trademark office initiated its
work from anywhere program, it actually maintained the same
salary for all its patent examiners and workers migrated
to lower cost of living areas or other places with amenities that
they valued. Now one of those amenities could be just as
simple as living near friends and family or your partner. This
is an important difference between work from home policies
and work from anywhere policies. 'cause there are actually some
studies that find working from home
can be socially isolating, and so it might be
negative, but if workers have the opportunity to relocate,
for example by moving back to their hometown, maybe that
will compensate for the decline in the ability to
socialize in the office. I mean, who would you rather be
physically close to anyway? Your coworkers or your non
work friends and family?
A set of studies on Danish workers tries to estimate the
actual dollar value of living near home. They looked at the
moving decisions of Danish workers who are forced to find
new jobs after their place of
business closed. By comparing the typical salary of the
place, they eventually moved to the salary of the places
that these guys rejected. The authors try to infer the
dollar value workers put on proximity to friends and
family, and it turns out this is really large. At least
that's what they find. Doubling the distance to the
hometown is associated with a salary that's about $10,000
higher, and that's compared to an average blue collar salary
So the option to work remotely is a valuable amenity, and it
can be used to retain existing workers. But these same
amenities can also be used to attract new workers, the kind
you wouldn't normally be able to get, not just because those
workers like the option to work
from anywhere. But also because you can hire from a much larger
labor pool. A remote, first company might end up having the
same wage bill as a colocated one, but it might be able to
assemble a much better team by tapping into a much bigger pool
of candidates, and those advantages might more than
offset any decline in productivity due to remote work
being inherently inferior.
But to realize that advantage firms and workers do have to
be able to find each other. For example, suppose there's
a firm looking for just my set of skills, but it's 1000
miles away. How do they find me, and how do I find them?
Fortunately, there are three positive trends that suggest
this is a lot easier than it was even a decade ago.
1st is just that, a lot more firms and workers are now
using the Internet to find and advertise for jobs. In the year
2000, just 26% of people use the Internet to look for jobs.
By the year 2011 that was 76%. Since then Internet job
searches become so common that search data is just used to
represent the entire labor market trends. When economists
study labor market matching and hiring and stuff.
Second, online labor markets are getting a lot more
sophisticated. They provide better information about job
candidates and they use algorithms to help workers and
firms sort through the set of applicants and job postings.
One particularly interesting platform is Upwork, which
matches short-term freelance remote workers to different jobs.
Could be anywhere in the world.
A set of studies have looked at the platform and found
simple algorithms and embedded information can have a pretty
big effect on facilitating hiring at a distance.
3rd a lot of people still find jobs through their friends and
relations and that can bias our searched towards, locally
available jobs. If most of the people we know are people who
live locally. But the Internet also stretched our capacity to
form, and especially to maintain geographically distant
relationships. For example, one study of a Spanish social
network found that while people were more likely to be friends
on this network when geographically close, once they
become friends, the extent to which they communicated on the
platform didn't vary with distance at all. And that
reminds me of how I'm in these text chains with a group of 6
high school friends who now live in all the different corners of
the United States. Would we have stayed so close in the past?
I don't know.
The Internet also helps people form new relationships.
A "third place" is a term for a place outside the work and home,
like typically a pub or a coffee shop where people meet to
socialize and it's long been argued that the Internet creates
digital third places where people do sort of hang out.
Twitter and online games are frequently cited as examples.
The Internet can also serve as just a compliment to more
traditional means of networking. For example, one study of the
2012 le web conference found attendees follow each other on
Twitter at a much higher rate after the conference as compared
to a control group, hopefully cementing relationships that
were found, you know, founded in this very transient setting.
So now there are actually lots of ways I can find that perfect
job that's 1000 miles away.
I might find it while just browsing the Internet or an
algorithm will help me find it. Or the firm might find my own
website and contact me. Or maybe I'm friends with someone who
works there on social media and a lot of this wouldn't have
worked very well until at least
the last decade. So.
That, in a nutshell, is my case for remote work, the
traditional advantages of colocated work: higher productivity and
innovation. Those advantages are
falling. And they may even be gone, at least for some kinds
of positions. But the important point is, even if there are
real advantages to colocation, remote work can still take off
if those are offset by the advantages of remote work,
which is the potential of getting more bang for your buck
in terms of hiring. And the advantages of remote work are
likely rising, I think it's easier to match workers and
firms now, and the cost savings are becoming more and more
But that's just my opinion based on these studies.
What are the people who run businesses actually doing?
Prior to COVID-19, the prevalence of remote work in the
United States steadily climbed from about 2% of people working
from home full time to 5% between 1980 and 2020. So it's
40 years. But that's an understatement of what is
actually going on, because working from home isn't the only
way to work remotely. Once you factor in working from coworking
spaces, satellite offices and coffee shops, and so on, the
true number is probably closer to 10% of people now working
full time from home, and that was before covid hit.
In the midst of the COVID-19 epidemic, the share of people
working full time from home shot up to about 50%. Now I think
obviously it's not going to stay there, but lots of companies
have been forced to try remote work and have been pleasantly
surprised. In a survey of hiring managers, 56% said remote work
was going better than expected and less than 10% said that it
was going worse than expected.
For managers, not workers mind you, but managers more thought
remote work had increased productivity than thought had
decreased it. And 62% of hiring managers thought that they would
have basically more remote workforces going forward.
My point is not that.
We're all going to go remote. Everyone's going to live on the
beach or in a cabin on the mountain. I think that's crazy.
Cities are here to stay, but I do think we're not going to go
back to just 10% of people working remotely. It's not for
everyone. It's not for every job, but I think it does work
more often than has been
appreciated. And lastly, in my view, this transition, if managed
well, has a lot of potential upside. It might reduce carbon
emissions due to commuting. Maybe we'll end up accelerating
national economic growth since it enables this population of
people who are too big to fit in any one city to collaborate,
innovate and find each other as if they did, or at least
something close to that.
And lastly, I see remote work as one of the best possible
solutions to the rise in
geographic inequality. For the last several decades, economic
growth has been increasingly concentrated in big cities,
leaving behind rural economies and their inhabitants like the
US state of Iowa, where I live and where I'm talking to you
from now. Remote work offers a way to tether those left behind
regions to the cities, spreading economic activity more
equitably. Thanks everyone.
Economist, Iowa State University
Matthew Clancy is an economist working on the economics of innovation, currently at Iowa State University and formerly at the United States Department of Agriculture. Though he currently lives in the American Midwest, he lived in the United Kingdom for several years, working and studying. He has written about remote work for City Journal and the Economist Intelligence Unit.
Nothernlands 2 is a collaboration between ODI Leeds and The Kingdom of the Netherlands, the start of activity to create, support, and amplify the cultural links between The Netherlands and the North of England. It is with their generous and vigourous support, and the support of other energetic organisations, that Northernlands can be delivered.