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.

Physically next

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

timeframe studied.

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?

On Twitter.

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

of $32,000.

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.

  • Matthew Clancy

    Economist, Iowa State University

    Matt Clancy
    © Matthew Clancy 2020

    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.

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