Why a recession will boost remote work

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U.S. employers added more jobs in July than forecast, dispelling the notion of a cooling labor market that gives executives more power to force employees to comply with their demands.

Many recent headlines have claimed that an upcoming recession will mean the end of remote work. And while surveys show that the large majority of employees prefer to spend most or all of their time working remotely, most executives want employees to be in the office.

Unfortunately, they fail to grasp the key factors of a recession that will actually boost remote work. It’s true that a recession will give employers more power. However, what the headline authors miss is that a recession requires getting the most return on investment from employees.

In a period of economic growth, the comfortable bottom lines for most companies give traditionalist executives significant leeway to default to their intuitive personal and selfish preferences and intuitions for in-office work. As one such executive wrote in a recent op-ed, “There’s a deeply personal reason why I want to go back to the office. It’s selfish, but I don’t care. I feel like I lost a piece of my identity in the pandemic… I’m worried that I won’t truly find myself again if I have to work from home for the rest of my life.”

There’s no question that a focus on profits over personal preferences will benefit remote work. Once a recession hits, executives will need to show more discipline. Rather than trusting their gut, they’ll need to rely on the hard data of what makes the most financial sense for companies.

We have extensive evidence showing that remote work is more productive than in-office work. A Stanford University study found that remote workers were five percent more productive than in-office workers in the summer of 2020. By the spring of 2022, remote workers became nine percent more productive, since companies learned how to do remote work better and invested in more remote-friendly technology. Another study, using employee monitoring software, confirms that remote workers are substantially more productive than in-office workers.

What about concerns about team productivity in the form of collaboration and innovation, versus individual productivity? Indeed, collaboration and innovation­ can be weakened in remote settings–but that’s only if leaders try to shoehorn traditional office-centric methods into remote work, instead of using best practices for collaboration and innovation in remote settings, such as virtual asynchronous brainstorming.

One of my clients, Applied Materials, a tech and manufacturing Fortune 200 firm, gained a substantial boost in collaboration and innovation from such techniques. A recent peer-reviewed study also found a boost in collaboration linked to well-designed remote work. A study of 307 companies found that greater worker autonomy and flexibility results in more innovation.

Overall, counting both individual and team productivity, productivity is substantially higher in a remote work environment. A new study from the National Bureau of Economic Research (NBER) found that productivity growth in business sectors widely relying on remote work like I.T. and finance grew from 1.1% between 2010 and 2019–that jumped to 3.3% since the start of the pandemic. Conversely, industries relying on in-person contact, such as transportation, dining, and hospitality went from a productivity growth rate of 0.6% between 2010 and 2019–to a 2.6% drop since the start of the pandemic.

Besides being more productive, remote workers are willing to work for less money. Another NBER study found that remote work decreased wage growth by two percent over the first two years of the pandemic, since employees perceive remote work as an important benefit. As a concrete example of this trend, a survey of 3,000 workers at top companies such as Google, Amazon, and Microsoft found that 64% would prefer permanent work-from-home over a $30,000 pay raise.

Companies that offer remote work opportunities are increasingly hiring in lower cost-of-living areas of the U.S. and even outside the US to get the best value for talent. That’s a major reason why one of my clients, a late-stage software-as-a-service startup, decided to offer all-remote positions.

Besides offering more productivity for less money, remote work boosts the ability of companies to get the best hires. Over 60% of Morning Consult survey respondents would be more likely to apply for a job offering remote work.

Remote work improves retention. Nearly two-thirds of respondents (64%) to an ADP Institute survey reported they would consider looking for a new job if forced to come in full time. That includes 71% of 18-to-24-year-olds. Flexibility ranks only behind compensation for job satisfaction in a Future Forum survey. Thus, because over 85% of its employees preferred full-time remote work, one of my clients, the Jaeb Center for Health Research, decided to adopt a home-centric model to improve retention.

Even the Biden administration finally realized these facts. In March, Biden called for the vast majority of federal workers to return to the office. By July, his officials were defending remote work for government employees as improving recruitment, retention, and productivity. That matches surveys of government employees by Cisco, with 66% preferring to work more than half their work week remotely, and 85% saying flexibility to work from home substantially improves their job satisfaction.

We know that diversity improves financial performance and decision-making. That aligns with clear data showing that underrepresented employees have a strong preference for remote work compared to the average employee. Such desires stem from the reality of microaggressions and discrimination for minorities. Companies are already seeing these consequences: Meta has reported that it met and even exceeded its diversity goals two years ahead of schedule due to offering remote work options.

Further financial benefits stem from the decreased need for office space and associated expenses such as utilities, cleaning, and security. An NBER report found that regions with more remote work experienced the biggest decline in demand for commercial real estate and consequent rents. Indeed, both Amazon and Meta recently announced halts on office space construction projects because so many of their employees worked remotely.

Of course, the most forward-looking organizations will still invest in office space for their employees: namely, their home office. One of my clients, the University of Southern California’s Information Sciences Institute, provided a wide range of home office technology and furniture to its staff to improve their productivity. Even in a recession, this is a wise investment.

The cost savings and productivity improvements associated with remote work, combined with less leeway for personal preferences due to the discipline imposed by the recession, will result in more and more traditionalist executives supporting their employees working remotely. They will have to overcome the obstacle of cognitive dissonance–how they deal with their internal gut reactions contradicting external financial reality.

The best leaders are courageous enough to change their minds when the facts change. Timid, second-rate leaders fall into confirmation bias, the tendency to look for information that confirms their beliefs. They also suffer from the ostrich effect, denying negative facts about reality.

These less competent leaders will try to stick to their personal predilections even during a recession. As a consequence, their companies will underperform in comparison to more flexible rivals, and such leaders will eventually be forced out for denying reality and replaced by leaders who endorse remote work. That’s why a recession will, in the end, boost remote work.

Dr. Gleb Tsipursky helps tech and insurance executives seize competitive advantage in hybrid work by driving employee retention, collaboration, and innovation through cognitive science as the CEO of the future-proofing consultancy Disaster Avoidance Experts, and authored the best-seller Leading Hybrid and Remote Teams: A Manual on Benchmarking to Best Practices for Competitive Advantage.

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