The Economics of Remote Work: How Labor Markets Are Adjusting to the Post-Pandemic World

Prior to the Covid pandemic of 2020, working from home was a relative rarity.  But when government-mandated shutdowns hit in March of that year, many workers were able to put modern technology to good use.  We collectively discovered that a great many employees were able to work remotely, typically meaning from home.  Video call software like Zoom and Google Meets, which included the ability for individual users to share their computer screens, helped teams stay connected in real time.

But when the pandemic began to end in 2022, a debate emerged: who should go back to the office?  Was remote work as productive as working with coworkers in a central office?  What were the true costs and benefits of each option?  Did hybrid schedules, where workers mostly worked remotely but appeared periodically at the office, bring the best of both worlds or simply create additional boxes to check?

The Current Debate: Should Remote Workers Return to the Office?

There’s no doubt that the Covid pandemic permanently changed the nature of remote work.  No longer is it a rarity, and the technology to handle it certainly exists.  Remote work worked when it needed to.  Today, however, many companies and governments are trying to pull remote workers back into the office.  This has caused serious consternation among many remote workers, some of whom felt betrayed because they were specifically hired for remote roles.  Many of these workers had intentionally taken remote jobs based far from where they were living, and cannot realistically comply with return-to-office mandates.

Return-to-office mandates have touched off a firestorm of controversy involving questions about leadership dynamics, labor relations, business ethics, worker productivity, social psychology, and the nature of “the office” itself.  Many of these questions deal with economic issues relating to worker productivity, the real estate market, opportunity costs, and wages.  Both pro-remote and pro-office camps are digging in and insisting that their preferred work model is better for worker productivity and society at large.

For the Workers:  Wage Differentials

Should remote workers be paid the same as office workers?  For remote workers and cost-of-living, should pay be based on where the office is located or where the remote worker is living?  These complex and often awkward questions abound when a large company has both office workers and remote workers, some of whom may live many states away.  The debate about wages can cut both ways.  Sometimes, remote workers get paid more, likely due to being considered outside talent that the company could only access remotely.  This is often for highly-skilled or creative positions.

However, remote workers can also be paid less than their office counterparts, often due to employers leveraging the remote status as a perk that compensates for lower pay.  This is often for lower-skilled positions, such as data entry.  Critics of this underpayment of remote workers argue that this is unfair and that workers should be paid solely on the quantity and quality of their output.  They also argue that remote workers should not receive reduced pay because they cost the company less: no need for office space and utilities, parking space, uniforms, employee perks like break room snacks, daily coffee and water, etc.  On average, wages of workers who went remote during the 2020-22 Covid pandemic did not change.

The Crux of the Debate: Productivity

Whether workers should be allowed to remain remote is ultimately a debate over their productivity compared to office workers.  This is highly sensitive and controversial, as most workers will vociferously argue that their desired work model is more productive, making any self-reported data biased.  Those accused of being less productive will immediately question how their productivity is being measured.  

Some studies show fully-remote work, as opposed to hybrid work where some time is spent in the office, as being 10 percent less productive than office work.  This has almost certainly increased companies’ calls for return-to-office mandates.  Pre-pandemic and early pandemic self-reported studies declare the opposite, however, and say that giving workers increased flexibility results in greater output.  These self-reported studies, where workers answered questions about their own productivity, may be somewhat inaccurate due to workers’ desire to rate themselves as more productive.

Not Technology, but Human Collaboration

Proponents of remote work argue that they can get to business faster and with less stress, no longer having to brave stressful commutes to the office or deal with unpleasant office conditions like uncomfortable temperatures, lighting, noise, etc.  Critics of remote work counter with research findings that remote work deprives employees of good opportunities to collaborate.  This may slow the ability of teams to accomplish complex tasks: having everyone in the office means quick roundtable discussions that can hash out issues in minutes, while remote workers may take hours to muddle through via multiple phone calls, Zoom calls, emails, and texts.

Another issue is networking.  Some argue that remote workers are less well-connected to the ebbs and flows of their teams and are less likely to successfully network with peers and supervisors.  This can result in fewer remote workers being promoted or given pay raises.  On the one hand, this may result in remote workers feeling dissatisfied more quickly and engaging in quiet quitting - continuing to work but doing the bare minimum, costing the employer lost productivity.  On the other hand, the lack of networking by remote workers may blind employers to who their best talent is, resulting in less-skilled office workers being promoted instead and also resulting in lost productivity.  

Commercial Real Estate in Crisis

Second to worker productivity is the dilemma over real estate.  Prior to the pandemic, companies and government agencies spent billions of dollars on office space, both rented and owned.  Covid shutdowns resulted in many offices going empty, and workers have been reluctant to return.  When leases are up for renewal, companies have had to make difficult decisions about renewing or leaving the space.  So many are leaving their traditional office leases that a commercial real estate crisis is brewing.

If companies renew their leases, they will want workers back in the office to make the rental payments worthwhile.  If companies do not renew their leases, they will keep workers remote…but the office building owner will suffer.  Many office buildings around the country are still being financed, and those loans are quickly coming due.  If their owners cannot pay and default on those loans, the properties revert to the banks.  This has potentially created a race against time: if companies cannot get their workers back into the office soon, they will have to forfeit that office space permanently.

Labor Force Participation and Overemployment

The rise of remote work has helped and hindered different groups of workers.  Younger, tech-savvy employees have benefited due to their ease of conversion to remote work tools.  Many white collar jobs, such as accounting and clerical work, have easily transitioned to remote models.  Disabled workers have benefited from remote work, with transportation and navigating office buildings no longer a hindrance.  Some older workers have been less comfortable with remote work, and may have pursued earlier retirement.

Remote work and automation may result in less need for labor overall, potentially reducing the labor force participation rate as some workers are unneeded.  One new phenomenon contributing to this surplus of labor is overemployment, where workers take on one or more online jobs in addition to a full-time [usually online] job.  Essentially, these workers can use their tools for their first full-time remote job to take on other jobs.  This is controversial, especially when employers are unaware that their employee is working multiple jobs, potentially simultaneously.  

Critics of the practice worry about declining quality of work due to overwork, conflicts of interest between companies, and the ability of an employee to quickly “ghost” one of the jobs.  This will likely result in new work contracts explicitly banning the practice of holding more than one full-time remote job simultaneously.