SPEAKER_01: This is Planet Money from NPR.
Hey everyone, Darren Woods here. So because it's the season of giving, we're sharing a few of our favorite bonus episodes. These are ones that we've previously shared with our Planet Money Plus supporters a few months back. And the one you're about to hear has to do with hybrid work. And if you do it, how to do it better according to economic research. And before we get to it, let me just tell you that bonus episodes like this one come out every couple of weeks in the Planet Money feed. Sometimes they come out from the indicator team, which I'm part of. The indicator, of course, is Planet Money's daily economics podcast. And Planet Money Plus listeners also get to hear both shows without sponsor messages. And if that's you, thank you so much for your support, especially now. And stay tuned next week when we've got something special to offer you in an episode out on Christmas Day. And so with all that, I hope you enjoy this bonus episode if you've not heard it before. The Planet Money team is back with a regular episode of the show at the usual time later this week.
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SPEAKER_01: So the other day, I called up one of the world's top experts in working from home, and he himself was fittingly working from home. Hello, Jose. Hey there, how are you doing? Very good, yourself? Great, thanks. Jose Maria Barreiro is an assistant professor of finance at Itam University in Mexico City. He says that before the pandemic, he used to go into the office every day, despite a fairly long commute. Now his mindset's changed.
SPEAKER_02:
If I'm on campus, really I'm on campus for a reason, either for a seminar, to talk to colleagues, or to meet with students. And I cherish my working from home days as the more kind of quiet, individual work days.
SPEAKER_01: Or spending it talking with an NPR podcast host. Because Jose just came out with a working paper, co-authored with Nicholas Bloom and Stephen Davis, which reviews some of the more recent evidence on remote work and employee productivity.
So many of us want to know, right? Like, is working from home better or worse than working in the office? And it's a debate that's heated up during the pandemic. It's touched businesses, employees, and even researchers trying to study the issue. Okay, so measuring productivity for many of the people who can work from home is very, very hard.
SPEAKER_02: Knowledge jobs like consulting, like lawyers, like engineers, and kind of measuring the productivity of these sorts of workers is extremely hard. So I think that's a big part of why there's a huge debate in this literature. Earlier in the pandemic, some of the research that Jose and his colleagues conducted
SPEAKER_01: seemed to suggest that people who worked fully remotely might be just as productive, or even more productive, than people who worked in the office. Now, a couple of years later, more evidence has come in from around the world that Jose and his co-authors have looked at for their paper. And let's just say when it comes to fully remote work and productivity, it's not so great. Here's that conversation. Thanks as always for listening and for your support of Planet Money Plus.
So I'm super interested in whether working from home is more or less productive than working on site. You've done this literature review, a kind of a survey of the evidence so far with your co-authors. So from your read of the research, what are the main findings?
SPEAKER_02: Okay, so a lot of the evidence that we have about productivity while working from home is coming from fully remote. And there, kind of the evidence is not that positive on the productivity of working from home. And to me, some of the key papers in that literature include the one by Natalia Manuel and Emma Harrington that looked at call center workers basically comparing colleagues in the same firm, some of them who were working from home before the pandemic and continued to do so, and others who were forced to shift when basically when we closed down in 2020 from working physically at the workplace to working from home. And then kind of basically what they find is that there seems to be a negative productivity effect. And the reasons that they highlight is that basically it's harder to communicate with your colleagues when you need kind of quick feedback from others. That'll slow things down kind of even in this occupation that it's fairly easy to do remotely in the sense that kind of you don't really need to make big decisions and have discussions and do creative stuff. You don't want to write an email to say, do I click on this button or that button?
SPEAKER_01: Exactly. So you might just try to work it out yourself, might take another five minutes just to not embarrass yourself.
SPEAKER_02: That delay seems to be kind of what is dropping the productivity, kind of these frictions to communication. Same thing kind of in the paper about an Asian multinational firm looking at kind of remote knowledge workers that were forced to lock down in 2020, it seemed that they had to use kind of more email, more Microsoft Teams in order to communicate with each other. And so kind of even though they were completing their job kind of to the same level of satisfaction to their managers, they had to do it over more hours kind of because their schedules were more jam packed. And I think kind of being able to knock on your colleague's door if you're a knowledge worker and again, ask for a quick clarification rather than kind of scheduling a Microsoft Teams meeting, getting on it, making sure the microphone is working is a bit more efficient. So these are the sorts of frictions that kind of you just can't get around when you're fully remote. Whereas when you're in hybrid, you can kind of make sure that at least some of those activities that require interaction, collaboration are done on site where kind of these communication frictions are a bit less significant. Okay, so communication. What else?
SPEAKER_01: So there's collaboration and idea generation. There's this paper looking at idea generation and experimental settings.
SPEAKER_02: So both in kind of a multinational firm, and I believe this was an online experiment, looked at how people interact and generate ideas when they're interacting basically by a video conference versus in person. And it seemed that there were also cognitive frictions to this process when people are virtual. And then kind of one of the hypotheses that they laid out was that when you're interacting virtually, you're being forced to kind of focus your gaze on a screen. And that limits a little bit of your cognitive processes. So kind of the number of ideas that get generated and the number of creative ideas that get generated are basically fewer when you're interacting virtually than when you're interacting in person.
SPEAKER_01: What kind of magnitude are we looking at with the drop in productivity for fully remote workers? Yeah, so that's a great question. I think for the sorts of jobs where you can measure this accurately, it's anywhere up to a negative 10% effect on productivity.
SPEAKER_02: That's significant. That is significant, but what's important to keep in mind, and I think this is very clear in the paper by Emma Harrington and Natalia Manuel, is that if a firm goes fully remote, and remember this negative 10% is for fully remote, the firm can basically make that up in other dimensions, and so in particular in saving up on floor space costs. Offices or worksites and air conditioning and heating.
SPEAKER_02: Exactly. And Emma and Natalia's paper, they actively calculate kind of what the savings are versus the productivity costs are from basically shutting down a call center. And they find that it can easily turn out to be a positive for the employer to basically kind of get rid of their call centers, maybe take a small hit on productivity, but kind of get cost savings that are even bigger. And I think there's going to be some occupations in which that makes sense. That's probably not the case for most knowledge workers for whom kind of interaction is still a big deal and would be potentially significantly hindered if you went fully remote. And so I think this leads me on to talk a little bit about hybrid work. And so kind of what we found in terms of kind of the dynamics of working from home is that hybrid work as of 2023 is the dominant form of working from home, at least in advanced economies. So in the US, I think in recent numbers say that it's about three times as many people are in the hybrid mode coming into the office a couple of days a week than are fully remote. And we think it's because exactly kind of for and in particular for jobs that require lots of interaction, kind of doing those interactions in person is better than doing them remotely. And so my co-author Nick Bloom has a nice paper where they basically ran an experiment to try out hybrid work among knowledge workers at a company in China. So this was basically workers who were on the engineering, the marketing and the finance departments, and they randomized them to being either hybrid or being fully in person.
And basically what they found was people really like hybrid, so they avoid the commute, they get to kind of work comfortably from home a couple of days a week, especially if they have the right equipment and the right setup. And with the caveat that it's very hard to measure the productivity of these sorts of workers, it seemed that there was no kind of clear effect on productivity.
SPEAKER_01: And so with hybrid, it sounds like there's, yeah, we don't know the exact magnitude, but it doesn't really seem to be a quantifiable productivity loss.
So why would a company even want to do hybrid? I mean, if it doesn't really matter?
So I think it might not really matter for the company in terms of productivity, but it might matter in other dimensions.
SPEAKER_02: And so one in particular, and I think this is very real in Nick's paper, the big difference is kind of job satisfaction and attrition rates. Right. Basically workers really like working from home. So in our surveys running back to 2020, people consistently tell us that they would really like to work from home and that they would like to do so more often on average than their employer is planning for them to do so. And basically not offering working from home can therefore potentially be a big cost to companies if they want to attract talent. So if your competitor is offering somebody either a fully remote or a hybrid job, and you are not, you're forcing people to come into the office every day, you're giving the employee kind of potentially an objectively worse setup for them in the sense that they have to commute five days a week. But you're also kind of failing to compete with the firm across the street. So it sounds like for people who are able to, you're a big fan of hybrid work.
SPEAKER_02: Yeah, so I think that's been our position and that it seems to work very well. And I mean, this is kind of taking an opinion based on what we see on the facts. And basically the facts that we see is that people really like working from home. It seems to work reasonably well in many jobs, in particular for knowledge jobs that college graduates have. And you can do a little bit of the best of both worlds. Maybe what I haven't quite emphasized as much is that companies can't just say, oh, we're going to be hybrid and kind of stop there. They need to think about this and design a hybrid and manage a hybrid workforce kind of in a more deliberate way. So, for example, asking either the whole organization to come in at the same time or asking whole teams to come in at the same time is key. Because this is exactly what generates kind of the in-person interactions that you want to have in the office. So basically kind of the worst form of hybrid I think that I could think of would be one where there's a company that allows people to choose how many days and what days they come into the office every week.
Because there's basically no coordination. Kind of people want to be in the office when their colleagues are in the office. If you let everybody choose what days they come in, you might end up with a lot of people who are in the office and who are on Zoom meetings with their colleagues who are at home. And that's exactly what you don't want.
SPEAKER_01: That's what I do. I come into the office every day to go onto Zoom, which feels a little strange, almost as if I've got the commute plus the Zoom calls. Oh, wow. Yeah. So I talk to my colleagues on Zoom at work.
The answer is the producers, the interns, they're in different cities scattered across America. Oh, wow. Which as you say, you're arguing is the worst of both worlds. I mean, so maybe I was a little too negative, but I think if you want people to interact and to build rapport with each other, that's, I mean, that's a setup that doesn't lend itself to that sort of thing.
SPEAKER_02: And it can work from some jobs. It seems to work for you, but for many jobs, it has the least probability of success.
SPEAKER_01: Okay. So the pandemic changed everything in regards to work, especially for knowledge workers.
Do you think we're in a better world now? I do.
SPEAKER_02: And I think the main reason for that is in some sense, we were in 2019 caught in a bad equilibrium where more or less everybody, regardless of what you're doing, regardless of what your job was, you went into the workplace five days a week, basically because that's what everybody did and kind of trying to break that equilibrium. And you doing something different just wasn't going to work. Kind of the example that we often give people is think about lawyers. Lawyers are people who do knowledge work. They typically require an internet connection and a computer, and they could easily do their job remotely in 2019 or hybrid in 2019. They didn't. Why? Because it would have been weird for them. Imagine you're a big law firm in New York.
All of your competitors and your clients are coming into the office five days a week. You start not doing that, and it's just weird, and you're probably going to lose out on business. You might be signaling that you're not taking the job as seriously as your competitors.
SPEAKER_01: Yeah, I think that's how people would have interpreted it.
SPEAKER_02: And exactly, the pandemic sort of broke that equilibrium. Kind of it reduced the stigma associated with working from home significantly. And in the process probably taught us that working from home is actually more productive than we expect, that saving the commute time that we save is probably kind of more productive than coming in and having to chit chat with your colleagues over the break room while you're sitting down and so on. And it opened our eyes to this possibility. The fact that the pandemic was long was obviously a terrible event for humanity, but I think it helped ingrain some of these new dynamics of working from home a bit better. And really helped us open our eyes and see both the good things about working from home and later when we came back, what we were missing from being in person.
SPEAKER_01: Thank you again to Jose Maria Berrero. Once again, we make episodes like this one every other week for our Planet Money Plus supporters. Two extra episodes a month and usually they're a bit more wonky, a bit more nerdy, but not always. Sometimes we talk about how Planet Money and the indicator come together behind the scenes. You can sign up for Planet Money Plus at plus.npr.org. I'm Darren Woods. Thank you so much for listening to Planet Money from NPR.
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