How Telecommuting Can Increase Productivity

President and CRO, RIETI

The number of telecommuters, which increased rapidly with the spread of COVID-19, has decreased from its peak around the time of the state of emergency declaration in the spring of 2020, but is still three to four times the number from before the pandemic. While more companies are reverting to work at the workplace, others are seeking to make telecommuting permanent. The viability and productivity of telecommuting varies by industry, type of work, and specific tasks. It is not surprising that different companies have different policies.

There is a large gap between telecommuters' wishes and company policies regarding telecommuting in the post pandemic era. Only 10% of telecommuters want to return to work at their workplace, while more than 50% of companies have a policy of returning to work at their workplace. For workers, telecommuting has amenity value, such as freedom from the burden of commuting and improved work-life balance.

On the other hand, from the company's perspective, it is important to consider how this way of working affects productivity and profitability, including the sharing of knowledge and expertise within the organization and its impact on long-term innovation. There are many types of work for which working from home is unsuitable, and particularly education and training for new employees is difficult to accomplish online.

The productivity of telecommuters varies widely among individuals and companies, with those who were less productive at home likely to return to their workplace. On the other hand, there are those whose productivity does not differ between home and workplace, and those whose productivity is higher at home. In addition, productivity improves with longer telecommuting experience, through learning effects and investment in information and communications equipment.

If productivity at home is high, there will be no friction between workers and companies because it is a win-win situation. However, since both workers and companies believe that average productivity at home is 20-30% lower than at the workplace, adjustments to reduce the coverage and frequency of telecommuting are likely to continue.

In the medium to long term, there could be an adjustment in the form of lower relative wages for telecommuters. Wages reflect productivity, so it is natural to assume that this will be the case, but it is not the only reason for a potential lowering of wages. Many studies have shown that workers will accept lower wages if the hours and location of work are flexible, while inflexible jobs require a wage premium. A study has shown that the expansion of telecommuting in the U.S., through the mechanism of compensating wage differential, will suppress future wage increases there.

Since telecommuting productivity varies from job to job, it is not reasonable to apply a one-size-fits-all system. The widespread use of remote tools is one of the few positive legacies of COVID-19. For routine meetings, for example, where there is little advantage in physical proximity, remote contact is often more efficient in terms of freedom of schedule adjustment and avoiding the risk of transportation delays. On the other hand, assuming current technology, there are some tasks where the advantages of the face-to-face communication are noticeable, such as exchanging sensitive information, brainstorming onsite, and first contact with customers.

It is not surprising that total productivity can increase if remote and in-person work is used appropriately. I expect that telecommuting on one or two days a week as an option for employees is likely to become prevalent, but the search will continue for some time for the best combination of face-to-face and remote work, and for fair and acceptable treatment of employees, including those for whom working from home is difficult.

October 21, 2022 - Published in Nihon Keizai Shimbun's "Economist 360° Perspective"

November 22, 2022

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