Will a Recession Increase Remote Work?

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Many recent headlines claim that an upcoming recession will mean the end of remote work. That’s because the recession will lead to a cooling labor market, giving executives more power to force employees to comply with their demands. And while surveys show that the large majority of employees prefer to spend most or all their time working remotely, most executives want employees to be in the office.

Thus, according to these headlines, the recession will wipe out remote work. Unfortunately, they fail to grasp the key factors of a recession that will actually boost remote work.

Leadership in an Economic Recession Requires More Discipline

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 line for most companies gives traditionalist executives significant leeway to default to their intuitive personal and selfish preferences 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.”

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. And there’s no question that a focus on profits over personal preferences will benefit remote work for many reasons.

Pandemic Productivity Growth Driven Mostly by Remote Work

We have extensive evidence showing that remote work is more productive than in-office work. A Stanford University study found that remote workers were 5% more productive than in-office workers in the summer of 2020. By the spring of 2022, remote workers became 9% 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 — as opposed to individual productivity — 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. A recent peer-reviewed study found a boost for collaboration for well-designed remote work. And a study of 307 companies finds that greater worker autonomy and flexibility results in more innovation.

Overall, counting both individual and team productivity, productivity is substantially higher from remote work. A new study from the National Bureau of Economic Research (NBER) found that productivity growth in businesses widely relying on remote work like IT and finance grew from 1.1% between 2010 and 2019 to 3.3% since the start of the pandemic. Compare that to industries relying on in-person contact, such as transportation, dining and hospitality. They went from productivity growth of 0.6% between 2010 and 2019, to a decrease of 2.6% from 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 2% 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.

Relatedly, companies don’t have to pay as much in cost-of-living expenses if they’re not hiring workers who live in expensive cities near company offices. Indeed, companies that offer remote work opportunities are increasingly hiring in lower cost-of-living areas of the US 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.

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Benefits of Remote Work for Retention and Recruitment

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.

Likewise, 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. And flexibility ranks only behind compensation for job satisfaction in a Future Forum survey. An NBER paper reporting on a randomized trial found that offering a hybrid vs. an office-centric schedule improved retention by over a third. 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. But by July, his officials defended 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.

Remote Work Can Improve Your Company’s Financial Health

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 against minorities. Companies are already seeing these consequences: Meta 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 a 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 offices. Another of my clients is the University of Southern California’s Information Sciences Institute, which carries out basic and applied research in machine learning and artificial intelligence, networks and cybersecurity, high-performance computing, microelectronics, and quantum information systems. It provided a wide range of home office technology and furniture to its staff to improve their productivity. Doing so is a wise investment, even in a recession.

Traditionalist Executives Will Embrace Facts About Remote Work, or Fade Into Irrelevance

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 most or all of their time. To do so, they will have to overcome the challenge of cognitive dissonance, namely how they deal with contradictory information: their internal gut reactions versus external financial reality.

Traditionalist leaders fail to adopt innovative best practices for the future of work because of dangerous judgment errors known as cognitive biases. These mental blindspots impact decision making in all life areas, ranging from the future of work to relationships. Fortunately, recent research has shown effective and pragmatic strategies to defeat these dangerous judgment errors, such as by constraining our choices to best practices.

The best leaders are courageous enough to change their minds when the facts change. More 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 companies, and such leaders will eventually be forced out for denying reality and replaced by more savvy leaders who endorse remote work. That’s why a recession will, in the end, boost remote work.

Conclusion

A recession will prove to be a boon for remote work, with more and more people working remotely. Financial planning for hard times requires getting greater returns on employee investment, engagement, and retention. In this regard, extensive evidence shows remote workers are more productive than in-office workers. They would quit instead of giving up the benefits of working from home. Workers are even willing to work for less money if offered remote positions. In fact, government officials are defending telework policies. Beyond cost reductions, companies will have a better chance of improving their financial performance because their workforce will become more diverse working remotely. Moreover, remote companies can slash operational costs because of a decreased need for office space. As a result, Traditionalist executives will be at a disadvantage in an economic downturn if they do not embrace these hard facts and change their minds. These are the facts, and a recession will only make them more obvious.