By Jan Hillard
NKyTribune data editor
Working from home is perhaps the most profound social change that has come about as the result of the pandemic. The pandemic has forced workers from almost every economic sector to profoundly alter their working lives. Workers have quickly adjusted to home offices, zoom meetings, and isolation.
While some have welcomed the flexibility of working from home, others have grown weary of working remotely and yearn for more intimate interaction with team members and the social side of organizational life.
Illustration from ZOOM
This article will summarize research to date on the effects, both positive and negative, of working from home. The current research is limited in at least two ways. First, most of the research has been conducted at the beginning of the pandemic and so is time-bound. Sentiments associated with the initial year of the pandemic may not reflect the growing fatigue of working from home. Second, the current research does not adequately represent the breadth of industry sectors. Each sector presents unique contexts that are either conducive or ill-suited for work at home. For example, a call center may function very well; whereas, a design firm may not.
Employees Evaluations
For many workers, work from home has been a new experience. It has required immediate implementation and acceptance driven by the pandemic. Early on, workers welcomed home isolation as the best protection. Research from the Pew Foundation
(December 2020, n=5858 employees nationally) helps lay the context for the work at home experience.
This study finds that
• 72% of those surveyed are working from home
• 65% say their work at home transition has been relatively easy
• 38% report greater ease in balancing work and family
• 65% report feeling disconnected from their boss and colleagues
• 60% report frequent interruptions
• 45% of workers feel telecommuting technologies hamper their productivity
• 54% prefer continuing to work at home
• 70% find it very difficult to receive a promotion with work from home
• Younger workers show less satisfaction working from home
• Dissatisfaction with work from home is more prevalent among lower-income workers
The Pew findings suggest mixed reactions to working from home. At a minimum, we can conclude that work from home doesn’t have a universal appeal and must be approached with caution. Employers who plan to extend work from home beyond the pandemic would be wise to better understand workers’ dissatisfactions and create new approaches that strengthen employees’ acceptance and support for work from home.
Positives & Negatives
Additional research comes from business consultants such as Barclays, Hanover Research, and Indeed. In the last 6 months, these consulting firms have pulled together research from the US and abroad. The goal of this research is to identify positive and negative factors associated with working from home with foundational assumption that work from home should continue past the COVID pandemic. The factors that support work from home are presented below along with positions that challenge the positive impact of factors.
The research also identifies negative or challenging factors that can accompany work from home that negatively impact work productivity and quality. They are more prevalent in industries that require teamwork and creative processes. These factors also disproportionately affect lower-income and less-educated workers.
These negative factors point to a set of often unintended consequences related to work from home. These objections must factor into decisions to shift to the work-from-home approach.
Productivity
Are office buildings like these a thing of the past?
Naturally, employers who plan to make work from home more permanent are eager to assess the economic impact of this arrangement on their bottom line. Early research suggests that work from home results in a 2-5% increase in productivity across all industries. In a study of hiring managers, 34% indicated a productivity increase from 2020-21. Factors cited to explain these increases include lower commuting costs and more time on task with fewer distractions. This data is preliminary and may not be representative of all business sectors.
In one study, productivity gains during this time period were largely associated with highly capital-intensive industries (e.g. auto production) driven by automation and AI. Another study finds that productivity gains were associated with declining employment in the service and food sectors which struggled to provide the same quality and quantity of product. Recently, Microsoft reported that “firm-wide remote work caused the collaboration network of workers to become more static and siloed.”
The current wisdom across employers is that over the long term, productivity gains will dimmish as a result of lower employee interaction (e.g. team dynamic, spontaneity, real-time consultations and learning). Research long before the pandemic confirmed that face-to-face interactions strengthen key organizational dynamics and organizational culture.
Implications for Relocation
It is estimated that up to 20 million U.S. workers will relocate as a result of work from home. Demographers predict the decline of urban centers and the rise of small cities, suburbs, and ex-urban, rural areas. If this trend grows, urban areas will need to re-purpose themselves as corporate headquarters exit and ancillary businesses suffer the tumbledown effects. In addition, mass transit systems will need to realign their services as ridership lags. Built and planned-for infrastructure will be impacted as well. While urban centers may decline, suburban towns may see a resurgence of activity translating into new retail opportunities and economic vibrancy. This will first appear in towns that ring large urban centers such as New York City and San Francisco. Already, once up-and-coming areas of New York City (e.g. Brooklyn) are seeing stagnant home prices, while second and third ring suburbs are seeing a rise in home values.
Implications for State and Local Income Tax
Work from home raises important tax issues for employees, employers, as well as local and state governments. Historically, the vast majority of workers lived in the state where their employers were located making collection of the income tax relatively simple. However, when an employee resides in a state other than the location of their employer, the employee is responsible for reporting and paying their end-of-year tax bill in the absence of employer withholding. Only a handful of states have reciprocity agreements that require the employer to withhold out-of-state employee taxes at the rate of the employee’s resident state. In the absence of joint state agreements, employees may owe in two states: their resident state and the employers’ headquarters’ state.
A number of states are considering new tax laws that require workers to pay in their employers’ state, regardless of their state residence. New tax credit policies are being adopted in some states whereby if you pay income tax in the state of your employers, your state of residence allow you to credit some or all of what you have paid to your state tax filing. This shifts the burden to the taxpayer, minimizing the companies’ record-keeping withholding tasks.
In addition to income taxes, are issues stemming from employee home offices and travel deductions. Generally, only those who fall under the traditional criteria for business expenses receive these tax benefits, not new work-from-home employees.
Requiring these employees to pay state income tax after 30 days presents an additional burden for the work-from-home employee. In a recent survey, 72% of work-from-home employees were unaware of the tax implications of working remotely.
Future of Office Space
It has been estimated that working from home will result in a 10-20% drop in the demand for traditional office space. This decline will be across the board, from corporate headquarters to retail space, impacting the long-standing correlation between employment growth and demand for office space. Some firms in the tech sector have signaled their move away from offices. For example, Forbes reports that Pinterest pulled out of a deal for 500,000 square feet of new office space, incurring a $90M penalty; Twitter is subleasing 100,000 square feet in its San Francisco space, and Shopify CEO has declared that “Office centricity is over.”
Conversely, Google is moving ahead with plans to add $7B in new office space. Forbes reminds us that office vacancy rates are up 90% and retail vacancies up 50%. Clearly, the pandemic accounts for a part of this downturn which may settle down with time. However, some decline could be reasonably expected as work for home becomes more permanent.
Hybrid Work Places
Although some factors point to dwindling demand for traditional office space, it would be premature to declare the end of the office. While work from home reduces some costs and provides flexibility and convenience, office spaces facilitate teamwork, learning, creativity, and a variety of dynamics linked to business success. Together, the benefits of working in an office and those of working from home are driving a hybrid model in which employees come to an office (not necessarily the traditional variety) 1-3 days/week. Office spaces would be scheduled for groups or teams of employees and managers, allowing for structured interactions and multiple “tenants.”
Many larger firms are also adopting “co-working.” Here employees require less space, schedule time to “come into the office,” and connect remotely with colleagues. In some cases, employees from multiple firms share the same co-working office space. A “one size fits all” model for commercial real estate will likely not work in the post-pandemic era.
Conclusion
We don’t know with any certainty what the workplace will look like after COVID. Some are skeptical about the long-term viability of work from home and ask: “How common would work from home be had it not been from COVID?” This question raises a number of significant points, not the least of which is how fast we should move into large-scale work from home.
For such a monumental workforce transformation, we have scant research on its effects on organizational and employee performance. We have virtually no research on differential impacts across employee job types, diverse employees, multi-faceted job satisfaction, burnout, retention, and promotion. Without this information, we are left with guessing and accommodating.
It is true that disasters can spawn innovation, but to what end?
As a colleague recently reminded me, “We’ll have to live with it ‘cause we ain’t going back.”
Time will tell.
Jan W. Hillard, Ph.D., is Emerti Faculty of Northern Kentucky University and is data editor of the NKyTribune. He is chair of the board of the Kentucky Center for Public Service Journalism.
