Stanford economics professor Nicholas Bloom has studied remote and hybrid work arrangements for years before the pandemic — but never at the community-wide scale we’ve seen over the past two and a half years.
We’ve interviewed Bloom several times since early 2020, and his recommendations for a hybrid approach have been widely followed by companies. Bloom’s research with colleagues found that approximately 55% of American workers are currently physically present, 30% are in hybrid arrangements, and the rest are completely remote.
Earlier this week, we returned to Bloom to speculate on how things have been in practice, his predictions for how executives’ efforts to get people back to the office will fare, what common mistakes companies are making, and how. A softening economy could reroute jobs. They are excerpts from our talk, edited for space and clarity.
You’ve said that hybrid is the best approach for most organizations, allowing the nature of the work to be done remotely for some time. We have extensive mixing experience for several years now. Based on studying that, are there any lessons or differences you would add to your previous view?
Overall, I think the hybrid worked very well. And the fact that most organizations are adopting this tells you. As an economist, there is such a thing as ‘revealed choice’. If people always prefer product A over product B, product A must simply be a better deal, for the price. If everyone votes with their feet, you don’t need surveys – you know that’s really the best outcome. So the hybrid overclocking tells you that it’s generally working.
But the hard part was this transition phase where employers were like, “We’re moving to hybrid, but we want less social distraction in the workplace.” We’re going to let people choose, to sort them out on purpose.’ And everyone he spoke to complained about that result. Most people, except introverts, have complaints about logging in and being quiet and dead and people yelling at a laptop – and what’s the point of coming to zoom all day? This makes things difficult now. It’s like, ‘Okay, you’re going in for the same number of days, but you need to coordinate which days we choose, or at least at the group level.’ If you look at the surveys, the key reason people come to work is to see colleagues and work with colleagues.
When you ask people, when you go to work, do you want your colleagues to be present, 80% say yes. So there are at least 80% of people who want their colleagues to be present. (The other 20%, maybe they’re in the wrong company. If you hate your co-workers, maybe you’re in the wrong job.)
But the biggest challenge – and perhaps the most unexpected – is how many employees are comfortable choosing days in the office and every week, for whatever reason, childcare reasons, work, personal reasons, etc. Consider group placement when it makes sense to move in together.
What can we say at this point about the business impact of this shift to hybrid?
I’ll give you four reasons why people love hybrids and then see if I can actually put a profit number on it. One is to make the employees happier. Dropout rates are down. In a randomized controlled trial, we found dropout rates were reduced by 35%. People repeatedly report in survey after survey that they value salary increases like 7% or 8%. The free pension plan is the same price for employees.
Benefit two is to improve productivity. The numbers here are low, but the central estimate from several studies is 3%, 4%. Not big but positive. Where did these numbers come from? They come from two places. It is the first time. So if you’re working from home two days a week, on average, you’re saving 70 minutes commuting each day. In a survey, it seems that 30 minutes of that day are spent on doing more and 40 minutes on other things. But if you, as an employer, have people working from home two days a week, they will work an extra hour over 40 hours. This is 2% more hours. So this is 2%. And the other 1%, 2% comes from the days when you’re at home, it’s well organized, it’s quiet so people are typically more efficient.
I have some very high-precision data on minute-by-minute activity and you can see that at home people are taking less time off, less coffee breaks. They go to the bathroom less. They are fast. They take shorter lunches. If you’re working from home, your lunch break is typically 20, 30 minutes. If you are in the office, it can easily be more than an hour. So these two together will benefit about 3%, 4%.
All three are difficult to measure, but certainly important, which is support for diversity, equity, and inclusion. Slack’s Future forum has some stuff. We have research that shows that everyone, every demographic, age, race, etc. loves working from home. But there is a slightly stronger preference for those with children, for women, for minorities. And if that’s what it means if you’re serious and force yourself back into the office entirely, you’ll see a higher appreciation of diverse employees. That’s a real DEI cost.
The last benefit, which is surprisingly the last, but most people prioritize before the outbreak, is saving space. Due to the mix it is very difficult to save space. Normally people come on Tuesday, Wednesday, Thursday, because I want to work from home on Monday, Friday. So you have this problem where you can’t rent office space on Monday, Friday. No one really wants it and it is difficult with security. If you share office space, how do you lock computers and put in cabinets and stuff?
So to give you a very, very rough figure for a typical business, if you have to put a number on it, with two-thirds of the payroll costs, you’re basically reducing the payroll costs by 7% or 8%. All things being equal, if people consider the hybrid a 7%, 8% pay raise, you basically can’t raise their pay that much and get them to quit on you. So that’s probably like a 5% net addition to the bottom line. Productivity ranges from 3% to 4%. That’s 3%, 4%, maybe more revenue, fixed costs. Determining DEI and position is difficult, but you can easily see a profit of 10%, 20% compared to a full return.
That’s why every company out there is hybridizing, because it’s not worth it to increase profits. The big question is how to implement it.
What’s the biggest mistake you’re seeing organizations make in terms of execution, and what are they doing instead?
The biggest mistake is giving employees complete control over which days and how many days. Employees, when they come in, want to see their colleagues. So if you let people choose completely, you’ll never have a day where everyone is in a group of 10 people. So every single meeting the whole team has, people should have it on focus. It’s uncomfortable. It drives people out. There are clicks to be made. It’s disappointing. The meeting is over, the people on Zoom are disconnected, and of course the meeting continues down the hall.
Another thing is to try to bring people back for more days because of the drop in prices. Like ‘we have this place, we should use it.’ Just because you have this space doesn’t mean you have to force people unnecessarily. There is much evidence for the great opposition. And we find that the great opposition is of two forms. One, we survey employers and only 80% are logging as many days as their managers or their company needs. So it’s not 20%, which is a high number. If you studied people before the pandemic and how many people said they didn’t log in every day, it would have been close to zero.
Another issue, what is your manager doing about it for those who haven’t come? For 40%, the biggest response is nothing. The administrators are against it. The reason is that middle managers basically make no sense to force employees to work four days a week. So if my crew is coming in twos or threes, I’m just rolling my eyes. And it’s like that old saying about laws: A bad law makes unenforceable law. Well, bad governance makes governance law that doesn’t work because middle management doesn’t agree with it. They are against the workers below.
The return that follows Labor Day seems like a bit of a show at some companies, where executives want people to come back and employees refuse, as they say. How do you see him playing?
I’m laughing at the media with this Labor Day thing because this is the third Labor Day show. I can tell you it’s 2-0 for the staff. It wasn’t even close. It’s like Manchester City taking on Grimsby Town—I know what’s going to happen. It will be 3-0. They will not come back. I’m not saying they won’t come back for zero days, but any organization that tries to bring people back five days a week, that’s the fastest way to get out of the workforce.
I support two, three days a week workers coming back, but for the most part they are doing that. So I don’t think you will see any change in the aggregate numbers. I will tell you this forecast now, it is the end of August. We’ll run the survey again in September and October and you can see the data, but if I look at the series that’s now flat in terms of the share of days worked from home over the last six months, I really see. Labor Day, like many RTO days in the past, is the last day to believe that it will come and go.
Do you see the uncertainty surrounding economic growth affecting remote and hybrid plans, particularly the degree of employee flexibility?
It is certainly true that the Feds are trying to engineer a soft landing. Although it is not a soft landing and a hard landing, it makes labor markets tight. So changing jobs will be difficult. Employers will have more power. The real question is whether this will have an effect on taking work from home. i don’t think so.
Going back to the four reasons, keeping employees happy, increasing productivity, supporting diversity, saving office space – overall, I don’t think those are more important than failure. For some you could argue the opposite. It fluctuates a bit in the short term, but I haven’t seen it change more than a few percent when it goes up and down.
The biggest long-term issue is technology. The pandemic has led to a six-fold increase in days worked outside the home, leading to a huge increase in the rate of technological advancements in hardware and software to support it, as companies see it as a huge market. If markets are large, companies will innovate to support it, as in the US, where many geriatrics and pharmaceutical companies are developing drugs to support older patients.
The exact same thing is happening with work-from-home technology. Things like virtual reality, augmented reality, holograms, better AI to support audiovisuals. So that means for sure that in three plus years – maybe even sooner – the trend will continue to move upwards again. If I was making long-term decisions about organizational structure, strategy, office space, growth rates, if anything, I was predicting that if a work-from-home business took off, it wouldn’t fail. I definitely think five years from now it will be bigger than it is now.
Read Full transcript of our interviewIncluding more on why hybrid is the dominant model and how to best manage when you have both remote and hybrid employees.
