The DealBook newsletter delves into a single topic or theme every weekend, providing reporting and analysis that offers a better understanding of an important issue in business. If you don’t already receive the daily newsletter, sign up here.
During the nearly three years since pandemic precautions pushed remote work into the mainstream, companies have been negotiating a “new normal” in an environment that some say gives workers an upper hand: Hiring has been difficult, quitting has been popular, and employers had been in a good position to accommodate workers’ preferences.
That era is over. While the labor market remains tight even as many forecast that the United States will fall into a recession, most economists expect more layoffs and fewer job openings in the coming months as companies rethink how they operate. This week, Amazon said it would cut 18,000 jobs, or about 6 percent of its corporate work force, and Salesforce said it planned to lay off 10 percent of its employees, or about 8,000 staff members. Goldman Sachs is preparing to lay off as many as 4,000 people.
As the workplace shifts, some prominent chief executives see an opportunity to get their employees back in the office. In May 2021, David Solomon, C.E.O. of Goldman Sachs, told workers to get ready to return the next month to encourage more in-person collaboration and shared culture. Elon Musk ended Twitter’s “work from anywhere policy” in his first email to employees after acquiring the company last year, saying he would require them to work at least 40 hours a week from the office. Bob Iger stopped short of an office mandate when returning to Disney as chief executive in November, but he reportedly told employees that “I worry long term about the negative impact on people who have decided not to spend as much time at the office.”
But is the pandemic-induced remote work experiment about to end? Economists studying the shift to more flexible workplaces say it is not likely despite the push by some of the world’s most high-profile C.E.O.s.
Hybrid work is establishing itself as the new normal
Last year, remote work stabilized at well above prepandemic levels, according to data compiled by a group of researchers at Stanford University, the University of Chicago and Instituto Tecnológico Autónomo de México.
In 2019, around 5 percent of full paid working days in the United States were completed remotely, according to census data. But when the research group started gathering data for the U.S. Survey of Working Arrangements and Attitudes (S.W.A.A.), a monthly poll of workers, that proportion jumped to more than 60 percent in May 2020. For the past year, the percentage has been hovering around 30 percent.
“We are all back to prepandemic trends in online shopping, but permanently up on online work,” said Nick Bloom, an economics professor at Stanford and a co-author of the monthly survey.
The most common remote work situation, according to the S.W.A.A. and a number of other surveys, is now hybrid work, with employees spending some days in the office and some working remotely. Companies, industries and individual situations vary greatly on preferences and the feasibility of remote work, but on average, both sides have similar ideas about the ideal amount of time to spend in the office.
In the December S.W.A.A. survey, workers able to do their jobs from home said they preferred to operate remotely about 2.8 days per week. Their employers planned to allow them to work from home about 2.3 days per week. That’s not a big gap in expectations.
There are obvious reasons employees say they like working remotely: They want to avoid the time and costs of commuting; they focus better without office chatter; they feel it’s better for their well-being to be at home. When McKinsey, the consultancy, asked 12,000 job seekers last year about their reasons for looking for a new job, “flexible working” came in just behind “greater pay or hours” and “better career opportunities.”
What often gets glossed over — and one reason some economists believe that a recession would have little impact on the shift in working arrangements — is that allowing employees to operate outside of the office can also benefit companies.
In a survey conducted by ZipRecruiter, the employment search site, job seekers on average said they would take a 14 percent pay cut in order to work remotely.
While the labor market remains strong, the economy is slowing down, and companies are looking for ways to make their jobs more valuable without raising pay. And many of them say they’re using remote work to do it.
“It’s not that there won’t be some loss of bargaining power by workers,” said Steven Davis, a professor at the University of Chicago and a co-author of the S.W.A.A. “It’s just that many employers have their own independent reasons to think that the shift, the partial shift, to remote work is beneficial for them as well.”
Managers are finding it hard to reverse the changes
For a working paper published by the National Bureau of Economic Research, Mr. Bloom, Mr. Davis and others asked the hundreds of senior business executives who are surveyed each month by the Federal Reserve Bank of Atlanta if they had expanded remote work as a way to “keep employees happy and to moderate wage-growth pressures.” Thirty-eight percent said they had done so in the past 12 months, including half of executives working in sectors such as finance, insurance, real estate and professional services. Forty-one percent said they planned to do so in the next year.
The authors used executives’ estimates for how much they saved in pay by offering remote work to conclude that it would cut companies’ salary bill by 2 percent over two years.
“That’s not huge,” Mr. Davis said. “But what it suggests is that there are non-trivial benefits to many firms from remote work.”
A downturn could even make remote work more, not less, sticky. Recruiting more widely, including in cities where the cost of living is lower than where a company is headquartered, could mean paying lower salaries (though in some industries, such as tech, there is some evidence that salaries in different cities are converging).
Workers with an option to log in remotely may also take fewer sick days or decide to work remotely when they would previously have taken a day off to attend a friend’s wedding or extend a holiday.
Of course, there are costs to remote work, too. Managers and workers often disagree about which environment is most productive. And working virtually can involve security considerations, new software purchases and compliance headaches around hiring in multiple states or countries. But, Mr. Davis said, in a lot of cases, companies have already paid for those costs. “We had almost three years of experience doing this,” he said.
Perhaps the most practical reason that companies may hold on to remote work in a recession is that it is difficult to revoke. Even Musk, a little more than a week after mandating full-time office work, reportedly clarified that all that was required of employees who wanted to work remotely was an approval from a manager willing to take responsibility for ensuring excellent work (albeit at the risk of being fired).
“Many, many companies in recent months have insisted that people come back to the office five days a week, only to reverse that mandate within about a week after hearing that they’d lose their best and brightest,” said Julia Pollak, the chief economist ZipRecruiter.
Remote work, Ms. Pollak added, “is not just used as a sort of perk in a tight labor market that’s going to go away in a slacker labor market.”
What do you think? Let us know: [email protected].