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Remote work erodes productivity by 4%: NY Fed

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Dive Brief:

  • Productivity fell 4% among employees who moved from office to remote work at the start of the pandemic, researchers at the Federal Reserve Bank of New York said, noting that the workers provided poorer customer service and faced difficulty consulting with colleagues.
  • “Remote work not only reduces the quantity but also the quality of calls,” New York Fed researchers found in a case study of the performance of 1,965 call center workers at a Fortune 500 company. Their data ranged from a period before the pandemic until after COVID-19 forced a shift to all-remote work.
  • “Career trajectories” sink for remote workers, the researchers said. Prior to the pandemic, their promotion rates were just half of their in-office peers as they engaged in fewer training sessions and held fewer one-on-one meetings with managers. After call-center offices closed, however, the gap in promotion rates disappeared.

Dive Insight:

The number of U.S. employees who expect to work remotely has doubled since the start of the pandemic, according to “Why Working From Home Will Stick,” a National Bureau of Economic Research study published last year.

This widespread expectation poses a challenge to CFOs and their C-suite colleagues as they face a historically tight labor market — how to attract and retain employees with a remote-work option without undercutting teamwork, innovation, company culture and profit growth.

Remote work has gained broad but not universal acceptance among CFOs and other top company decision makers. During the post-pandemic period, 20% of full workdays by the labor force will occur in a remote setting compared with just 5% prior to the onset of the coronavirus, according to the NBER research.

The NBER findings on the impact of remote work clash with those from the New York Fed. “Re-optimized working arrangements” in the post-pandemic economy will push up productivity by 5%, the NBER study found.

Yet “only one-fifth of this productivity gain will show up in conventional productivity measures because they do not capture the time savings from less commuting,” NBER said.

The U.S. arguably needs a productivity boost. Labor productivity during the first quarter shrunk at a 2.1% annual rate compared with the fourth quarter of 2022, the Labor Department reported on June 1.

Productivity during the first quarter fell 0.8% compared with the same period last year. The “decline is the first time the four-quarter change series has remained negative for five consecutive quarters” since collection of the data began in 1948, according to the Labor Department.

Spurring productivity growth would help companies overcome challenges from workforce shortages, high debt, persistent inflation and the transition to green energy while boosting U.S. gross national product this decade by as much as $10 trillion, McKinsey said in a report.

A study last decade by Stanford University researchers also found that remote work improved productivity. Data from a study of CTrip, a China-based travel agency, found that working from home increased performance by 13%, with 9% from working more minutes per shift with fewer breaks and less sick days and 4% from handling more calls per minute.

Home workers also reported improved work satisfaction and experienced less turnover, but their promotion rate conditional on performance fell,” according to the Stanford study.

In the New York Fed study, employees who worked remotely before the pandemic were 8% less productive than those who worked on-site, raising the possibility that “less productive workers choose remote jobs.”

As a result, the New York Fed researchers said, company leadership may not approve a remote work option “out of fear of attracting less productive workers.”

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