Smith Brain Trust / October 19, 2022

Labor Market Competition Plays A Huge Role in Remote Work

Smith Researchers Find Peer Pressure Among Companies Determines Firms’ Work-From-Home Strategy

Labor Market Competition Plays A Huge Role in Remote Work

With pandemic restrictions in the rearview mirror, in a few years working from home may follow suit. ZDNET reports it could soon be time to pack up your home office. 65 percent of CEOs at multinational companies say they want workers back in cubicles 9-to-5 by 2025. As companies ponder whether they should offer remote work or impose a return-to-work policy, one factor affecting this decision is what their peers are doing.

By examining work-from-home job postings, University of Maryland Robert H. Smith School of Business Assistant Dean of Doctoral Programs and Dean’s Professor of Accounting, Rebecca Hann and her co-authors, Smith PhD student Jingwen Yang, Indiana University Kelley School of Business professor Charles Ham, and Wenfeng Wang with the College of Business at City University of Hong Kong, find that employers are more likely to offer remote work when most of their peers are already doing it. Hann says, “many CEOs are reluctant to move completely to remote work, but if their competitors are doing it, they have to seriously consider it or risk losing talent. This risk is especially real when the labor market is tight – employees who want remote work flexibility can vote with their feet.” If the economy goes into recession, however, Hann says things may flip, “the bargaining power could shift back to employers, and the reluctant employers would be less likely to cave into peer pressure to offer remote work.”

Since the pandemic, employee preferences have changed – more employees value work‑life balance and the flexibility that comes with remote work. But some businesses worry that because supervisors can’t see employees sitting at their desks working, the employees aren’t being productive. Microsoft has coined the term “productivity paranoia” to describe it. Hann and her fellow researchers say letting employees work remotely comes with other costs. It can hamper teamwork, communication and knowledge sharing. “You are less likely to have those lightbulb moments you have when you’re all together in the same room,” says Hann.

Some young workers worry remote work will affect their career growth. “If you’re a manager and you have one employee who’s always in the office and another who’s rarely there, who are you more likely to promote? In general, that facetime matters,” notes Hann, “especially if you are new to the company.”

There’s a lot of evidence that the preference for remote work is stronger among women, which is understandable given that women are predominantly responsible for childcare. Hann says, “what we find that’s really interesting is the labor market competition effect is stronger in areas where women play a greater economic role in the workforce.”

The future of work is a hot topic right now, especially as it pertains to working from home. “I don’t think we will go back to the way we were before the pandemic, but I also don’t think we will go all the way to 100% remote work either, because there are clearly disadvantages in certain scenarios where this would not work.” And Hann repeats a key conclusion of her research when asked about work’s future: “companies are increasingly responding to peer pressure to offer work-from-home flexibility. Whether such a strategy is optimal in the long run is unclear. Managers should carefully consider the threat of losing talent against the long-term effects on innovation, firm culture and productivity.”

Read more about this research: Going Remote? The Role of Labor Market Competition

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