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The rise in remote work since the pandemic and its impact on productivity

By Sabrina Wulff Pabilonia and Jill Janocha Redmond

The COVID-19 pandemic brought about dramatic changes in the work environment. Although 6.5 percent of workers in the private business sector worked primarily from home in 2019, the pandemic was the start of a massive experiment in full-time remote work for most workers and firms.¹ People often ask: are workers more productive or less productive when working from home? The answer likely depends on several factors, including the types of tasks workers perform, the available technology, the home environment, worker motivation, and management practices. A few randomized experiments at individual firms identify small positive effects of hybrid and fully remote work on individual employee productivity using metrics such as the number of emails written, phone/video calls made, and the novelty of work products as reported in manager-assigned performance ratings.² They also find that remote work led to lower job turnover as job satisfaction rose, which could substantially reduce firms’ hiring costs. On the other hand, a couple of single-firm case studies conducted during the pandemic find that employee productivity declined in the short run.³ These studies examine individual labor productivity and use various proxies to measure it. Looking at a more aggregate level to measure the impact of remote work on economic performance across 43 private sector industries, Fernald et al. (2024) find little relationship between labor productivity and the ability of workers in an industry to work entirely remotely, suggesting remote work neither hindered nor helped raise aggregate productivity growth.⁴

This Beyond the Numbers article uses data from the BLS productivity program and the American Community Survey (ACS) to shed light on whether remote work can enhance productivity.⁵ We examine the pandemic-period relationships between the rise in the percentage of workers primarily working from home and the percent change in total factor productivity (TFP), output, and unit input costs across 61 industries in the private business sector. We find that TFP growth over both the 2019–21 and the 2019–22 periods is positively associated with the rise in the percentage of remote workers across 61 industries in the private business sector, even after accounting for pre-pandemic trends in productivity.

The rise in remote work across industries during the pandemic

According to the American Community Survey (ACS), remote work increased dramatically across all major industries between 2019 and 2021. Then, with the removal of all social distancing policies in 2022, the percentage of remote workers fell slightly. However, remote work participation was still higher than its 2019 level in all industries except agriculture, forestry, fishing, and hunting, which returned to its 2019 level.

In the ACS, respondents are asked how they usually got to work in the last week. If they respond that they worked from home, we classify them as a remote worker. We note that remote work may be fully remote or hybrid (a combination of remote work and in-person days, but with the majority of days worked from home). Remote work is also commonly referred to as telework. In this article, we compare data from 2019, the year before the pandemic, with data from 2021, the full year after the pandemic began and before major efforts by firms to encourage their employees to return to the office. We also compare 2019 data with 2022 data to see if the relationship between remote work and productivity changed as businesses and employees further adjusted to the new work arrangements.

Chart 1 shows the rise in remote work for 21 major industries ranked from largest to smallest by the percentage of remote workers in 2021. Although there was a larger percentage of remote workers in 2021 compared with 2019 in all major industries, four major industries saw phenomenal increases in remote work (by over 30 percentage points). Professional, scientific, and technical services, information, finance and insurance, and management of companies and enterprises had over 39 percent of their workforce working remotely in 2021 compared with less than 17 percent in 2019. Another 12 industries had between 10 and 25 percent of their workforce working remotely in 2021. The four major industries with the largest percentage of their workers remote in 2021 still had at least over 33 percent of their workforce working remotely in 2022.

Looking at a more detailed industry breakdown (61 industries), chart 2 shows that in four of these industries (computer systems design and related services; data processing, internet publishing, and other information services; publishing industries, except internet (includes software); insurance carriers and related activities), the majority of workers (50.2–62.5 percent) worked from home in 2021. In 2019, only 15–20 percent of workers in these same industries worked remotely. Over 40 percent of workers in another three industries (funds, trusts, and other financial vehicles; securities, commodity contracts, and other financial investments and related activities; miscellaneous professional, scientific, and technical services) worked remotely. Of the 61 detailed industries, 44 had more than 10 percent of their workforce working remotely in 2021. In 2022, the top four detailed industries in 2021 still had over 46 percent of their workforce working remotely.

 

Productivity increases as remote work increases across 61 detailed industries

Total factor productivity is calculated by dividing output by a combination of all inputs used in production.⁶ Inputs include workers, machinery and other capital, energy, materials, and services. When workers shift their work location from office buildings to their homes, nonlabor inputs also can be expected to change. For example, employers may downsize their office footprints when remote workers are not using commercial office space.⁷ Businesses may also have lower utility expenses even if they keep their unoccupied office buildings, either because their leases have not yet expired or they intend to use the buildings in the future. In addition, during the pandemic, there was a substantial rise in new businesses that may have opened using relatively more remote workers than onsite workers given the lower fixed costs associated with this type of work arrangement.⁸ Existing businesses could also have expanded operations without adding additional office space. Also, if worker turnover declined, businesses might purchase fewer outside recruiting services. Thus, even if workers produce the same output remotely, TFP might still increase if firms use fewer nonlabor inputs.

Chart 3 illustrates how the annual percentage growth in total factor productivity (TFP) is related to changes in the percentage of remote workers across 61 industries in the private business sector from 2019 to 2021. The size of the bubbles represents the industry’s share of total private business sector output in 2019. The fitted line shows the output-weighted average relationship between the two measures: a 1 percentage-point increase in the rise in the percentage of remote workers is associated with a 0.08 percentage-point increase in TFP growth. This association is 0.09 in the 2019–22 period, and relationships in both periods are statistically significant.

Chart 4 compares TFP growth over the prior business-cycle (2007–2019) with TFP growth during the first part of the pandemic (2019–21).

 

There is considerable variation in TFP growth between the two periods, even among those industries with a large increase in remote workers. For example, the fourth-ranked industry in terms of the rise in remote work—funds, trusts, and other financial vehicles—grew by 10.0 percent in the pandemic, but declined by 0.2 percent in the 2007–19 period. Thus, only some high-productive industries during the pandemic were also highly productive before the pandemic. Nevertheless, many industries that experienced a large increase in remote work also had higher-than-average TFP growth pre-pandemic. Therefore, to better measure the association of the rise in remote work with productivity, we also estimate the relationship between the increase in the percentage of remote workers and the excess in TFP growth in the pandemic period (2019–21) over the prior-business-cycle TFP growth (2007–19). Using this excess TFP growth measure, we still find a positive and statistically significant association between the rise in remote work and TFP growth, although the magnitude of the association is slightly smaller.⁹ A 1 percentage-point increase in the percentage-point change in remote workers is associated with a 0.05 percentage-points increase in TFP growth.¹⁰

We find the same association between the rise in remote work and excess TFP growth if we look at the excess TFP growth in the 2019–22 period compared with the prior-business-cycle TFP growth.

Overall, our results suggest that the rise in remote work and TFP growth are positively correlated. From 2019 to 2021, the (weighted) average percentage-point increase in remote workers across industries was 14.9. This suggests that the rise in remote work was associated with an average 1.2 percentage-points increase in industry-level TFP. However, remote work is only one factor that may affect productivity, which rose by 1.5 percent in the private business sector over the same period. Over the 2019–22 period, the 11.8 average percentage-points increase in remote workers across industries was associated with an average 1.1 percentage-points increase in industry-level TFP, whereas private business sector TFP rose by only 0.4 percent over the period. This suggests that the increase in remote work substantially contributed to productivity growth during the pandemic.

In the following sections, we examine some of the components of productivity growth to help us better understand what might be driving the 2019–22 industry-level relationship between TFP growth and the change in the percentage of remote workers.

Output and labor input growth in the top 10 industries experiencing the highest percentage-point increase in remote workers

Chart 5 shows the percent changes in output and labor input (a measure of hours worked adjusted for differences in the age, education, and sex composition of the workforce) for the top 10 industries experiencing the highest percentage-point increase in remote work over the 2019–22 period. We see large increases in output and labor input in the top three industries (computer systems design and related services; publishing industries, except internet [includes software]; and data processing, internet publishing, and other information services), with output rising much faster than labor input. Another four of the top industries (securities, commodity contracts, and other financial investments and related activities; management of companies and enterprises; broadcasting and telecommunications; and miscellaneous professional, scientific, and technical services) also have substantial output growth, but either small, positive labor input growth or a small decline in labor input. The remaining three industries have labor input growing faster than output. Thus, most of the industries that experienced substantial increases in the percentage of remote workers were able to enhance output during this time without a corresponding increase in labor.

Productivity gains did not lead to increased hourly compensation from 2019–22

If remote work increases productivity, some gains may be passed down from employers to workers as compensation. At the detailed industry level using a linear regression model, we examine the relationship between the rise in remote work and real hourly compensation growth, a more comprehensive measure of remuneration than wages that is included in the BLS productivity database. We find no statistically significant relationship between the growth in remote work and the growth in hourly compensation, even when controlling for compositional changes in the workforce, suggesting that pandemic-era productivity gains associated with the rise in remote work were not passed along to workers. However, workers gained in other ways. Most significantly, they avoided long commutes, saving them both time and money.¹¹

Although we find no statistically significant relationship between the rise in remote work and the growth in hourly compensation, chart 6 shows a small negative relationship between the percentage-point change in remote workers and the growth in unit labor costs (the ratio of real hourly compensation to labor productivity, also known as compensation per unit of output). A 1 percentage-point increase in the percentage-point change in remote workers is associated with a 0.1 percentage-point decrease in unit labor costs growth.

Unit nonlabor costs decreased as remote work increased, 2019–22

Our findings in chart 6 also demonstrate a consistent pattern: the larger the increase in remote work, the larger the decrease in unit capital, energy, material, and service costs growth across industries.¹² The associations are notably stronger than the link with unit labor costs, with values ranging from -0.2 to -0.4.

Digging deeper into the detailed asset class categories, we also examine the relationship between the rise in remote work and the growth in unit office building costs. The increase in remote work allowed many businesses to downsize their office footprints. A 1 percentage-point increase in the percentage-point change in remote workers is associated with a 0.4 percentage-point decrease in unit office building costs growth. This negative relationship is driven primarily by two large industries (broadcasting and telecommunications and miscellaneous professional, scientific, and technical services) with decreases in unit office building costs exceeding 20 percent.

Conclusion

Remote work rose dramatically during the COVID-19 pandemic. Total factor productivity growth over the 2019–22 period is positively associated with the rise in the percentage of remote workers across 61 industries in the private business sector, even after accounting for pre-pandemic trends in productivity. This is because unit costs, especially unit nonlabor costs, grew less in industries where more work was done from home. The productivity gains accrued to businesses, however, did not result in increased compensation to workers. Productivity gains can potentially result in higher wages and benefits for workers, greater investments by businesses to improve their products or services, increased profits, and/or lower prices for consumers.

For more background, data, charts, and research related to remote work see our productivity and remote work page. To learn more about productivity visit the productivity homepage and explore productivity data on the productivity tables page.

This Beyond the Numbers article was prepared by Sabrina Wulff Pabilonia and Jill Janocha Redmond, economists in the Office of Productivity and Technology, U.S. Bureau of Labor Statistics. E-mail: productivity@bls.gov; telephone: (202) 691-5606.

If you are deaf, hard of hearing, or have a speech disability, please dial 7-1-1 to access telecommunications relay services or the information voice phone at: (202) 691-5200. This article is in the public domain and may be reproduced without permission.