Will Work-from-Home Work Forever? (Ep.

464) - Freakonomics Freakonomics 2021/06/12 14:07

Will Work-from-Home Work

Forever? (Ep. 464)
by Stephen J. Dubner
Produced by Mary Diduch June 2, 2021 @ 11:00pm

The pandemic may be winding down, but that doesn’t mean we’ll return to
full-time commuting and packed office buildings. The greatest accidental
experiment in the history of labor has lessons to teach us about
productivity, flexibility, and even reversing the brain drain. But don’t buy
another dozen pairs of sweatpants just yet.

Listen and subscribe to our podcast at Apple Podcasts, Spotify,

Stitcher, or elsewhere. Below is a transcript of the episode, edited for
readability. For more information on the people and ideas in the episode,
see the links at the bottom of this post.

* * *

Morris DAVIS: I’ll give you a little back story. Last March, my co-
authors and I were asked to write a paper about Covid.

Stephen DUBNER: Last March. So, early on.

DAVIS: Early on. This was when we were in full-scale panic as a

country. And somebody called me up and said, “I’m putting together a
special session at this conference. Do you have a paper on Covid that
you’d like to present?” You know, nudge-nudge.

DUBNER: “Would you like to write one in a week?” in other words.

DAVIS: Exactly. I was like, “Sure, of course we have a paper on Covid.”

We very, very quickly realized — look, Covid’s interesting, but that will
go away eventually. The question is: what’s permanent from Covid?

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And that led us down this path of: working from home might be
permanent. And then it was like, well, how do we measure the essential
ingredients of economic activity related to working at home? And
that’s what set us down this track.

Morris Davis is an economist in the Business School at Rutgers

University.

DAVIS: My specialty is real estate, but I also work on finance and

economics.

The track that Davis and his co-authors went down is the same track
many of us have gone down since the pandemic began:

Gretchen WHITMER: Today I’m issuing a stay-home, stay-safe

executive order for all Michiganders.

Gavin NEWSOM: We are confident that the people of the State of

California will abide by it.

Andrew CUOMO: This is the most drastic action we can take.

Now the freeze is starting to thaw. Many employees are returning to

offices and other workplaces. But not all. And for some — not ever. Today
on Freakonomics Radio: what is to be learned from this sudden,
mandatory, global work-from-home experiment? We’ll talk about
productivity.

DAVIS: Working at home is always less productive than working at the

office. Always.

We’ll ask what this means for real estate.

MaryAnne GILMARTIN: To be a great 21st-century city, we do need

high-performing, high-quality office space.

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And some surprising changes that may go even deeper.

Raj CHOUDHURY: So, this was like reverse brain-drain happening.

* * *

DUBNER: Let’s take one profession that you’re intimately familiar with,
which is college professor. Have you been teaching online during the
pandemic?

DAVIS: I have. And I hate it.

DUBNER: Because why?

DAVIS: The students may not believe this, but when I teach, I try to
figure out based on body language and the way that they look at me
what’s making sense to them and what’s not. I just cannot figure out
how to do that online. So, teaching remotely has been, for me, a
terrible experience.

That, again, is Morris Davis from Rutgers. So, the teaching part of his job
has suffered. But teaching isn’t the only thing an economics professor
does.

DAVIS: We used to try to have remote seminars, and it was kind of a

disaster. People would walk down the stairs or the dog would bark.
Everyone now has learned how to have these remote seminars in my
field.

DUBNER: Do you think you’ll ever return to those in-person seminars,

at least anywhere near the same degree?

DAVIS: I don’t know. What I think about a lot now is If I’m invited, I
could go to seminars anywhere around the world. And that has made
me more productive. This is an excellent example of why working at

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home and working in the office are complementary for the same
occupation.

How does this one economics professor’s work-from-home experience

compare to yours? My guess is there’s at least one major overlap: some
things were better and some things were worse. Everyone’s situation is of
course different. If you happen to live in a comfortable and roomy home,
maybe with people you even enjoy — well, that’s one kind of situation. If
your home felt cramped even before the pandemic, and if you maybe have
a couple young children who suddenly weren’t going to school — that’s a
different story. Perhaps the most commonly cited benefit of working from
home: no commute — although some people, I’ve been told, do miss
commuting. What are the biggest downsides of working from home? A lot
of employees really miss the camaraderie of work; and many employers
suspect that working from home is a major drag on productivity. “Shirking
from home,” they call it. Here’s what the labor economist Nicholas Bloom
told us in a pre-pandemic episode, discussing some work-from-home
research he’d done.

Nicholas BLOOM: The three great enemies of working from home is

the ’fridge, the bed, and the television. And some people can handle
that and others can’t.

Bloom had analyzed a work-from-home experiment at a Chinese company

called CTrip.

BLOOM: It’s very much like Expedia in the U.S.

The CTrip jobs that moved home were call-center jobs. What did Bloom
find?

BLOOM: So, we found working from home raises productivity by 13

percent. Which is massive.

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So that’s what one economist measured in productivity within one type of

work at one firm in China — again, well before the pandemic. Bloom did a
recent study, along with Jose Maria Barrero and Steven Davis, to see what
people have been doing with all the time they aren’t spending on their
work commutes during the pandemic. Here are the headline numbers.
Before the pandemic, Americans were commuting, on average, 54
minutes a day. Bloom and his coauthors found that people spent about 35
percent of that saved commuting time on their primary jobs, and about 60
percent on all non-leisure activity, including housework and childcare. So
that is an interesting snapshot. But what about the bigger picture? What
have been the larger effects of this year-long, work-from-home
experiment? Or, as Morris Davis put it earlier:

DAVIS: How do we measure the essential ingredients of economic

activity related to working at home?

So that’s what Davis set out to do, along with his colleagues Andra Ghent
and Jesse Gregory. How do you even begin to answer such a broad
question?

DAVIS: Well, okay. Taking a step back, one reason many respectable
social scientists hate economics is because —.

DUBNER: I love any sentence that begins with that, just so you know.

DAVIS: We rely a lot on assumptions about how people behave, what

they care about, and how they make decisions. The thing that bothers
people about models of economics is that we don’t write about
everything. We write about a few things. When I talk to my mom or my
sisters, it’s always, “Well, what about this or well what about that?” I
say, “Well, I just ignore those things.” And they go, “Well, why does
this paper have any value if you ignore these things?”

DUBNER: Yeah, I’m with Mom. So, what’s your answer for that? I mean,

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I understand your aversion to whataboutism, which strikes me has

been a growing scourge because no one believes anything at all, even
if there’s ample evidence. But if you’re presenting a finding based on,
primarily, a model that omits some real behaviors, why should we pay
so much attention to it?

DAVIS: I’ll give you two reasons. The first is, I think of economics as a
science, and I think science builds on itself. So, you as the researcher
write down the things that you think are important, and then you let
the world know what the implications of that are. And that’s how we
build a body of evidence. The other thing is, while everything might
matter, everything might not matter to the same degree. And so our
job as economists is to try to pick out the two or three or 10 things that
really, really matter. So that’s what we try to do in our paper.

So Davis and his colleagues built a complex model using all sorts of data
(and assumptions), hoping to gauge the productivity trends of this work-
from-home experience. They focused on what they call “high-skill
workers” — essentially, college graduates who do the kind of work that
can be done at home or in an office. The office, they assumed, was in
some sort of central business district. And there was one more big
assumption in the model:

DAVIS: So, just for full transparency, we don’t observe productivity. We

infer it. We infer that productivity of working at home was on average
50 percent of what productivity of working in the office is.

So that’s quite different from the higher productivity for those Chinese
call-center jobs. When you measure across the entire work spectrum,
Davis says.

DAVIS: Working at home is always less productive than working at the

office. Always. So that would make you think, “Oh, then you always
want to work 100 percent at the office.” But the nature of these goods

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is that they’re complementary. So, on average, that’s true. But at the

margin, that’s not true.

That’s a little confusing; let’s back up. The central argument here is that
the office creates certain benefits that your home cannot beat.

DAVIS: The real benefit to being at the office is face-to-face

interaction — which might be painful if it’s your boss reprimanding
you, but this concept of a knowledge spillover — all of that causes, we
think, productivity to be higher at the office than at home. But we also
think working at home is not as unproductive as it used to be. Because
we have all of these tools at our disposal.

So Davis and his colleagues argue that productivity is substantially lower

when people work from home, but — and this is a big “but” — work-from-
home productivity has increased since the start of the pandemic. And not
by just a little bit. They argue it has increased 46 percent relative to the
productivity of working in the office.

DAVIS: Here’s the way to think about it. Whatever the productivity was
in 2019, we’re better at working from home than we used to be.

This was only possible because of technologies that already existed.

DAVIS: My co-authors and I — and I think many people — are now

viewing the technology that has enabled us to work from home almost
as important a revolution as, say, electricity. We think it’s going to
permanently change the landscape of where we work, how we value
housing, how we think about our commutes.

DUBNER: What would you consider the most important components

of that?

DAVIS: There’s a whole sequence of inventions that have led to us

being able to work remotely. The P.C.s that stopped crashing in the

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early ’90s. And then, you know, you had the Netscape I.P.O., which led
to a whole set of new firms exploring the World Wide Web. Email was
introduced right around the same time. Then we had smartphones as
compared to just regular old cell phones, enabling us to have instant
communication anywhere. And then finally, really, the things that have
mattered right now are high-speed internet, which became cheap
enough to become widespread; cloud computing, which enabled
massive instantaneous sharing of data; and then video-conferencing
technology.

DUBNER: In other words, we picked a pretty good time to have a

pandemic, is what you’re saying.

DAVIS: In the paper, we asked what would have happened if the

pandemic had occurred in 1990. And, you know, it was just much
harder to work from home in 1990. We’re not, in fact, sure how it could
have been done. The ability to work from home buffered the impact of
the pandemic on many people’s productivity and incomes. As well as
sickness, too. And for some people, the fact that you have access to
good coffee or you can take a brisk walk, you know, that makes
working at home have other benefits, too.

DUBNER: And theoretically, if you’re more satisfied or happier, that

may lead long-term to more productivity that we haven’t even seen
yet, right?

DAVIS: That’s right. I think what’s rapidly changed is our ability to use
the existing technology. It’s never been adopted en masse like this.
Expectations can be reset about what can be achieved.

DUBNER: Let’s say that you’re the C.E.O. or the owner of a firm where
working from home is a possibility and you have 1,000 employees and
you realize that their work-from-home productivity is decent, although
not as good as when they come in. How do you think about the

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balance of productivity versus your real estate? You used to have to

house during the day 1,000 people. What do you do now?

DAVIS: Boy, that is an awesome question and that’s a question that

every employer is asking right now: How much space do I need and
where should it be located? So, here’s something we assume in the
paper that non-economists will bristle at. But maybe if we just talk it
out, you’ll get comfortable with it. We assume that workers are paid
their marginal product for labor. Now, if workers invest more in a home
office, according to our assumptions in the model, that makes them
more productive. And their wages go up. So the chain is: firms will pay
less for office space but they’ll have to pay workers more because
workers are more productive. So firms will still be paying for office
space. They’ll be paying it to workers for workers to rent their own.

DUBNER: So, what happens to the price of commercial office space?

What are you predicting?

DAVIS: Let me just give a caveat that if the space can be converted,
then the impact on the prices differs. But if the space can’t be
converted, the price of office space will fall by about 20 percent in the
central business district.

DUBNER: Would we see a corresponding rise in exurban or suburban

office space?

DAVIS: Well, we don’t take a stand on that. I’ve talked with employers
around the state of New Jersey just to ask them what’s going on, how
are you handling this. We don’t know if employers are going to set up
small satellite offices, so that people have the option of leaving the
house but going somewhere close by. Which I think matters a lot if you
have small kids. But we do talk about the price of housing. We predict
that the price of housing will increase between 11 and 20 percent,
depending on where the housing is located. People expect to work

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from home more frequently and they want more space in their house
when they work from home.

DUBNER: I would almost think that if central-business areas are going

to decline, as you predict, and therefore people have more flexibility
about where they live, that theoretically, housing prices wouldn’t have
to rise so much because there’s now more flexibility, now more
options, and I can choose to live in other places.

DAVIS: This is the great question of our time, which is: how far can
people move away? And if they do move away, what productivity levels
will they have? There’s plenty of relatively inexpensive metropolitan
areas in the United States right now. Detroit, Milwaukee, Columbus,
Memphis, Oklahoma City. There’s lots of inexpensive, nice metro
areas. With a few exceptions, people aren’t moving there. At least they
weren’t. So, there were strong economic forces driving people to
places that were already expensive.

DUBNER: I’m curious how you think the changes may affect the tax
bases of those different areas. Do city centers inevitably suffer? Do
suburbs boom? If so, what are they going to spend all that money on?
Do the schools get better? I’m curious about any knock-on effects you
might see.

DAVIS: The first knock-on effect is that to the extent that cities’
finances depend on property taxes from commercial properties,
they’re going to suffer, probably greatly, because the value of office
buildings will fall. The rents will fall. And the simple reason is the space
just isn’t as useful as it used to be. People are not going to commute
as much as they were. I think it’ll be a real strain on New York City’s
finances, for example.

DUBNER: Now, I’m probably wrong, but I could imagine it going the
other way. So, hear me out for one minute, if you don’t mind. A lot of

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offices pre-pandemic were set up with open floor plans. Executives

and designers say that was meant to optimize flow and collaboration.
But as we’ve discussed on this show, that actually doesn’t always
happen. It’s a lot cheaper to build open office plans, but many people
who work there don’t like that openness. It’s noisy, it’s intrusive, and
they actually become less collaborative and often less productive.
Now, after the pandemic, you could imagine that a lot of people who
will be willing and even eager to come back to an office may not be as
comfortable with those open floor plans for pandemic reasons and
also just they’ve gotten used to having a little bit more control over the
environment. And if that were the case, maybe firms won’t be
downsizing. Maybe they’ll need more space. That’s my crazy theory.

DAVIS: It’s not crazy at all.

DUBNER: That’s the nicest thing anybody’s ever said to me.

DAVIS: But the one place where I might disagree with you is: will a firm
be willing to have a large office for one person that’s only occupied
two days a week? If you’re going to have all these offices that are only
half-occupied, are you really going to waste all that money?

As of April, more than 15 percent of office space in Manhattan was

unrented, the highest level in nearly two decades. Will that number fall, as
workers return to offices — and as some companies, including Google and
Facebook, continue to expand their New York office footprint? Or will
vacancies increase, as more firms decide that at least some of their
employees will keep working at least some of their hours at home? Here’s
one clue: in December, the Real Estate Board of New York — the lobbying
group for the industry — called on New York City to allow older, less
desirable office towers to be more easily converted to residential use.

GILMARTIN: I think it’s a winning idea because, you know, the average
age of our office stock is just over 70 years.

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That’s MaryAnne Gilmartin.

GILMARTIN: To be a great 21st-century city, we do need high-

performing, high-quality office space.

Gilmartin is a big real-estate developer in New York who recently started

her own firm, MAG Partners. Before that, she was a lead developer on
projects like the Barclays Center in Brooklyn and the New York Times
office tower in Times Square. She mentioned one of the biggest and
flashiest new developments in New York — Hudson Yards, a complex of
office and residential and commercial properties on the far west side of
Manhattan. It opened about a year before the pandemic; lately, much of it
has sat empty. But Gilmartin is bullish on its future.

GILMARTIN: I do think that Hudson Yards is really an example of high-

performing space and a flight to quality. Because let’s be clear,
Hudson Yards was never considered convenient. And so this flight to
quality means that some of the older office stock in certain locations
should be considered for conversions, because if we convert some of
the older office buildings, we will take down the supply of office space
and by doing that, we can also improve the fabric, the diversity, and
the social equity of our central business districts by bringing people
into those areas to live.

But what if the whole idea of the “central business district” has begun to
permanently erode? Yes, this idea has a long and profitable history, and
economists have shown there are huge benefits to density. Indeed, the
world has become more and more urban over the past few centuries, as a
place to work and live and play. How much will the pandemic change that?
For all the advantages that density offers, the pandemic has shown the
downsides too. Also, cities are a habit; and people can sometimes take up
new habits.

* * *

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As of today, roughly 50 percent of U.S. workers are still virtual; a year ago,
that number was around 70 percent. What will it be a year from now? No
one really knows. Some predictions say that office work will eventually
return to pre-pandemic levels. Other predictions say that office work has
been broken forever, that too many workers have seen the light. One new
research paper, based on survey data, estimates that 20 percent of full
work days will now be from home, versus just 5 percent before the
pandemic. Here again is the economist Morris Davis.

DAVIS: I live in a commuting suburb to Manhattan — and what I hear is

there were a set of my neighbors that were commuting five days a
week and they all say, I’m never doing that again.

DUBNER: Never doing five.

DAVIS: Never doing five.

DUBNER: They might do one or two.

DAVIS: Yeah, somewhere between one and three is the number that I
hear.

DUBNER: Everybody makes predictions about everything all the time.

Do you think that the prediction, the stated desire, will bear any
resemblance to the reality?

DAVIS: Yes.

DUBNER: Because why?

DAVIS: Because people do not like to commute.

Many predictions about the future of work do lean toward this hybrid
model — two or three days in the office, two or three at home. Many
companies have already moved in this direction. This creates all sorts of

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coordination and communication and strategic issues to work out. As one

software executive recently told the Wall Street Journal, “There’s going to
be a bunch of unintended consequences. It’s going to be a mess.” But
does it have to be a mess? Why can’t the technology that made working
from home possible during the pandemic make it more probable in the
future? To answer that question, we need help. What we need is a
researcher who was thinking about these issues long before anyone ever
heard of Covid-19.

CHOUDHURY: Hello, I’m Raj Choudhury. I’m the Lumry Family

associate professor at the Harvard Business School.

DUBNER: And you teach what exactly?

CHOUDHURY: So, my research and teaching is focused on the future

of work and especially on the changing geography of work.

DUBNER: I hate to say it, but given your pre-existing research

interests, it sounds like the pandemic has probably been good for your
work, yes?

CHOUDHURY: Yes. So it’s been the silver lining, I would say. And it’s
really been an interesting time to see how the phenomenon of remote
work is playing across industries and tasks.

Choudhury studies what he calls “work from anywhere.” It’s not quite the
same as work from home.

CHOUDHURY: In work-from-anywhere, you could be working from an

office, you could be working from a co-working space, you could be
working from your home. But most importantly, you’re working in a city
or town or village that you want to live, not where the company has an
office.

The pandemic has led many people in many countries to leave the area

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where their office is located, at least temporarily. Some firms have seen
their employees literally scattered around the world, creating what’s called
a “distributed workforce.” Choudhury grew up in part in India, which for
decades has housed a distributed workforce for many U.S. companies. I
asked him if there’s much to be learned from that history.

CHOUDHURY: There are some underlying similarities, of course. So,

there was the issue of time zones because distributor teams were
distributed across time zones. I think it’s just a dose issue. Now, if a lot
of employees spread out and start working from locations of their
choice, all these issues would be on steroids. How do you manage
communication? How do you manage coordination? How do you make
the whole team feel socialized and part of the same culture? And there
are solutions to all of these. There are management solutions to all of
these problems.

Several years ago, Choudhury came across an interesting program that

allowed him to learn a lot about working from anywhere. The program was
run by the U.S. Patent and Trademark Office, which is headquartered in
Alexandria, Va., just outside of Washington, D.C. It didn’t start out as a
work-from-anywhere program.

CHOUDHURY: The patent office allowed their patent examiners to

work from home in 2007. The deal was you work from home four days
a week, but then you come to office on Friday or Monday.

But then, in 2012—.

CHOUDHURY: In 2012, they said, “Now you can leave Alexandria,

Virginia, and live in any part of the continental U.S. And I found that
fascinating as a migration scholar, because many of these people had
gone back to smaller towns. So, this was like reverse brain drain
happening.

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Reversing brain drain is an issue for a lot of places, all over the world.
Because when smart, talented, highly-educated people migrate from rural
areas or smaller towns to larger cities, their hometowns suffer.

CHOUDHURY: It’s potentially great for emerging markets to get talent

back. That’s what I’m most excited about. I think India could get a lot
of talent back from the West, but it’s not only India. I think the Indian
smaller towns could be the winners. Because there are tier-two, tier-
three cities which have enough of an infrastructure that you could
work remotely and there’s all the benefits of lower cost of living. And I
think they could be the real winners instead of Bangalore or
Hyderabad or Delhi.

Again, you can see the upsides for employees. But how does work-from-
anywhere work out for the employers? With the U.S. Patent Office
program, Choudhury had a nice, natural experiment to answer that
question. The best news: not all patent examiners were eligible for the
program at the same time.

CHOUDHURY: As an economist, that creates a random timing for the

treatment.

Choudhury and his co-authors — Cirrus Foroughi and Barbara Larson —

set about to analyze the data. What happened to the productivity levels of
the patent examiners who had chosen to leave the D.C. area?

CHOUDHURY: We estimate a 4.4 percent increase in productivity.

A 4.4 percent increase in productivity!? And how was that measured?

CHOUDHURY: So the 4.4 percent is measured based on the average

number of actions, as they call it, which is essentially case files that
the examiner examines every month. So it’s very objective.

DUBNER: That’s great news. Do you know the why, however?

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CHOUDHURY: Yes. So what we essentially say that the mechanism

driving this was effort.

How was “effort” measured in this case?

CHOUDHURY: We looked at what kinds of case files were being

examined. And what we found was that they were increasing the
number of what the Patent Office calls first-office actions. The first-
office action is the first time the patent examiner is responding to the
lawyer on the other side, the company. And that needs the most effort
for the examiner. What we found was that the first-office actions went
up and the subsequent revisions didn’t go up as much. And if the
patent examiner wanted to slack, they could have done the reverse.

There’s one really important thing to note about this program. The Patent
Office did not adjust the income of the patent examiners based on where
they chose to live.

CHOUDHURY: And that was clearly a benefit, because real income

went up.

That’s because the Washington, D.C., area is expensive to live. You may
have heard that Facebook, for instance, has announced its employees can
live wherever they want for the foreseeable future — but if they’re no
longer living in somewhere like Silicon Valley, they will no longer receive
Silicon Valley salaries. Choudhury prefers the Patent Office model:

CHOUDHURY: My intuition tells me that that is the right way to

structure a salary, because if you adjust salaries based on location and
not task, then the risk is that your right tail of the distribution of talent
will jump to your competitor if your competitor gives them the same
salary for where they’re living.

Choudhury’s analysis of the Patent Office program didn’t include just

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quantitative data; he also interviewed patent examiners and asked why

they seemed to exert more effort once they were allowed to work from
anywhere.

CHOUDHURY: And the story that came, Stephen, was one of loyalty.
That “I was really helped by this policy because now I could move to
Philly and my daughter needs some medical treatment, which is only
available in Philly. No other organization will let me work in Philly and
do the kind of work I’m doing. So I have to give something back.”

DUBNER: That is so interesting. And it also implies that this

increasingly fractious relationship between firms and employees may
be turning a corner — at least for some sectors?

CHOUDHURY: Yeah. So we actually framed the work-from-anywhere

policy as a non-pecuniary benefit. It was highly valued by the patent
examiners, especially women. So the other group I spoke to were the
military spouses and diplomatic spouses and their story was that “We
had to change our jobs every few years because our spouse was
moving some base. And now we don’t have to because now we can
work from anywhere.” So it was a story of being happy and working
harder.

DUBNER: Okay. But what about, then, any kind of objective measure of
quality? Was there one?

CHOUDHURY: Yes, so we looked at two. We looked at these requests

for continued examination, which come from the firms and the patent
lawyers on their side. And we didn’t find any change. So quality on that
measure didn’t go up or down. And the other thing we looked at is the
most objective measure of quality on patent examination is how many
citations to prior art is being added by the examiner. And we found
that didn’t change. So quality didn’t improve, but it also did not
deteriorate.

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DUBNER: Can you just tell me, in terms of sectors where work from
anywhere is particularly possible, do you think there were
particularities about that kind of work, the patent examiners’ work, that
made it more viable than another kind of work?

CHOUDHURY: So, my priors have changed. So prior to the pandemic,

my thinking was that work from anywhere is more amenable to tasks
which can be performed more independently, such as the patent-
examination task, or think about call-center workers. What I believe
now is that there’s also a very robust way of engineering collaboration
and social interactions in the virtual world, which makes me think that
this is probably a much more pervasive phenomenon that we earlier
imagined this to be.

DUBNER: Why do you believe that now?

CHOUDHURY: So, a specific experiment I ran last year was around this
phenomenon of virtual water coolers, which engineered these random
interactions in the workplace between really senior managers and new
employees. And we found fascinating effects on performance, on the
probability of getting an offer for a full-time job.

DUBNER: Would you say that it was much more likely for, let’s say, a
low-level or a new employee to interact with a senior executive at this
virtual water cooler than if they actually were working at the office?

CHOUDHURY: So, these are interns all participating in this virtual

internship last year. And what they write in the surveys is that these
interactions facilitated knowledge-sharing, which normally would not
be written down in any manual. It’s stuff that the senior manager would
tell you only when they talk to you. This actually goes back to research
in the 1970s by Tom Allen at M.I.T. He studied our social interactions in
the physical office. And the amazing insight there was: yes, we do
have these serendipitous water cooler conversations or cafeteria

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conversations, but it’s almost always with people in very close

proximity of us in the office. So it exponentially decays with distance in
the office. And if there’s a floor between the two people, forget about
it. But in the virtual world, you can bring anyone together. So
presumably you can have much richer and more virtual interactions
than real physical ones.

DUBNER: So, if I’m a senior manager and I’m thinking the pandemic is
hopefully winding down soon and I plan to gather all of my employees
back in the office, what’s a key lesson from what you just told us about
this virtual water cooler that I should try to replicate in the office?

CHOUDHURY: So, first off, I think that’s a terrible idea.

DUBNER: Wait, you think it’s a terrible idea to have all the workers
back or to replicate the virtual water cooler?

CHOUDHURY: No, to go back in time to 2019. Even if workers are

being brought back to the office in a hybrid remote context, I feel
virtual water coolers are a great tool to facilitate discussions that
would normally not happen.

DUBNER: All right, why, Raj, is it a terrible idea to go back to 2019 and
persuade me that your answer is not influenced by the fact that you
are a work-from-anywhere scholar.

CHOUDHURY: So, you know, I think I am conditioned by that. But I’ll

make a case for you. So the case is that for the individual worker, it
would be sort of taking away the flexibility that workers are craving,
especially women. Because there’s tons of research which has shown
that in the past, women have borne the brunt of dual-career situations.
So if you had a promotion opportunity that might make you move from,
I don’t know, Columbus, Ohio to New York, and your spouse doesn’t
want to move there, you forego that promotion opportunity. So work

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from anywhere allows companies to hire from anywhere and create a

more inclusive workforce based on gender, based on disabilities. So
my prediction — and of course, this is testable — is that companies
that do not offer this option are going to lose the right tail of the talent
distribution.

DUBNER: You know, I found that with our project, with Freakonomics
Radio, we are built to have remote work. Although pre-pandemic, I was
the only one that worked remotely. And that’s just because I like being
alone and I’m a little bit antisocial. In the last, whatever, 14 months, we
found that hiring is a totally different prospect because, of course,
anyone can be anywhere. If I can hire from not just the New York area,
but anywhere else in the country, or indeed the world, I have access to
a much higher-caliber pool and larger pool of labor, yeah?

CHOUDHURY: That is absolutely correct. Also, it mitigates the frictions

of immigration, because you don’t need to get workers on an H-1B
visa. You’re not subject to that lottery system, which makes no sense.
But it’s also great for workers because they can make more real
income.

DUBNER: I have a feeling that if someone were to listen to this

conversation and you being really enthusiastic about the upsides of
working from anywhere — with data to back it up, for sure — but if we
were to take out every time you said the word “work” and plug in the
word “learn” or “online education,” I think people would laugh
uproariously, and think that you do not know what you’re talking about.
Because I think a lot of people during the pandemic have experienced
that online education is really hard for young children, older, college,
and so on. What do you think the work-from-anywhere revolution has
to teach the more rudimentary online-education revolution?

CHOUDHURY: That’s a very interesting question. I have not studied

the education space, so to be honest, I don’t have a research-based
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answer. But one related answer is I think it really opens up the

opportunity to consider colleges and universities which are not
normally in the radar of the H.R. departments. Because now you really
have an opportunity to go and hire from Idaho or Kenya. And I think
that’s good news for the education industry. And maybe our biases will
prevent us from doing that.

DUBNER: I mean, says the guy at Harvard Business School, right? We

should take this with a grain of salt.

CHOUDHURY: But I think that is the real opportunity, right? And, you
know, I’ve actually done some empirical work there. And what we
found was that the right tail of the distribution in these lesser-known
colleges in India, we found, based on a standardized test score of
math, that they were much higher than the middle of the distribution in
the elite colleges. And I have not tested that in the U.S. That should be
the same. So I think that’s the real opportunity with respect to higher
education.

Raj Choudhury, as much as he supports the work-from-anywhere

revolution, doesn’t deny the importance of face-to-face interaction, at
least in certain contexts. He once did a study of inventors based in India.
He found that when an inventor’s manager visited a company’s U.S.
headquarters, the Indian inventors were twice as likely to receive a patent.
Choudhury is also working on a study that looks at what happens when
co-workers travel to a company retreat in the same car to and from the
airport.

CHOUDHURY: And we find that the people who travel together, they
help each other during the Covid months. We’re still writing that paper
up. But, you know, I think face-to-face is here to stay, as is remote
work. The equilibrium is to find ways to facilitate face-to-face within
the remote-work model.

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GILMARTIN: There are these ideas, collision of ideas, some of it’s

deliberate, some of it’s spontaneous, but, you know, there is no
“eureka” coming over a Zoom call, I would submit.

That, again, is the New York real-estate developer MaryAnne Gilmartin.

Remember, she recently opened her own firm.

GILMARTIN: Mentoring and upskilling really requires interactions, and

my decision to rent space in April and not wait is because of the age
and the ambition of the people that work for me, and they want to be
part of something bigger than themselves, and they don’t want to be
in their apartments. They want to be amongst other bright people. If I
can look at my workforce and say, you know, “Craft your perfect
arrangement, how do you want your life to be lived? Tell me what
works,” I’ll get different answers. So one person on my team would
love to go to Maine in August with her family and her children. I
probably could do that for her now because I know that it’s going to be
okay. But that’s different than saying over a very long period of time,
people not being with people is sustainable, and that talent is going to
find that invigorating and that great ideas are going to be surfaced and
great things achieved. I think it’s not true.

That may not be true, but some places are acting as if it is. They’re acting
as if anyone can live anywhere, regardless of their employer. Places like
Tulsa, Oklahoma. Here again is Raj Choudhury.

CHOUDHURY: So I was studying work from anywhere in 2016, 2017,

and then I stumbled upon Tulsa Remote in late 2018.

Tulsa Remote is a project funded by the George Kaiser Family Foundation,

which promotes equality and inclusivity in Tulsa, a city of about 400,000
people. In the years just before the pandemic, the state of Oklahoma had
its worst population outflow in years, as college graduates kept moving
away. Tulsa Remote wanted to reverse this brain drain — although you

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didn’t have to be from Tulsa to take advantage; you just had to prove you
lived outside the state of Oklahoma.

CHOUDHURY: And the incentive was a financial one: they offered

$10,000 to each remote worker who would move to Tulsa and stay
there at least for a year.

A lot of cities use incentive schemes and tax breaks to attract employers.
But Tulsa Remote, taking advantage of work-from-anywhere technology,
was going after employees.

CHOUDHURY: The reason I like the Tulsa Remote experiment is it talks

to this chicken-and-egg problem when you’re trying to attract
companies Because the company might get a huge tax break, but the
company also needs workers. And traditionally, the problem has been
companies don’t want to come to these small towns because there’s
not enough talent. And then workers don’t want to come there
because there are not enough companies. But if you can move
workers, who could remotely work for other companies, then you are
breaking this vicious cycle.

In 2018, the first year of Tulsa Remote, there were 25 slots available for
the $10,000 bounty. After receiving 10,000 applications, they bumped it
up to 100 slots. Choudhury is now studying these new Oklahomans.

CHOUDHURY: When I interviewed them, disproportionately, the

reason they gave for why they were moving to Tulsa was either cost of
living or getting a much cheaper house to raise their family. But also
this opportunity to contribute to the community. So these were very
pro-social people. They really wanted to give back to the Tulsa
community in meaningful ways.

In his preliminary analysis of the program, Choudhury has found that the
state of Oklahoma gained around $2,000-$3,000 a year from each new

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Tulsa worker.

CHOUDHURY: And so as a result of that, the state of Oklahoma got

really excited about the program. And I believe they just passed this
bill, which would reimburse Tulsa Remote from the government if the
remote worker stays for at least a year. So now the government is sort
of getting involved.

Remember, the experiment has been funded so far by a foundation.

CHOUDHURY: And I think it’s great news for the financial sustainability
of this program because now Tulsa Remote could scale up and get
more workers to relocate to Tulsa.

All this is good news — good ammunition — for a work-from-anywhere

argument. The same could be said for Raj Choudhury’s patent-examiner
study — and for Morris Davis’s study too, which showed a huge increase
in work-from-home productivity since the start of the pandemic. Still, all
these studies revolved around a certain kind of worker, a worker whose
talents and education and training made them eligible for working from
home in the first place. But that does not describe all workers. This was
one more assumption that Morris Davis and his colleagues factored into
their predictive model.

DAVIS: We expect income inequality to widen as a result of this work-

from-home revolution. You’re much more likely to benefit from work-
from-home technologies if you’re already a highly skilled, well-
compensated employee. We’ve boosted the productivity of people
that were already productive and made a lot of income. You know,
work-from-home technology doesn’t help you if you’re a barber. Or if
you are a delivery person. Because the work-from-home technology
disproportionately affects people that are already high-wage and
high-skill, we expect income inequality to widen by a significant
margin.

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DUBNER: Do you have a number?

DAVIS: Yeah, we do. Right now, the ratio of income of high-skill to low-
skill, where high-skill is defined as a four-year college degree, right
now, that number is about 1.8. We expect that number to increase by 7
percent to a number like 1.92, 1.93.

DUBNER: And moreover, talking about the high-income, high-skilled

gains, I mean, I don’t mean to sound immodest, we are them, right? It’s
the high-income, high-skilled workers who are telling the story of this
working-from-home revolution.

DAVIS: That’s right. By the way, this work-from-home revolution is a

continuation of trends that have started since the mid-’70s. There’s a
concept called skill-biased technical change. It means that the
inventions that have come online over the past 40, 50 years, they’ve
primarily benefited high-skilled workers. So this is just an unfortunate
continuation of trends that have been in place.

As we’ve heard today, there are a variety of moving targets, a variety of

unknowable variables, when you think about the future of work. If you’re a
big believer in technology per se, you may think that lower-skilled workers
will also benefit, eventually. If you’re a skeptic, you might see the gap
widening. We’ve been exploring the relationship between technology and
labor for years on this show — most recently, in Ep. 461, “How to Stop
Worrying and Love the Robot Apocalypse.” And we’ll continue to talk to
smart researchers like Morris Davis and Raj Choudhury to figure things
out. Thanks to them and to MaryAnne Gilmartin for all their wisdom today.

* * *

Freakonomics Radio is produced by Stitcher and Renbud Radio. This

episode was produced by Mary Diduch. Our staff also includes Alison
Craiglow, Greg Rippin, Joel Meyer, Tricia Bobeda, Mark McClusky,

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Rebecca Lee Douglas, Zack Lapinski, Brent Katz, Morgan Levey,

Emma Tyrrell, Lyric Bowditch, Jasmin Klinger, and Jacob Clemente.
Our theme song is “Mr. Fortune,” by the Hitchhikers; the rest of the music
was composed by Luis Guerra. You can subscribe to Freakonomics
Radio on Apple Podcasts, Spotify, Stitcher, or wherever you get your
podcasts.

* * *

Here’s where you can learn more about the people and ideas in this
episode:

SOURCES

Morris Davis, economist in the Business School at Rutgers University.

MaryAnne Gilmartin, New York City real-estate developer.
Raj Choudhury, the Lumry Family associate professor at the Harvard
Business School.

RESOURCES

“If You Thought Working From Home Was Messy, Here Comes Hybrid
Work,” by Chip Cutter (The Wall Street Journal, 2021).
“Seven in 10 U.S. White-Collar Workers Still Working Remotely,” by
Lydia Saad and Jeffrey M. Jones (Gallup, 2021).
“The Hybrid Workplace Probably Won’t Last,” by Jon Levy (Boston
Globe, 2021).
“Companies Moving to Hybrid Workplaces Will Face New
Challenges,” by Meghan McCarty Carino (Marketplace, 2021).
“New York City Area Marketbeat Reports,” by Lori Albert (Cushman &
Wakefield, 2021).
“Google to Invest $250M in New York for Jobs, Office Space,” by
Kaya Yurieff (ABC7, 2021).
“The Work-From-Home Technology Book and Its Consequences,” by

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Morris A. Davis, Andra C. Ghent, and Jesse M. Gregory (NBER

Working Papers, 2021).
“How the Pandemic Left the $25 Billion Hudson Yards Eerily
Deserted,” by Matthew Haag and Dana Rubinstein (The New York
Times, 2021).
“The ‘Hybrid Model’ Of Working Remotely And In The Office Could
Create Big Expenses For Companies And Give Rise To Two Classes
Of Employees,” by Jack Kelly (Forbes, 2021).
“The Work-from-Home Technology Boon and its Consequences,” by
Morris A. Davis, Andra C. Ghent, and Jesse M. Gregory (NBER
Working Papers, 2021).
“Cuomo Pushes for Commercial-to-Resi Conversions,” by Kathryn
Brenzel (The Real Deal, 2021).
“It’s Time to Reimagine Where and How Work Will Get Done,” by
PwC’s Remote Work Survey (2021).
“Work-From-Anywhere: The Productivity Effects of Geographic
Flexibility,” by Prithwiraj (Raj) Choudhury, Cirrus Foroughi, and
Barbara Larson (Strategic Management Journal, 2020).
“REBNY’s Political Contributions Plummet,” by TRD Staff (The Real
Deal, 2020).
“Tulsa Remote: Moving Talent to Middle America,” by Prithwiraj
Choudhury and Emma Salomon (HBS Case Collection, 2020).
“Mapping The Tech Takeover of New York City,” by Amy Plitt, Valeria
Ricciulli, and Caroline Spivack (Curbed, 2020).
“Facebook Employees Could Receive Pay Cuts as They Continue to
Work From Home,” by Coral Murphy Marcos (USAToday, 2020).
“Virtual Watercoolers: A Field Experiment on Virtual Synchronous
Interactions and Performance of Organizational Newcomers,” by Iavor
Bojinov, Raj Choudhury, and Jacqueline Lane (working paper, 2021).
“60 Million Fewer Commuting Hours per Day: How Americans Use
Time Saved By Working From Home,” by Jose Maria Barrero, Nick
Bloom, and Steven J. Davis (BFI Working Paper, 2020).

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“Middle America’s Brain Drain,” by Graphic detail (The Economist,

2019).
“What Does Oklahoma’s Brain Drain Look Like? 5,300 College Grads
Leaving the State Annually,” by Federal Reserve of Kansas City (Tulsa
World, 2019).
“Navigating Tradeoffs in a Dual-Career Marriage,” by Monique
Valcour (Harvard Business Review, 2015).
“Return Migration and Geography of Innovation in MNEs: a Natural
Experiment of Knowledge Production by Local Workers Reporting to
Return Migrants,” by Prithwiraj Choudhury (Journal of Economic
Geography, 2015).
“Does Working from Home Work? Evidence from a Chinese
Experiment,” by Nicholas Bloom, James Liang, John Roberts, and
Zhichun Jenny Ying (The Quarterly Journal of Economics, 2014).
“Workspaces That Move People,” by Ben Waber, Jennifer Magnolfi,
and Greg Lindsay (Harvard Business Review, 2014).
“New York’s Aging Buildings,” by Roland Li (Observer, 2010).
“Stress that Doesn’t Pay: The Commuting Paradox,” by Alois Stutzer
and Bruno S. Frey (The Scandinavian Journal of Economics, 2008).
“Fair vs. Equal Role Relations in Dual-Career and Dual-Earner
Families: Implications for Family Interventions,” by Vicki C. Rachlin
(Family Relations, 1987).
“Understanding Effects of Proximity on Collaboration: Implications for
Technologies to Support Remote Collaborative Work,” by Robert E.
Kraut, Susan R. Fussell, Susan E. Brennan, and Jane Siegal
(Distributed Work, 1977).

EXTRA

“Yes, the Open Office Is Terrible — But It Doesn’t Have to Be (Ep.

358),” by Freakonomics Radio (2018).
“How to Stop Worrying and Love the Robot Apocalypse (Ep. 461),”
by Freakonomics Radio (2021).

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