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As part of ongoing cost-cutting measures under new owner and CEO Elon Musk, Twitter is shutting down its Seattle offices and instructing employees to work remotely. That’s despite Musk earlier claiming that remote workers are only “pretending to work” and banning remote work at Twitter upon taking it over in early November.
So what explains his change of heart? Apparently, it’s the costs associated with the company’s Seattle office, including rent but also services such as cleaning and security.
The fact that Musk — an extreme skeptic of remote work — acknowledged its cost-cutting benefits illustrates the future of remote work for the U.S. economy. It highlights the misleading nature of many headlines that claim an impending recession would lead to the end of remote work since a cooling labor market will give executives more control to require employees to return to the office. That’s because many employees prefer to work remotely and most executives want their employees in the office.
However, the reality is that the impact of a recession on remote work is more complex than simple leverage from a cooling labor market. Of course, it’s true that during a recession, employers have more leverage. At the same time, they need to focus on maximizing the return on investment from their employees.
In times of economic growth, executives have more freedom to make decisions based on their personal preferences and intuitions. But during a recession, they may need to hunker down, be more disciplined, and rely on data to make decisions that make the most financial sense for the company — like Musk choosing to have Twitter staff work remotely for the sake of cutting costs. This focus on profitability over personal preferences benefits remote work.
Evidence shows that remote work is more productive than in-office work, which makes facilitating remote work especially important in a time of cutting costs since higher productivity means companies need fewer employees to do the same amount of work. A study from Stanford University reported remote workers were 5% more productive than in-office workers in the summer of 2020. By the spring of 2022, this productivity gap had increased to 9% as companies continued to improve their remote work practices and invested in technology that supported remote work. A different study used employee monitoring software, and also found that remote workers are more productive than in-office workers. A recent National Bureau of Economic Research (NBER) study found that productivity growth in industries with a high reliance on remote work, such as IT and finance, grew from 1.1% between 2010 and 2019 to 3.3% since the start of the pandemic. In contrast, industries that rely on in-person contact, such as transportation, dining, and hospitality, experienced a change in productivity growth from an average increase of 0.6% between 2010 and 2019 to a decrease of 2.6% since the start of the pandemic.
While collaboration and innovation may be weaker in a remote setting compared to an office setting, this can be addressed by using best practices for collaboration and innovation in remote settings, such as virtual asynchronous brainstorming. Studies have also found that greater worker autonomy and flexibility can lead to more innovation, and remote work facilitates autonomy.
In addition to being more productive, remote workers show a willingness to work for lower pay, another factor that will boost reliance on remote work in an upcoming recession. An NBER study illustrates that remote work lowered wage growth by 2% over the first two years of the pandemic, as employees often view remote work as a valuable benefit and decreased salary demands in exchange for remote work options. For a specific example, a survey of 3,000 workers at top companies such as Google, Amazon, and Microsoft found that 64% would prefer to work from home permanently rather than receive a $30,000 pay raise. Companies that offer remote work opportunities may also benefit from lower cost-of-living expenses, as they can hire employees from lower-cost-of-living areas within the U.S. or even outside the country.
Even during a recession, companies need to hire to replace people who leave, and we’re in an unusual situation of a surprisingly tight labor market despite the negative economic news. Remote work makes it easier for companies to attract top talent, as a Morning Consult survey found that over 60% of respondents would be more likely to apply for a job that offered remote work options.
Remote work can also improve employee retention, and it’s very costly to replace employees, especially given the challenge of hiring good talent in our current labor market. A survey by the ADP Institute found that nearly two-thirds of respondents would consider looking for a new job if they were required to work in the office full-time. Flexibility is a key factor in job satisfaction, and a study by the National Bureau of Economic Research found that offering a hybrid work schedule, which includes both remote and in-office work, can improve retention by over a third, compared to a fully office-centric schedule. In fact, one of my clients who I helped figure out future work arrangements, made the decision to adopt a fully remote model after finding that over 85% of its employees preferred full-time remote work.
Even the Biden administration has recognized the benefits of remote work. After initially encouraging federal workers to return to the office, the administration now changed its stance and began advocating for remote work as a way to improve recruitment, retention and productivity among government employees. That stance matches a Cisco survey of federal government workers, which found that 66% prefer to work remotely more than half the time, with 85% saying that the ability to work from home significantly improves their job satisfaction.
As the cost savings and productivity benefits of remote work become more apparent, more traditionalist executives will recognize the benefits of supporting their employees working remotely on a full-or-part-time basis. However, this shift may prove challenging for these leaders due to cognitive dissonance, or the difficulty in reconciling conflicting information, such as their personal preferences and the financial realities of remote work. Moreover, traditionalist leaders struggle to adapt to new work models due to cognitive biases, which impair decision-making in various areas of life. The most effective leaders are willing to change their minds when confronted with new information, while less capable leaders may fall victim to confirmation bias, seeking out information that supports their preexisting beliefs, or the ostrich effect, denying negative facts about the world. As a result, companies with inflexible leaders will underperform compared to more adaptable organizations, and these leaders will ultimately be replaced by those who embrace remote work.
Leaders need to show much more discipline in troubled economic times, focusing on company bottom lines over personal preferences. Remote work means greater productivity and lower salary costs, along with decreased costs through improved recruitment and retention. These people-related cost benefits add on top of the cuts in expenses for rent, cleaning, and security as companies give up now-unnecessary office space. In my conversations with clients who I help transition to hybrid and remote work, these cost savings have been increasingly important in recent months as a recession looms. And if even hard-line opponents of remote work like Musk see these obvious benefits, we can anticipate that a recession will prove a major boost to remote work.
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Gleb Tsipursky
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