How to measure the business impact of hybrid work

Featured in today's briefing:

• What we now know about hybrid work.
• Women’s gains in compensation and leadership roles.
• Our nation of newbie workers.

You can read more at charterworks.com, and forward this to a friend. And find out more about how Charter helps organizations navigate the current challenges and reset practices for the long run.

The Virus

The latest virus forecast: The US had an 8% decrease from two weeks earlier, with about 88,000 new Covid cases on Friday. New booster shots updated to also target the Omicron subvariants BA.4 and BA.5 are expected to be available to the public within days.

The business impact: US employers added fewer employees, more people entered the workforce, and wage inflation moderated  in August—all signs that the labor market remains healthy but is cooling. Average hourly wages for private sector workers were up 0.3% last month from July, and were 5.2% higher than a year earlier. Labor Day weekend travel is expected to reach or surpass pre-pandemic levels, with Airbnb and other short-term rental bookings for this weekend up 16% from 2019.

Focus on What Research Now Tells Us About Hybrid Work

Nicholas Bloom, a Stanford economics professor, studied remote and hybrid work arrangements for years before the pandemic—but never at the societal-wide scale that we’ve seen for the past two-and-a-half years.

We’ve interviewed Bloom several times since the start of 2020 and his recommendations for approaching hybrid have been widely followed by companies. Research Bloom conducts with colleagues shows that as of now, roughly 55% of US workers are fully in person, 30% are in hybrid arrangements, and the rest are fully remote.

We went back to Bloom earlier this week for his takeaways on how things have actually played out in practice, his prediction for how executives’ efforts to bring people back into the office more often will resolve, what common mistakes companies are making, and how a softening economy could alter workplaces’ trajectories. Here are excerpts from our conversation, edited for space and clarity:

You've said that hybrid is the best approach for most organizations, where the nature of the work allows it to be done remotely part of the time. We've now had a large-scale experience of hybrid for a few years. Based on studying that, are there any learnings or nuances that you'd add to your earlier view?

Generally I think hybrid has worked really well. And the fact that most firms are adopting it tells you that. As an economist, there's something called 'revealed preference.' If people are always choosing product A over product B, product A has to be, for the price, just a better deal. You don't need surveys if everyone's voting with their feet— you know that's really the best outcome. So the fact that hybrid has become dominant tells you it's generally working.

But what's been tricky is there has been this transitionary phase whereby employers said, 'We're going to move to hybrid, but we want a bit of social distancing in the workplace. We're going to let people choose, to deliberately space them out.’ And everyone you speak to complains about the result of that. Most people, apart from introverts, have complaints about coming in and it being quiet and dead and people shouting into laptops—and what's the point of coming in to be on Zoom all day? This makes things harder now. I'm talking to a number of companies that say it's a bit tricky now to transition into, 'OK, you're coming in for the same number of days, but we're going to choose which days, or at least at the team level you need to coordinate.' If you look at the surveys, the key reason by far that people come into work is to see colleagues and work with colleagues.

When you ask people, when you come in to work, would you like your colleagues to be there, 80% say yes. So there's 80% of people that at least want their colleagues to be there. (The other 20%, maybe they're in the wrong firm. If you hate your coworkers, it's quite possible you're in the wrong job.).

But the biggest challenge—and maybe the one unexpected bit—is how much employees have got comfortable with choice of days in the office and like to flip that around each week, for whatever reason, childcare reasons, work, personal reasons, etc. I think it's going to settle down into team by team when it makes sense to come in together.

What can we say at this point about the business impact of this shift to hybrid?

I'll give you four reasons why people like hybrid and then see if I can actually put a profit number on it. One is it keeps employees happier. Quit rates are down. In the randomized control trial we are just wrapping up, quit rates are down 35%. People report repeatedly in survey after survey that they value it at somewhere like 7% or 8% of a pay increase.  A free pension plan is about the same value to employees.

Benefit two is it improves productivity. The numbers here are low, but the central estimate of over a number of studies is 3%, 4%. Not huge but positive. Where do those numbers come from? They come from two places. Firstly is time. So if you are working from home two days a week, on average, you are saving 70 minutes a day commuting. In survey data it looks like 30 minutes of that day is spent working more, 40 minutes is spent on other things. But as an employer, if you have people working from home two days a week, they work about an hour more for you over a 40-hour week. That's 2% more hours. So that's 2%. And then the other 1%, 2% comes from on the days you're at home if it's organized well, it's quieter so people are typically more efficient.

I have some extremely high-accuracy data on minute-by-minute activity and you can see people at home just take less breaks, less coffee breaks. They go to the toilet less. They're quicker. They take way shorter lunches. If you're working from home, your lunch break is typically 20, 30 minutes. If you're in the office it can easily be over an hour. So those two add up to about 3%, 4% benefit.

Three is harder to quantify, but it's definitely important, which is support for diversity, equity, and inclusion. Slack's Future Forum has some stuff. We have surveys showing that everyone, all demographics, ages, races, etc. like working from home. But there's a slightly stronger preference for people with kids, for women, for minorities. And what that means is if you are tough and force a full return to the office, you're going to see a higher attrition of diverse employees. That's a real DEI cost.

The final benefit, which oddly enough is last, but most people pre-pandemic put first, is saving on space. It turns out that it's really hard to save on space because of hybrid. Typically people are coming in Tuesday, Wednesday, Thursday, because I want to work from home Monday, Friday. So you have this problem where you can't sublet office space on Monday, Friday. No one really wants it and it's hard with security. If you share office space, how are you going to lock up computers and filing cabinets and things?

So if you had to put a number on it to give a very, very rough figure for a typical business, with two-thirds of costs from payroll, you basically reduce payroll costs by 7% or 8%. All else being equal, if people count hybrid as a 7%, 8% pay increase, you can basically not push their pay up by as much and have them not quit on you. So that probably is like a 5% net addition to the bottom line. Productivity is up 3% to 4%. That's 3%, 4%, maybe more revenue, holding costs constant. It's harder to cost DEI and space, but you could easily see pushing up profits by 10%, 20% versus a full return.

That's why every firm just about out there is doing hybrid, because it's such a no brainer to increase profit. The bigger question is how to execute it.

In terms of execution, what are the biggest mistakes you're seeing organizations make and what should they be doing instead?

The biggest mistake is ceding full control over choice of days to employees over which days and how many days. Employees, when they come in, want to see their coworkers. So if you let people fully choose, you'll find that in a team of 10 people, you never get a day when everyone's there. So every single meeting that the full team has, has to have people on Zoom. It's uncomfortable. It leaves people out. There's cliques that form. It's frustrating. The meeting ends, people on Zoom disconnect, and of course the meeting continues in the corridor.

The other thing is trying to get people back for too many days because of sunk-cost fallacies. Like 'We have this space, we should use it.' The fact you have this space doesn't mean you've got to force people in unnecessarily. There's plenty of evidence for the great resistance. And we find the great resistance is from two forms. One is, we survey employers and only 80% are coming in for as many days as their managers or their firm wants them to. So 20% are not, which is a high number. If you surveyed people pre-pandemic and said how many people are not coming in every day they're supposed to, it would have been close to zero.

The other issue is, what's your manager doing about it for those that are not coming in? The largest response for about 40% is nothing. The managers are resisting too. The reason is that middle managers are basically saying, it makes no sense to be forcing employees back four days a week. So if my employees are coming in two or three, I'm just turning a blind eye. And it's kind of like that old saying about laws: A bad law makes an unenforceable law. Well, a bad management rule makes an unenforceable management rule because middle management just don't agree with it. They resist as much as the employees at the bottom.

The return after Labor Day seems to be a bit of a showdown at some companies where the executives want people back in and employees are reluctant, as you just said. How do you see that playing out?

I've been laughing at this Labor Day thing in the media because this is the third Labor Day showdown. I can tell you it's 2-0 to employees. It wasn't even close. It's like Manchester City taking on Grimsby Town—I know what's gonna happen. It's going to be 3-0. They're just not going to come back. I'm not saying they're not coming back for zero days, but any firm trying to get people back five days a week, that's the fastest way to exit a whole bunch of employees.

I would support getting employees back two, three days a week, but mostly they're doing that. So I don't think you'll see a shift in the aggregate numbers. I'm going to make this prediction now, it's the very end of August. We're going to run the survey again in September and October and you can look at the data, but having looked at a series that's basically flat now in terms of the share of days working from home for the last six months, I really see Labor Day as a kind of a make-believe deadline that is going to come and go as it has in the past, like multiple RTO dates that have come and gone.

To what extent do you see the uncertainty around economic growth affecting remote and hybrid plans, especially in terms of employee leverage for flexibility?

It's certainly true that the Fed is trying to engineer a soft landing. Even if it's a soft landing and not a hard landing, it's going to make labor markets less tight. So it's going to be harder to change jobs. Employers are going to have more power. The correct question is whether that will affect the uptake of work from home. I don't think so.

Going back to the four reasons, keeping employees happy, increasing productivity, supporting diversity, saving on office space—collectively, I don't think those are more important in a boom than a recession. For some of them you could argue actually the reverse. In the short run, it will fluctuate a little bit, but I don't see it changing more than a few percent as it goes up and down.

The big issue in the longer run is technology. The pandemic has led to a sixfold increase in work-from-home days, which has led to an enormous increase in the rate of technological progress in hardware and software to support it because firms see it as a much bigger market. If markets get big, firms innovate to support it, like in America, there's lots of old people and pharmaceutical firms are developing drugs to support older patients.

The same thing precisely is happening with work-from-home technology. Things like virtual reality, augmented reality, holograms, better AI to support audiovisual. So that's going to mean certainly in three plus years—maybe even before—the trend is going to continue to go back upwards again. If I was making any long-run decisions over organizational structure, strategy, office space, growth rates, I would actually predict if anything, work from home is rising, it's not falling. Certainly five years from now, I think it would be above where it is now.

Read a full transcript of our interview, including more about why he says hybrid is a dominant model and how to best manage when you have both remote and hybrid workers.

What Else You Need to Know

Women are gaining ground more quickly in both leadership roles and compensation. A demographic analysis of the top ranks of Fortune 100 companies found that on average female executives reach their position 1.5 years sooner than their male counterparts.

• The study, conducted jointly by researchers from Wharton and Madrid’s IE School of Business, examined 40 years of data. While the number of women in executive leadership increased during that time, from zero in 1980 to 27% in 2021, the top jobs remain heavily male, with just 6% of female leaders holding CEO, COO, or president titles last year.
• Women are also seeing their wages grow more quickly, with a 7.8% year-over-year increase in August compared to 7.5% for men, according to the ADP Research Institute’s monthly report released this week, which analyzed payroll data for more than 25 million workers. Women made an average annual salary of $47,000 last month, some $17,000 lower than men’s average annual salary of $64,100.
• Earlier this week, California became the first state to pass legislation requiring employers with more than 100 workers to make public their gender and racial pay disparities. The measure, which is awaiting governor Gavin Newsom’s signature to become law, also mandates that companies publish salary ranges on their job postings, bringing California into the ranks of Colorado, Washington state, and New York City, all of which have current or pending salary-transparency laws.

The Great Resignation has given rise to the Great Automation. Amid ongoing worker shortages, companies purchased a record number of robots last quarter, according to the Association for Advancing Automation.

• More than 12,300 robotic units were sold between April and June, up 6% from the previous quarter and 25% from the same time last year.
• The World Economic Forum’s 2020 Future of Jobs report estimated that by 2025, automation will displace 85 million workers worldwide while creating 97 million new roles, while a 2017 report from McKinsey predicted that somewhere between 75 million and 375 million workers will need to switch job categories and learn new skills as a result of automation.
• A recent Washington Post analysis argued that US knowledge workers are also now at heightened risk of having their jobs outsourced globally, as the rise of remote work has shown employers that they can decouple a role from the office to hire more cheaply.

Support for unions is peaking as workers enjoy greater leverage in a tight market. Some 71% of Americans currently approve of unions, the highest number in more than half a century, a representative Gallup poll found this week.

• Union members surveyed by Gallup pointed to better pay and benefits, employee rights and representation, and job security as their top reasons for joining.
• Union activity rose significantly in the first nine months of the fiscal year, with a 58% increase in union petitions and a 16% increase in unfair labor practice charges filed with the National Labor Relations Board from the same time in 2021.
• In a departure from years past, a growing number of workers—including employees at Amazon and Trader Joe’s—are choosing to organize into independent unions, which have no ties to larger labor organizations.
• Some experts believe an economic downtown is likely to put a damper on organizing.  Julia Pollak, chief economist at Zip Recruiter, told The Washington Post: “Could labor activism be affected by a slowdown? Of course… When people become more nervous about the availability of alternatives, they become less likely to rock the boat.”

Return to workplace speed round:

• Over half of full-time employees in a recent Gallup poll reported that their jobs can be done remotely. Of those remote-capable employees, 20% work fully in the office,  half work hybrid, and 30% work entirely remotely.
• Law firms in the seven largest US cities have returned to offices at 55.6% of their pre-pandemic attendance, 12% higher than the average across all industries.
• Google employees are pushing back against the company’s return-to-office policy following a Covid outbreak at its Los Angeles location. Some 145 employees were infected, the largest outbreak at any private employer in Los Angeles County.
• Office occupancy is sitting at 43.5% of pre-pandemic levels, according to card swipe data from Kastle Systems, a number that has remained relatively steady since April 2022.
• Goldman Sachs will be easing its employee vaccination, testing, and masking requirements after Labor Day as part of the company’s push to bring workers back to the office full-time. Morgan Stanley is similarly easing Covid prevention efforts beginning this fall.
• Even as inflation drags down overall restaurant sales, breakfast sales at fast-food restaurants and coffee shops are rebounding to near pre-pandemic levels as workers return to their normal morning routines.
• The ability to save money on gas and lunch is one of the most appreciated benefits of working from home, according to data from WFH Research, with more than half of employers citing it as the top perk of a remote setup.

Here are some of the best tips and insights from the past week for managing yourself and your team:

• Use a text-tone change to cut down on message distraction. If you’re easily distracted by each and every ding your phone makes, assign a special ringtone to certain contacts whose messages you don’t want to miss. That way, if a text comes in while you’re trying to focus, you can know without checking when you need to reach for your phone and when you can filter out the noise.
• Protect your thinking from anchoring bias. To avoid anchoring bias—the tendency to over-value earlier reference points, even if they’re irrelevant—do a mental accounting of all the information you’re using to make a decision, then ask yourself if it’s truly relevant to the situation at hand.
• Use the job interview to understand expectations for caregivers. Not everyone feels comfortable saying that they have caregiving responsibilities when being recruited for a job, but asking the right questions during the interview can help you gain insight on how work expectations might fit with caregiving responsibilities. Try asking about job requirements, flexible schedules, asynchronous working, and cross-functional collaboration.
• Declutter by stepping into strangers’ shoes. Try viewing your workspace through the eyes of a client or visitor to identify what needs to be streamlined, re-organized, or refreshed.

Coda

Consider this a wake-up call to close some tabs. The average employee switches between apps and websites around 1,200 times over the course of the workday, according to new research.  At two seconds per switch, that’s four hours each week and five workweeks per year.

A lot of people are still getting a hang of their jobs. Job switching and large-scale pandemic layoffs and now staffing up mean that many workers in sectors such as the airline industry aren’t very experienced at their roles.

• It explains part of the chaos traveling these days. A recent low-speed collision between two planes near a Newark Airport gate, for example, was blamed on the inexperience of the ground staff. Baggage handling, airplane boarding, and customer service are all areas experiencing more hiccups because new hires are still learning.

The handbook for this new era of business doesn’t exist. We’re all drafting our own as we go along—and now we’d like to start doing so together. You can sign up here to receive this briefing by email.