In a Tight Labor Market, Remote Work Makes Inroads

Large firms in our sample reported that on average 41 percent of full-time employees worked from home one or more days per week. The corresponding figure was 21 percent for midsize firms and 33 percent for smaller ones. The largest firms were also more likely to offer remote and hybrid working options in their efforts to recruit and retain employees. Well-developed governance and human-resource policies, together with the capacity to quickly exploit the latest technologies, may explain why large employers offered more scope for nontraditional work arrangements.

Employers that offered remote-work options to attract new employees also showed a stronger propensity to expand the geographic reach of their recruitment efforts. Thus, remote work and an expansive geographic reach seem to be complementary features of the overall recruitment strategy for many employers. This finding points to the potential for flexible working arrangements to gradually, and perhaps profoundly, alter the locational choices of workers and their families.

Among firms that offered remote-work options to at least some employees, on average 47 percent of full-time employees worked from home “rarely or never.” But that could change over time due to the expanded geographic reach of hiring, particularly if some current employees choose to relocate in reaction to newly flexible working arrangements. In other words, the incidence of remote work could rise even if current recruitment and retention strategies stay fixed. In addition, the incidence of remote work is likely to surge, at least temporarily, in reaction to major infectious disease outbreaks in the future.

Smaller firms and those in industries with less remote-work experience may be slower to adopt the cultural, managerial, and technological changes required. Perhaps such firms will gradually become more amenable to remote work. Our evidence on this score is rather mixed. We asked firms directly how they expected their use of fully remote workers to change during the coming year. Most expected no change, but there was a slight tilt overall toward greater use of remote workers, more so among the largest employers. Expectations in this regard differed more sharply across major industry sectors. Professional-services firms, for example, expected a sizable net shift toward fully remote workers. Even in the professional-services sector, however, some saw greater reliance on fully remote workers, and others saw less.

In short, the dust has yet to settle with respect to remote work. Our data say that some employers expect to cut back on fully remote workers, while others expect to move in the opposite direction. Many employers now offer hybrid and remote-work options as part of their recruitment and retention strategies.

As we also demonstrate, remote-work options go hand in hand with greater geographic reach in recruitment efforts. The effects of these developments on the residential location choices of households and the geography of employment will play out over many years. Perhaps they will also bring new employment and earnings opportunities for people in out-of-the-way and left-behind places.

This essay first appeared as an Economic Brief on the website of the Federal Reserve Bank of Richmond.

Steven J. Davis is the William H. Abbott Distinguished Service Professor of International Business and Economics at Chicago Booth and senior fellow at the Hoover Institution. Claudia Macaluso is an economist at the Federal Reserve Bank of Richmond. Sonya Ravindranath Waddell is a vice president and economist at the Federal Reserve Bank of Richmond.