Remote Work's Impact on Productivity

Why Startups Thrive while Big Companies Struggle with Remote Work

The rise of remote work is one of the most disruptive changes to labor markets in decades. Previously here I’ve discussed my research on the impacts of remote work on residential mobility, commercial office buildings and cities overall, as well as some of the broader questions on remote work in general.

This leaves open the question I get the most: what does this really mean for productivity? All of this reallocation seems well and good for workers, even if has some costs for urban centers, but for remote work to really be sticky we want to know the ultimate implications for firms.

The debates on this question are all over the place. Jamie Dimon famously thinks remote work doesn’t work for innovation or management. Companies like Amazon and Google are pushing workers back to the office. Meanwhile, a bit more silently, many other companies are staying remote friendly (here for instance you can see remote job postings at Y Combinator-backed startups).

So what’s going on here? Is remote work good for firms or bad? Are executives right to push for RTO or they optimizing a bit too much for the illusion of control and biasing for face time?

Together with my co-authors Elena Simintzi and Abhinav Gupta we tried to build a comprehensive dataset to answer this question, linking productivity measures from GitHub commits to firm remote working measures and hiring patterns.

In our new paper, we find is remote work is not uniformly good or bad: but the productivity effects vary substantially by age. Startups do well with remote work, while established companies struggle.

Heterogeneous Impacts of Remote Work

To establish our core findings, we ranked workers by their GitHub commits, and did some validation to verify that more commits associate with better firm outcomes. It’s a natural, albeit imperfect, way to try to proxy for white-collar productivity across coders, who are often evaluated and promoted on the basis of their demonstrated commits to company projects (we proxy for these specifically through contributions to restricted repos). We then instrument for remote work status based on how much the firm’s pre-pandemic occupational mix is conducive to remote work, and see whether employees at firms which go remote only because of their occupational suitability see higher or lower productivity.

The key result is that remote work increases productivity at startups (+12 percentage points out of 100; for firms younger than ten years) relative to others, while reducing it for established firms (-9 percentage point decline in worker productivity). Averaged across all firms, the effect of remote work is small and slightly (insignificantly) negative, but this disguises substantial heterogeneity which firm age is a good proxy for.

Why Does This Happen?

We explored many reasons why startups and large firms would differ in how they cope with remote work, but part of the answer turns out to be hiring constraints.

Before remote work was widespread, a key friction for startups was competing for talent against established firms which have bigger brands, more offices, and more established recruiting channels. One way startups responded to these challenges was clustering into expensive business hubs like New York or San Francisco, which allowed them to access many workers with a single location, but at a high cost.

Remote work changes this situation by allowing startups to hire from anywhere (or indeed all over the world), and thereby accessing talent across a range of geographical markets. This relieves frictions to scaling up for firms, which is exactly what we see in the data; remote startups grow much faster (they also post more jobs and see more hiring success per posting).

Larger firms also do see slight increases in growth rates, but they are almost exactly matched by increases in departures as well. These retention challenges for large firms might relate to lower frictions in outside job market search (i.e., it’s easier to take Zoom recruiter calls) or lower value of corporate culture for large remote firms.

About half of the productivity gains for startups seems to be accounted for by the increased ability to hire and scale. We see these productivity benefits materialize for new hires upon joining; they also appear to spillover and increase the productivity of existing team members, too. So the overall pattern suggests better matching of firms to remote startups.

What This Means

In my view, there are a few key implications

1. The RTO Wars Make a Bit More Sense
   When Jamie Dimon or Andy Jassy push for return-to-office, they are likely responding to real productivity and retention challenges faced by large firms. In person work isn’t the only possible solution: just as startups figured out how to make remote work function, there are probably further technological innovations which could make it work better for large firms. But there do appear to be genuine challenges getting large, complex organizations with established cultures and important coordination challenges to adopt remote work effectively.

2. Remote Work Could Boost Business Dynamism
   The U.S. has seen declining business dynamism for decades, a trend which seems to have reversed since the pandemic. Even if remote work doesn’t stick around for the entire economy, being a remote-first startup may be an important new technology which tackles a key barriers young firms face in accessing talent and competing against incumbent firms. So it could be an important new bootstrapping tool helping entrepreneurial entry, even if most JPMorgan employees are back in the office.

3. Innovation Might be Less Geographically Concentrated
   Our results should be a bit reassuring in terms of economic geography, because many regions wind up winning. Large cities with established firms have a bit of a relief in terms of remote work and office demand, because the large firms they host may ultimately need to get back to the office. Meanwhile, startups and other remote firms can hire remote workers outside of major job hubs, which helps to disperse innovation and economic activity outside of superstar cities. This helps to alleviate some of the issues we have seen after decades of consolidation of knowledge-intensive work in particular in these hubs.

The basic takeaway here is that remote work is a technology with important tradeoffs. It seems to come with important productivity challenges for many firms, while changing drastically where your employees need to live, which winds up impacting firms very differently across their life-cycle.