Is Remote Work More or Less Productive Than On-Site Work?

Key Takeaways:

• Remote work rose rapidly during the pandemic and remote participation rates among employers remain above pre-pandemic levels in all but 1 industry.

• Some industries, often involving tech and professional services, have seen outsized growth in remote work participation, while other more on-site-oriented industries like construction, retail, and mining have seen less remote participation growth.

• Accounting for a variety of factors, organizations that experienced the largest increases in remote work saw correspondingly large increases in work output without incurring comparable increases in input required.

• On average, by these measures, an increase in remote work participation corresponds with an increase in productivity.  

Article: Is Remote Work More or Less Productive Than On-Site Work?

There is little debate about the significance that the COVID-19 pandemic has had in terms of enabling the rise of remote work and reshaping both the workplace and worker expectations as a result.  

There is considerably more debate, however, about the impacts that remote and hybrid work have on worker productivity.

While attempts over the last few years to quantify change in productivity due to remote work have yielded mixed results, the Bureau of Labor Statistics recently published what appears to be the most comprehensive analysis of productivity as it relates to remote work yet, which yielded some very interesting insights about more than just remote worker productivity.

The Big Question: How Does Remote Work Productivity Compare to On-Site Work Productivity

The simplest answer to the question of whether or not remote work is more, less, or equally as productive as on-site work is that remote work is on average more productive than on-site work.

As is often the case, however, the simplest answer is not necessarily the most helpful or accurate one. There are a number of different factors that can influence whether remote work is more or less productive than on-site work, including industry type and size, as well as less easily generalized factors such as off-site working conditions, which can vary from one employee to the next.

How remote work is defined as well as how productivity is measured are also crucial considerations that can significantly affect whether remote work is more, less, or comparably productive.

The Rise of Remote Work Across Major Industries

Remote work predates the pandemic, of course, and in fact about 6.5% of private sector workers in the US were already working remotely in 2019.

With the implementation of social distancing policies as the Pandemic spread across the US in the spring of 2020, remote work saw a dramatic upswing in many sectors, with some industries seeing more than 30% increases in the proportion of their workforces that are working remotely.  

For the following analysis, the term remote work encompasses both fully remote work and hybrid work arrangements where the majority of work is done off-site.

Remote work rose across all industries in the first years of the pandemic. Although the proportion of employees working remotely fell some as social distancing policies at the workplace expired, remote work still remains above 2019 levels in all industries except the agriculture, forestry, fishing, and hunting industry. This, however, is in part because that industry had one of the top 5 largest remote participation rates among industries even before the pandemic.

Although remote work participation increased across almost all industries into the early post-pandemic years, that increase has not been equally distributed, and some industries have seen much more substantial increases in remote work than others.

In 2019, there were only 5 industries with more than 10% of their workforces working remotely - professional, science, and technical services (16.5%); information (11.4%); finance and insurance (10.5%); real estate rental and leasing (12.4%); and agriculture, forestry, fishing, and hunting (13.6%).  

By the end of 2022, however, more than 75% of major industries had at least 10% of their workforce working remotely.

In fact, as of the most recent data collection, there were only 5 major industries with less than 10% remote participation: retail (9.4%); mining (7.2%); construction (7.8%); food services (4.8%); and transportation and warehousing (8.8%).

At the same time, there are 4 major industries with more than 30% remote work participation, including 1 with more than 40%: information (38.8%); finance and insurance (37.6%); management of companies (33.0%); and professional, scientific, and technical services (41.4%).  

Measuring Remote Work Productivity

While different firms have attempted to use a range of different metrics by which to evaluate remote work productivity, including emails sent, managerial performance reviews, and phone calls logged per hour for example, for the purposes of this analysis, productivity is measured by Total Factor Productivity (TFP).

TFP is calculated by dividing worker output by all the inputs that go into producing that output, which provides a more comprehensive and dynamic understanding of productivity as a function of the varied costs that facilitate production.

For example, TFP takes into account not only the reduced labor costs that can accompany remote work due to remote workers accepting lower wages in exchange for flexibility or because they live somewhere with a lower cost of living, but TFP also takes into account other inputs that can change as a result of remote work, such as reduced office space, utility usage, turnover/recruiting service needs, and on-site/local perks and benefits expenses per employee.

How Industry Type and Size Impact Remote Work Productivity

Industry Type

Each industry has its own set of challenges and opportunities when it comes to implementing remote work, and not all industries have been equally proactive in embracing remote work and/or capturing the maximum productivity/value from remote operational structures.  

In that light, it does not necessarily follow that industries with higher TFP scores are better suited for remote work while industries with lower TFP scores are less well suited because the circumstances involved within each industry and how each has approached remote work can be radically different.

That said, some industries have certainly fared much better than others when it comes to retaining and increasing productivity output relative to input via remote work.  

Some of the industries with the highest TFP ratio, indicating the greatest year-over-year growth in net output over input as remote work quickly escalated during the pandemic, include data processing, internet publishing, and other information services; funds, trusts, and other financial vehicles; publishing; rental and leasing; and chemical products.  

Some of the industries with the lowest (negative) TFP ratios, indicating a loss of productivity correlated with the rise of remote work, include air transportation; oil and gas extraction; metal products; and performing arts, museums, spectator sports, and related activities.  

The industries with the largest productivity gains as remote work rose during the pandemic were funds, trusts, and other financial vehicles; data processing, internet publishing, and other information services; computer system design and related services; and publishing services including software.

The only industries to record decreasing remote work productivity during the pandemic as measured by TFP are securities, commodities contracts, and other financial investments; insurance carriers and related activities; and broadcast and telecommunications.

Industry Size

Productivity gains must also be considered in light of industry size, with relatively smaller industries seeing more extreme productivity swings than relatively larger industries.

Some of the larger industries that recorded remote-work-induced productivity gains include construction; real estate; miscellaneous professional, scientific, and technical services; and federal reserve banks, credit intermediation, and related activities.  

Some of the larger industries that experienced a net decrease in productivity because of remote work’s rapid adoption are retail; wholesale; broadcasting and telecommunications; insurance carriers and related activities; and ambulatory healthcare services.  

In total, across the 61 industries that were analyzed, on average each 1% increase in remote work participation resulted in a 0.08% increase in TFP.

Mployer’s Take

With 7 out of the top 10 industries that recorded the largest increases in remote work during the pandemic all correspondingly increasing their output by a larger margin than their input costs, the correlation between remote work and increased productivity is clear.

That said, remote work is not a one-size-fits-all solution for every given job function or private organization let alone any/every industry.

Certain industries - especially those heavily involving tech, data, publishing, and professional and scientific services - seem to be particularly well-suited for remote working arrangements, while other industries with a disproportionately large number of location-specific jobs like retail, mining, transportation & warehousing, and construction, are less well-suited in general.

That said, within nearly every organization regardless of industry there are jobs that are primed for remote work, even if not every organization in every industry is equally prepared to capture the same value and productivity from remote arrangements where applicable.

Despite the growing evidence of the productivity benefits associated with remote work, however, many organizations may move away from and/or downsize remote programs in the coming years, especially if the job market shifts in favor of employers as it is likely to do.

Larger and older organizations with more established managerial structures may choose to bring employees back to on-site work for a variety of reasons such as fostering collaboration, justifying commercial real estate expenses, and encouraging voluntary turnover in line with planned reductions in the organization’s payroll.

Still, because remote work is most effectively utilized by smaller, more tech-heavy organizations, new market entrants will increasingly rely on remote work to capture the productivity benefits and gain an advantage over the entrenched players in their markets.

As a result, remote work is likely to see an upward trajectory over the long term as successful remote-friendly new entrants grow and absorb an increasing share of the market, but the short-term prospects for remote work growth remain uncertain and may be linked to the greater economy and job market.

As this analysis makes clear, however, on average, remote work is more productive than on-site work, and organizations that are best able to capture that value regardless of industry or organizational size/type can obtain and/or maintain a meaningful advantage over their competition.

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