Work from home drives “massive productivity boost”: Productivity Commission

In 2021, the Productivity Commission (PC) published a research paper on working from home (WFH), describing it as “one of the biggest changes to the way we work in the last fifty years”.

The PC estimated that about 40% of Australians were WFH, compared with just 8% prior to the pandemic, and concluded WFH “can unlock significant gains in terms of flexibility and time for employees” and “could even increase the nation’s productivity”.

In particular, the PC noted the significant savings in commuting costs from WFH:

In 2019, full-time workers in Australian major cities spent an average of around 67 minutes per day commuting, which in terms of forgone earnings amounted to $49, not including vehicle costs. For those taking public transport, the average time value and transport cost totalled $57 per day.

Nevertheless, the PC concluded that a hybrid work model was probably optimal, since it best balances benefits with costs:

The hybrid model is intuitively appealing, balancing the benefits of working in the office — being able to collaborate, innovate and interact with colleagues face-to-face — with the flexibility, quiet and lack of commuting associated with working from home…

If all workers who could work from home did so two days per week, around 13% of all hours would be worked remotely.

Fast forward to 2022 and the PC has once again endorsed WFH in its 5-year Productivity Inquiry, noting that it has driven a “massive productivity boost” via accelerating the adoption of digital technologies:

A defining characteristic of our COVID-19 times, from March 2020 to the lifting of the last significant restrictions in early 2022, was the hastened adoption of digital technologies to help the economy continue to function. This has been exemplified by governments, businesses and employees alike embracing the move to regular working from home (PC 2021c). The adoption of digital technologies constituted a massive productivity boost, relative to a counterfactual scenario in which such technologies did not exist or were not adopted en masse.

At the height of the outbreak, as many as two out of three people may have been working from home (Baxter and Warren 2021). COVID-19 accelerated the trend of more people working from home, more often. The share of people ‘regularly working from home’ in late 2021 was 40 per cent, about 8 percentage points higher than in 2019, prior to the onset of the pandemic, and about twice what it was a decade prior (figure 2.13). The share of people working ‘most of their hours’ from home was as high as 30 per cent in 2020 (although this has moderated somewhat since then), more than 4 times higher than when it was last measured in 2008.

If, and how far, the proportion of people working from home moderates as the pandemic and economic recovery from it progress, is uncertain. However, the uplift in online capacity (among both businesses and households) combined with a broader embrace of the innovative potential of digital technology, can transform the way the economy operates — services in particular — with significant productivity benefits. The challenge will be to ensure that policy settings are sufficiently flexible and incentives are appropriately calibrated to support continued uplift as the COVID-19 recovery continues.

Over the pandemic, I’ve asked literally dozens of people whether they want to return to the office full time. Every single one of them said ‘no’, with all wanting to work on a hybrid basis where they split time between home and the office.

The reasons are always the same: time and cost savings from not having to commute and flexibility. Some also noted the cost savings from not having to pay for childcare or nannies.

These PC studies, alongside others, suggest that WFH is a positive structural shift that should be encouraged by policy makers.