Bryan Caplan  

A Signaling Theory of Suboptimal Telecommuting

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Americans spend a ton of time commuting.  According to happiness researchers, commuting is the low point of the typical day.  If you look at the jobs that people actually do, though, it's hard to understand why so many workers continue to commute.  Given a computer and high-speed Internet, most desk jobs could now be done from home - or so it seems.  Telecommuting wouldn't just save workers time, frustration, and fuel; it would also let firms drastically reduce their overhead - and pass the savings along to their customers.  Are we really leaving a trillion-dollar bill on the table?

A fascinating senior paper by Georgetown undergraduate Alexander Clark suggests that the answer is yes.  Clark's story: Workers physically commute for signaling reasons.  Employers can monitor your productivity better when you actually come to the office.  Workers who telecommute put themselves on the slow track to success - if they can even get hired in the first place.  To bolster this thesis, Clark analyzes the American Time Use Survey using the employer learning-statistical discrimination (EL-SD) framework.  He finds that the labor market does indeed take longer to reward telecommuters for their hard-to-observe abilities. 

Here are some highlights from Clark's paper.

The magnitude of the problem:
Hyped for so long, one might wonder why telecommuting has not become even more popular given more recent technological advances. According to a report on telework, about 20% of the U.S. adult working population telecommuted in 2010 at least once a month (WorldatWork 2011). The same report indicates that about 45% of telecommuters do so almost every day (note, the next highest frequency of telecommuting possible is listed as at least once a week). Contrasted with an earlier survey by WorldatWork which reported that 38% of workers who do not telecommute claim to have job tasks which could be accomplished at home (2009), it is almost as if the fabled flying car arrived and few wanted one.
The apparent informational problem:
Though telecommuters will eventually be held responsible for measured output, they may be more inclined to shirk if not sharing a workplace environment with a boss and coworkers. A 2011 survey by CareerBuilder adds legitimacy to these concerns. About 17% of Americans who telecommute at least part of the time reported working for less than an hour, compared to 2% among the general working population. Among all workers, 48% reported working for over eight hours a day, compared to just 35% for telecommuters
The signaling game:
[O]ther factors could be pushing employees to refrain from requesting to telecommute all or part of the time. For one, scams have cast some stigma on the prospect of working from home. However, more important is the signal to employers. In a recent Ipsos/Reuters poll, which questioned 11,383 people in 24 countries, about half believed that they would be at a disadvantage in earning promotions because of the lack of face-to-face contact (2012). Previous research suggests part-time telecommuters do not communicate less frequently with managers (Duxbury and Neufeld 1999). Even so, more than simple communication matters. Showing up at an office may signal positive attributes to a boss. If a boss leaves work for the day and notices an employee staying late, it could serve as a visual reminder of work ethic. Working in a shared workplace also gives greater opportunity to  demonstrate cooperativeness. The employee recruitment process often emphasizes the importance of labels like "team player," and many companies strive to create collegial work environments and attractive office cultures. If a boss were to psychoanalyze an employee's decision to telecommute, the resulting signal likely would not be that the employee wants to use time saved commuting to put in additional work. At worst,  telecommuting would be seen as an atomistic rejection of the (sometimes carefully constructed) office environment. For these reasons, non-telecommuting populations may select for more ambitious and conscientious employees who try to signal desirable characteristics. To whatever extent these concerns are legitimate, telecommuters would likely suffer a discriminatory wage penalty.
Basic empirical results from the EL-SD regressions: Telecommuters do indeed enjoy a lower return to experience.  Rough magnitude: "After four years of experience, the average male telecommuter will earn about 6.9% less than a non-telecommuter according to model (1.5)."

I honestly preferred an earlier version of this paper, where Clark included time-use measures in the EL-SD framework.  Still, this is outstanding research for an undergrad, matching the quality level of a typical dissertation chapter.  If memory serves me, Clark is starting his econ Ph.D. at the University of Wisconsin in the fall.  Definitely a young economist to watch.



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COMMENTS (22 to date)
John Thacker writes:

I have friends who work at the US Patent & Trade Office. The PTO uses a lot of telecommuting, but they have two key features:

1) Only workers with a minimum level of experience and promotions are allowed to telecommute.

2) The output of a patent examiner can be easily measured against quotas, unlike that of many service workers. Telecommuting is easy to justify if people are paid piecework. (Think freelancers.)

Evan writes:

I wonder if you could make your prospects better by offering to leave a webcam pointed at you for your boss to check at all times when you're telecommuting. You could set up your own website, "WatchMeSittingAtMyDeskWorking.com" with a continuous live feed during your working hours. You could even archive footage, so your boss can monitor your work ethic at his/her leisure!

Or would that just, as Bryan says "signal weirdness?"

Alex Godofsky writes:

I don't know, I find myself a lot less productive when I work from home. For some reason there are genuine gains from having people work in a different building from where they live.

Andy writes:

I'm usually much more productive from home. There are far fewer distractions (I don't have 40 people sitting withing earshot, for one). I generally work from home once/week; the main barrier to doing it more is meetings and my laziness in making myself food.

Tracy W writes:

I'm far less productive working at home. The moment anything turns up that requires difficult thinking I find myself doing housework to procrastinate. (During exams at uni my flat was *spotless*).

Three years back my office was trying to get us to work from home more, and we were refusing.

ajb writes:

No time to read this, but does he check for the importance of the worker's observing boss signals? Or coworker signals?

Sometimes being at the office helps you learn about work opportunities or even what the boss likes or what efforts are more or less helpful for career success. This would favor office workers even if bosses could sort workers well and individuals didn't need to signal to bosses.

Jack writes:

Believable story, but how do we know the telecommuting wage penalty is not simply because of lower worker quality? (The usual endogeneity problem.) The wage penalty could be from the bad signal (telecommuting), self-selection of bad workers into telecommuting, or both.

Joe Cushing writes:

Tracy's comment cracked me up. I assumed everybody was less productive at home but I can see from these comments that it is a matter of different environments and personalities.

I worked for a company that had telecommuting infrastructure in place but it was only used a tiny percentage of the time. It was a national business with most of the work happening in two large offices. This means they are vulnerable to disaster--say a tornado hits the building. For back up, they rented a warehouse and put a second office there. So this is a more extreme commitment to commuting. They are maintaining two office spaces for many employees when they could just buy them a laptop.

caryatis writes:

Interestingly, there was a survey which found that when people were asked what their ideal commute would be, the average answer was 30 minutes. Not zero minutes, not 5.

So I wonder whether people are getting some enjoyment out of the commute, even if we complain about it. Maybe busy people with families like having a few minutes to be alone and do something which requires minimal effort and thought.

Of course that's inconsistent with the happiness surveys. Maybe people are just unable to imagine a realistic commute much less than 30 minutes?

Brian writes:

I find even the location of my office in the building effects the productivity of my work. Now that my office is sounded by PM's I overhear a lot of important information that I really need to know to project budgets. If I worked from home my projections would be a lot less accurate because I would know a lot less of what was going on with our projects. Therefore I would not know the questions to ask because PM would not volunteer the information or forget a piece of important information that effects cost.

That is when verbal communication a critical part of getting information in your job, commuting is not nearly as productive.

SB writes:

I used to telecommute, and it didn't work out very well. Maybe signaling is an issue, but another problem is that it's harder to get plugged into what's going on at work. In an office environment, it's very easy for the following conversations to arise in the course of casual chit-chat: "Hey Steve, have you ever dealt with Customer X?" or "There's this great new project, can you help me out?" or "Do you have any advice on issue Y?" As a result, the office worker stays plugged into lots of different projects, etc.

For the telecommuter, those conversations don't happen -- out of sight out of mind, for one thing, plus a lot of the legitimately useful conversations don't seem worth arranging a conference call about. Studies show that people eat way less candy if the bowl is across the room instead of on their desk within reach . . . if people don't take the trouble to walk across the room, they also don't take the trouble to affirmatively seek out the telecommuting colleague to keep them roped in on everything.

bryan willman writes:

at least one large and famous employer explicitly counts hallway conversations, lunch room chats, and even conversations in rest rooms (obvious issues) as an explicit part of its culture.

and as i now volunteer for a social venture a good bit away from my home, i can say that meetings are generally more useful in person - in spite of very heavy use of skype and the like.

so telecommuting and in person work are not really interchangeable, in sort of the same way that owning vs renting a dwelling are not fully interchangeable.

Michael Shear writes:

There are a number of complex individual, social and organizational dynamics that are pertinent to this discussion. I am working on a white paper (in progress), "Accelerating Economic Growth through Advanced Telecommunications Infrastructure" that may be downloaded at the following link for those interested in a wider discourse on the topic.

http://www.box.com/s/a23175f29d4e7914f2f6

[url fixed--Econlib Ed.]

Hasdrubal writes:
For the telecommuter, those conversations don't happen -- out of sight out of mind, for one thing, plus a lot of the legitimately useful conversations don't seem worth arranging a conference call about.

My experience is the same as Brian, SB and Bryan. There might be some signalling involved, but I think the reduction in communication is much more important.

You might be able to test if it's signaling or communication would be to look at the prevalence of telecommuting in different job positions or advancement based on position, rather than aggregating all telecommuters. Jobs which don't need to interact with others in the organization much, like journalists and outside sales have been telecommuting since before the telephone. On the other hand, maybe look at project managers or IT support for jobs that lose productivity from telecommuting.

Mark Little writes:

Great work for an undergraduate! (Clark should have a good and well-deserved future in academic economics.)

But don't overdo the signaling model. We have staff who have moved from in-office to telecommuting and back. This is driven not by economics but by spousal conflicts. (Wife/husband gets a job in a distant city; we don't want to lose the employee. On-site employees can also work from home, and many do in evenings and weekends, but staff come into the office on weekdays, even when working form home is allowed.)

Sometimes remote work works well, but there are costs. While measuring productivity is not the issue, there is substantial productivity cost to working remotely. This is recognized by both managers and remotely-based staff. There are benefits to proximity and being 'in the loop.'

In short, our experience is consistent with that of SB.

Babinich writes:
Telecommuting wouldn't just save workers time, frustration, and fuel; it would also let firms drastically reduce their overhead - and pass the savings along to their customers. Are we really leaving a trillion-dollar bill on the table?

The key is to look at not only the immediate effects of a policy but the long term effects of any act or policy."

Peter writes:

"About 17% of Americans who telecommute at least part of the time reported working for less than an hour, compared to 2% among the general working population. Among all workers, 48% reported working for over eight hours a day, compared to just 35% for telecommuters"

This strikes me as false given what I have seen in the industries that allow teleworking. The telecommuting number seem spot on to me but the general workers seem high. Would have liked to see a question in the survey where they ask the respondents to define the "work" they were doing. I work with a lot of guys who define "work" as physically being at work (regardless if they do work or not) and would honestly tell you they spend eight hours a day on average working even if that work is watching youtube all day at the office not doing a damn thing. I'm thinking the teleworkers define work the same way but since they aren't at the office they are only reporting their productive work. My guess is both parties have about the same productivity in reality.

Pengyu Zhu writes:

Signaling and wage penalty...This is an innovative way to study telecommuting.

Above all, telecommuting does not necessarily reduce travel! People's travel time budget has remained constant for a long time. It is most likely that people use the extra time they saved from telecommuting for other trips, including non-work trips.

For more details, please read my recent work on telecommuting at http://works.bepress.com/pengyu_zhu/

Michael Stack writes:

I always advise people at work to NOT telecommute - at least, not exclusively. It's very bad for your career. You need facetime with people at work.

Brie Reynolds writes:

I think the reaction of the employer really does depend on the employer themselves. I've telecommuted full-time for two different companies so far, and both have been very supportive and given me the same career growth I'd expect from a brick-and-mortar office. The most recent, FlexJobs (http://www.flexjobs.com) specializes in telecommute job listings and we've seen a 400% increase in these available jobs sine 2007.

Two studies have come out within the last year, by Stanford University and the University of Minnesota, which show that telecommuters are actually more productive and more satisfied than their office-bound coworkers.

The Stanford study in particular found that:
- Telecommuters took 15 percent MORE calls and worked 11 percent MORE hours than their office-bound coworkers
- Overall productivity for the telecommuters was 4 percent higher than for office-bound workers

I think it really depends on whether the employee and employer can create a plan and put the infrastructure in place so that telecommuting can be successful. Trust and communication are key to the arrangement. And old management styles simply don't work with telecommuting employees, so employers also have to be willing to change and adapt to new realities.

John David Galt writes:

The "signaling" metaphor cracks me up because it is so obviously a strained euphemism -- for the real problem which is simply lack of trust.

I don't think Evan's webcam idea would solve the problem, because it is too easy to fake the feed. However, a two-way teleconference with audio, left running for the entire work shift, might well do the trick, if it doesn't cost more than coming in.

My take is that telecommuting is best for those whose work is done entirely alone, or so close to it that being paid by the task (and thus making yourself an independent contractor) makes sense. If your boss wants more control over your time than that, it's better to be an employee and come in to the office.

Evan writes:

@Brian

I overhear a lot of important information that I really need to know to project budgets. If I worked from home my projections would be a lot less accurate because I would know a lot less of what was going on with our projects.

This is a great point! Bryan, David, and Arnold talk a lot about how a lot of knowledge is implicit and difficult to transmit and articulate. It never occurred to me that this would be a problem for telecommuting, but if you think about it it obviously is.

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