Nicholas Bloom: Home is where the work is

Transcript

Russ Altman (00:03): This is Stanford Engineering's The Future of Everything, and I'm your host, Russ Altman. Today, Professor Nick Bloom from Stanford University will tell us that work from home is here to stay. It's increasing, it's impacting the economies of cities and suburbs, and there are technologies coming down the pike that are going to help make it easier so it will continue to grow. It's the future of work at home. Before the pandemic work from home was a novelty. Some of us got on conference calls every now and then, or got on a phone, but mostly people went to an office and did their work. Then the pandemic happened and things started moving very quickly. Many people went to full-time work at home, others went to hybrid. And in the years since the pandemic began, there's been a shift so that a large fraction of people are doing what we call hybrid work, partly from home, partly in an office.

(00:54): This has changed the economies of downtown cities. Mayors are worried about their tax bases. It has changed the prices of homes in suburbia, and there's been technology developments where things like Zoom have just gotten incredibly better. So the question is, is work from home here to stay? Nick Bloom is a professor of economics at Stanford University, he studies productivity and innovation, and he's been focusing recently on work from home policies and economic impacts.

(01:23): He's talked to hundreds of companies, and he will tell us that work from home, hybrid work, where you're working a little bit in an office and a little bit from home, is going to take off. But so will totally remote work where you never go into the office, indeed, some companies have already adopted it. He'll tell us how this impacts the economy of cities, the prices of houses in the suburbs, and how technologies are being developed that will really make all of this just go forward faster. It's the future of work. So Nick, work from home is now on everybody's mind. You're an expert at productivity, entrepreneurship, innovation, is this work at home phenomenon just a blip because of a booming economy before the pandemic, and then the pandemic? And now in a world people are thinking about recession and tighter belts, is there going to be a huge pressure to move away from it?

Nick Bloom (02:18): Great question. And no, it's not a blip, it is very much permanent. So to give you some sense, before the pandemic work from home in the US was pretty rare, so about 5% of days, it then exploded in the pandemic to about 60%. So anyone they'll call work from home, me, you, probably everyone listening, was doing it pretty much full time. It's then dropped down to about 30%, where it's flatlined for the last six, seven months, and that looks like it's the future. So where's that 30% come from? There's a group of people, about 15% of Americans that are fully remote, they're mostly payroll processing, benefits, IT support. Then there's another group, about 30% of people, probably pretty much most folks listening, us, that are hybrid. And we are two days, three days a week in the office, two, three days a week at home. And I'm happy to talk about the future, but where we are now, things have stabilized, they've been flat actually since mid-2022.

Russ Altman (03:17): So let me ask, I'm going to push back a little bit, because I understand how during a period where employers were desperate to hire, it was like yes to any request that a potential employee made. Now we're hearing about layoffs tightening. Is there going to be pressure on workers in order to kind of show enthusiasm, teamwork, blah, blah, blah? Is there going to be pressure on them to come back to the office, even perhaps when they could be perfectly productive not in the office? I'm wondering what the dynamics might change in a tougher economy.

Nick Bloom (03:47): A little bit, not much. And I should say it cuts both ways. I've talked to probably by now about 1000 plus organizations about this, and I'm hearing on the one hand you're right, there's some senior, typically more traditional slash older managers that have had 30 years of working in person, and kind of want to go back. On the other hand, there's a bunch of firms and organizations that have said, "Look, when times are tougher, we're thinking getting rid of the office, we're downsizing, and there's just no ability to come back in." So on average it looks like those for the last few months and going forward are netting out. So the future, as in 3, 5, 10 years out, it's very clear it's going to be higher than it is now, but certainly in the next year I don't see much change.

Russ Altman (04:31): So you can see, I'm one of these old guys who's resisting, and that's fine. So let me just continue to resist a little bit. I think that most of the data we have is on the short-term impacts when an employee had been local and present. And then they go home and then it kind of works because the relationships have been established, and everything can benefit from the momentum of the previous relationships. Have there been studies by you or others on the longer-term impacts, when perhaps people are hired and never have that by the water cooler experience? And are the teams as effective? And is the work as good under those circumstances?

Nick Bloom (05:10): Okay, so you're totally right. So there are two very different concepts. So one is fully remote, where you just never come in, you're working from home five days a week in perpetuity. There definitely are studies, there's one in Nature Human Behavior, there's a bunch of stuff showing that is damaging for innovation, that's damaging for mentoring, for connectivity. Now, you then may ask, why would firms do it? And they do it because of two big upsides, which is one, is you save on space, which is 20, 30% of payroll, that's pretty huge. And the other is, you can hire globally. On the other hand, this hybrid, which is say a typical plain vanilla style, would be work from home Monday, Friday, come in Tuesday, Wednesday, Thursday, and really vibrant, really lively. That doesn't look like there's any real downside. You have as much face time as before, but you just pushed them into three super social days, and then you had two days to kind of quiet, rewrite, deep work at home.

Russ Altman (06:05): Yes. And I think that is probably the kind of thing you and I are doing with a fair amount of success. In that model however, let's talk about the infrastructure, the space issue I think is very fascinating. What are people doing? What are these companies doing when you talk to them about the fact that if they have two or three days a week where it's well populated, that means four days a week this office could be a ghost town? And that's expensive. So are we looking at an entirely reconfigured workspace, and are people coming up with creative ways to lay out a workspace so that you're not wasting four out of seven days of rent?

Nick Bloom (06:44): So this is a key question. So I've worked on working from home for 20 years, and before the pandemic, the big driver is space. And in fact, the word hybrid didn't exist. So before the pandemic, work from home basically meant you sent people home five days a week, and you closed the office, and the big motivation was to cut space. You're absolutely correct, under hybrid, it's really hard. And I've worked, for example, a lot with Stanford University with hundreds of organizations, and they're tearing their hair out, and saying, "Folks are just coming in Tuesday to Thursday. Those are the popular days. What are we going to do about it?"

(07:15): Now, you can save space, on average very few firms are doing it because it's painful. What you have to do, is you have to say, "Team A, you're in Monday, Tuesday, Wednesday. Team B, Tuesday, Wednesday, Thursday. Team C, Wednesday, Thursday, Friday." Etc. But then there's some pretty high costs of that. One is, some folks are going to come in on Fridays and Mondays, and they don't want to do it. And B, they're not all overlapping. So even if A and B don't work with each other, they both work with C. So when I talk to companies, they're mostly organizations. I mean, I talk to a lot of universities actually as well. They say, "In the future, '24, '25, we're going to use office booking software, smart stuff to figure this out. But right now it is just so complicated, let's just get hybrid up and running on three days, and then in the future we'll come back and we're going to do the second step."

Russ Altman (08:05): Great. So you've written some really interesting stuff. And one, I think it was a publication, was about, who should decide who works remotely, how much remotely they work? There was a sense that... I think there was a quote in one of your papers, "Oh, we trust our employees, and we're going to let them decide what their work from home schedule should be." But some of your comments just now about A, B and C, how do we train managers to manage the issue of what could be a delicate negotiation about work from home, and then work at work arrangements?

Nick Bloom (08:40): Yeah, I have to say, maybe like all academics, as the data comes in I've changed my mind. So I in 2020 was in favor of choice, and from surveys, from studies, I've done two randomized control trials on this, I think it's a problem. The reason is, when you ask people why they want to come into the office, they basically want to come in to work with colleagues and socialize with colleagues. So that means you've really got to coordinate. You can imagine that there's the two of us, "Brian, you're in Monday, I'm in Tuesday, he's on Wednesday." It just doesn't work. And you heard stories from 2021, where people are saying, "I came in and there's no one here, I spent all day on Zoom." And so that means somebody's got to coordinate. It turns out most people want to work from home on Monday and Friday, so the choice is reasonably straightforward.

(09:26): If you're going to do two days, it's typically Tuesday, Thursday, Tuesday or Wednesday. If it's three, you just pick the middle three. That seems to work well. You're correct, it wastes space, and so that's the challenge. Talking about the future, I'm actually involved in a couple of startups that are using space planning software, and the way that's going to pan out eventually, is every person feeds in who they work with, what facilities they want, and which days they want to go in, and some big algorithm spits it out. And kind of gets, "Look, roughly I think you only work with these people." You can kind of configure it to come in. But it's really complicated actually, and so we're not really there quite yet.

Russ Altman (10:04): So it sounds like the days where my cubby is filled with pictures of my dog and my kids, and an expression of my unique personality, that's either going to go away. Or I'm going to need to be able to very quickly pack it down, bring it to a new cubicle, and reset it up in order to get that same flavor at work.

Nick Bloom (10:23): Yeah, exactly. In fact, that's another reason why this desk sharing thing is hard, you don't have your own space, and there's sometimes issues with confidentiality. I mean, the other comment on that is what's interesting, is offices are changing in different ways. So they're mostly not moving out of cities, they're mostly not downsizing, but there's been a huge rush towards much more meeting space.

(10:44): So back in 2019, we'd come in, there'd be a lot sat at your cubicle Dilbert style, working away. That reading, writing quiet stuff is now being pushed to Monday and Friday. Tuesday, Wednesday, Thursday is a lot of meetings. So more meeting rooms, what are called zoom cubicles, they're like little booths so people can have Zoom or Teams calls. One firm I was talking to has been putting sensors in every room at the office, and it's kind of cool, and they just said, "We discovered meeting rooms, no one can get them, they're so popular. We put in sensors, turns out they're mostly filled with one person taking a Zoom call to another office. And now we put in these booths, said, look, if you want to have a one person call, that's great, go and use one of the booths." It's liberated up the meeting room. So those are the changes, it's much more about getting rid of ranks of offices and little cubicles, and converting them to common space.

Russ Altman (11:34): Yeah, this is great. So another topic that is just fascinating to me, and that you've worked on a little bit, is the impact of all this on downtowns and on cities. And you've written about mayors, and how mayors are trying to strategize about their tax base. Of course we know when there's an office complex, there are cafes, there are places for lunch, there are gyms. So what can you tell me about the future of how the cities themselves, not just the offices, which you've given us a nice little preview to, but the surrounding infrastructure, what's going to happen?

Nick Bloom (12:10): Yeah. So we call it the doughnut effect, and that's an American doughnut with nothing in the middle, rather than the British one with a jam center. So with Arjun Ramani, of course here we've got both United States Postal Service Change-of-Address, it's amazing data, and also Zillow data. You see it very clearly, during the pandemic and including now, people have basically moved out a bit from city centers out to the suburbs. So if me or you work in some firm, and you're only going to come in two, three days a week, you think, look, why don't I just move out to the suburb? I can put up with a longer commute, but I get a home office. And that has happened en masse, and it's actually pushed up prices, property prices, rents of the suburbs of big cities.

(12:53): So a typical person has actually left central New York. They've not gone to rural Wyoming, because they're still going to go in two days a week, they've gone to some suburb like Queens or somewhere. Same in San Francisco, as we know, it's become very popular in East Bay, and Tahoe, and the city. So one thing is there's been a lot of movement of people out, and if you are trying to rent in the suburbs, that's why your rent is exploded because everyone else is trying to do that. That's also affected offices and retail, so office demand is soft in city centers. But in some ways the biggest effect is on retail, so folks like Starbucks, and Pret a Manger, et cetera, Panera Bread, they are...

Russ Altman (13:33): Dunking Donuts.

Nick Bloom (13:33): Exactly.

Russ Altman (13:35): In the East Coast, at least.

Nick Bloom (13:36): They are killing it in the suburbs, but are suffering in city centers. So in some ways that's not bad at all, I don't think as an economist, and looking across the whole country just shifted activity. And the city centers are very expensive, so maybe it's good to move stuff out. The only problem is folks like London Breed and Eric Adams, the mayors are seeing... London Breed has in some ways the biggest struggle in San Francisco. She's seen a lot of tax activity, a lot of economic activity move out from core San Francisco to places that are not very far away. Me and you even probably think of them still as San Francisco, but they're not covered in her tax base. And so she's lost a lot of money. And at the same time transit, Caltrain, BART, the New York Subway is seeing ridership levels permanently down 35%. So other sources of money. So generally this is great, in a way, kind of quieter city centers made them a bit less crushingly expensive. But the one group that is most upset, understandably, is the mayors of these cities because they've lost money.

Russ Altman (14:37): Are we starting to see entrepreneurial approaches to this softening of... Where we see this softening, I'm sure other people are seeing opportunities, and have you seen some creative new ways to use these spaces, or ways to replace the retailers with different things for which there is demand?

Nick Bloom (14:56): Great. So in some ways you'd think this was perfect. If I took you in a time capsule back to 2019, you and I remember for Stanford and around many big cities, it was so expensive to hire. We were struggling here to hire folks, because they just couldn't afford to live. And so if you move people out, it pushes prices down in city centers. You're right, now a bit of space, particularly retail office space has come vacant. There is a move to try and convert that to residential, which is great. The challenges in some place... So there's two types. So for little kind of what I'll call European style offices, small, not too big, that works reasonably well. The problem is from those 1980s onwards, massive glass skyscrapers, they don't have enough bathrooms, there's not enough windows. In fact, in some places like New York, has a regulation that every bathroom has to have a window. So what are you going to do?

Russ Altman (15:48): Oh, my goodness.

Nick Bloom (15:49): Yeah, so it's turning out that is where the real challenge is. So I think some stuff, particularly smaller offices, are going to convert. The bigger ones, it is honestly hard, it's hard to know. Maybe the planning regulations change and you allow entirely internal rooms, and say, "Look, we're better off having these things where people live in them, or some internal rooms, rather than empty boarded up offices."

Russ Altman (16:13): It's an amazing thing that you've just told me, because I know from my job as a professor, I deal with young people in their twenties all day. They want to be in cities, they want to be mixing, meeting each other. That was always a difficulty in recruiting graduate students. Is well, Stanford is a little bit of a sleepy town, and if you're a young person who wants to meet and mix. So there is an opportunity there. But you're right, some of these buildings might actually have to come down and be replaced with places where people want to live. But that could then create, again, as you're saying, a whole new economic hub for activity. Well, this is the Future of Everything, and we'll have more with Nick Bloom next.

(16:50): Welcome back to the Future of Everything. I'm Russ Altman, and I'm speaking with Nick Bloom from Stanford University. In the last segment, Nick told us that the current status of work from home is a lot of hybrid work and some totally remote work from home. In this segment, he's going to tell us about the future. How there are technologies being developed that will only increase the use of work at home, both hybrid and for totally remote. He's also going to talk about how cities are going to have to adapt. There are large office buildings that might need to turn into apartment buildings for young people to live. Prices in the suburbs are going up, and Starbucks are starting to make more money in the suburbs than they used to make in the cities. So it's all changing. When this all settles down, where are we going to be? So tell me, what are you seeing as the new equilibrium for the future of work?

Nick Bloom (17:41): Right. It's odd to say one of the things you are most confident about is predicting a future. But in this case, I'll tell you what it is, and I explain very simply why. So in economics, in business, there's something called market size effects. If a market gets a lot bigger, people put more money into investing in it. For example, as Americans have got older, there's more drugs aimed at aging diseases. So we've seen this on steroids for work from home.

(18:07): Before the pandemic in the US it was about 5% of days, it's now 30%, that six-fold increase is being replicated pretty much around the world. So what it means is every hardware software company from Microsoft, from Google, to Apple, to all the startups we work with in Silicon Valley around the world, are really focused on getting better technology to support work from home. And that's going to mean if you run the thing 5, 10 years out, we're going to see amazing improvements. Things like holograms, augmented reality, virtual reality, much better cameras, connectivity software, this is going to push up the levels of work from home. So it's pretty easy to predict five years from now, and clearly 10 years, we'll be working from home substantially more than we are now. So in the short run, sure there's a recession, we drop a little bit, not much, but 5, certainly 10 years out, the direction of travel is very clearly up.

Russ Altman (19:01): So that's fascinating, because what you just said is basically the stuff that I hear about, about virtual reality and the metaverse... Which I have to admit I pretty much discard, but I think of it as something for gamers, and I'm just not a gamer, guilty. But it sounds like this is not going to be about games, this is going to be about those same types of technologies facilitating work.

Nick Bloom (19:21): Yeah. So why don't I give you two examples, it's easier to look back, because it's hard to predict which technologies, but you know the general direction. So if I look back, I've been working on this for 20 years. Go back let's say just over a decade to 2010. In that era there was no cloud really, AWS, Azure, et cetera, wasn't around, Dropbox was founded around that era. And there was also no video calls, so Zoom, Teams didn't exist. So if you go back to 2010, the way you would work from home is conference calls on freeconferencecall.com, and emailing files, maybe sending it through the mail. I mean, it was just horrible. And that rate of technical change has been huge. If you look ahead, it's going to pick up. Now, what it is harder to call.

(20:03): I heard an interview of the founder of Dropbox, and fascinatingly he said, "Look, when I founded this, it was aimed at techies because no one else had more than one computer, and it turned out to be pretty critical." So I don't use the metaverse either, that's not something I'm hearing about from companies. What I am hearing about...

(20:20): Take Zoom or Teams, they were all introduced during the pandemic, raise hand, virtual backgrounds, many more windows, a whole set of stuff that doesn't seem a big deal. But now if you took all of that back, if you try and use those programs from March 2020, they're not great. So there'll be a lot of, in the short one, what will seem quite incremental. But we're going to go to 2030 and think... And this will be so much better. And what it will mean is all of us may spend an extra day a week at home, some people who coming in five days a week may be able to work a day a week at home. A good anecdote is my neighbor across road, she's a doctor, and she said, "Pre-pandemic was all in person." And she said now she does one day a week [inaudible 00:21:02] medicine, because most she and the patients want it. There's some stuff that actually it's quick, it's a prescription update or something, or getting tests back.

Russ Altman (21:10): It is just amazing. I had a pulled neck muscle during the pandemic, and I did 100% of my physical therapy with an iPad in my living room. Where she would say, "No, you're not doing it right. Stretch this way. I want to see you straighten your back." It was just amazing that I could do physical therapy in my own... Okay, so two questions. First of all, this technical progress raises the possibility that we might have an increasing population of people who are fully remote, is that what you're kind of suggesting? And tell me about... Because I know in our conversation even you've been distinguishing between the Tuesday, Wednesday, Thursday and the never people. Are you seeing a likely shift?

Nick Bloom (21:52): Yes. So again, I'll give you numbers and talk about the future. So currently in the US about 55% of people can't work from home at all. So you can imagine frontline retail, manufacturing, et cetera. Of the rest, 30% are hybrid, 15% are fully remote. The fully remote is a much more radical decision. So there are some companies that do it like Airbnb and Yelp, Quora, Upwork, et cetera. I've spoken to a lot of CEOs of these companies, and they say, "Look, the benefits for firms, you save on office space and you can hire globally. But the downside is it's harder for innovation. It's a lot harder for mentoring, for creating culture." So generally that isn't growing that much, apart from startups. Interestingly startups, fully remote is a big thing for startups, because it's cheap.

(22:39): And actually I think a lot of startups are starting up by people that currently have a job, and doing their startup on... They're doing both fully remote. So in the long run, yes, it'll pick up. I think the big growth is actually going to be hybrid folks adding a day a week say from home. For example, I spoke to Satya Nadella at Microsoft, it was really fascinating. He said they have these stores and they sell these hardware products, and you think that has to be a fully in-person job. He said, "There's been a lot of pickup of people buying hardware online, and you also need people to do the chat function, and sometimes they do Teams calls." And so folks are maybe now in store four days a week, and work from home to do the online store on the Fridays. This is a job you'd think... It's obviously a retail job, it's in person. Even that at the margin is going to hybrid.

Russ Altman (23:27): You are absolutely right. I've recently noticed that the quality of chat support for various buying decisions that I make has gotten astronomically better than it was five years ago. And okay, I wanted to make sure we touched upon what the impact on the makeup of the workforce is, and this might be a differential impact. For example, young mothers, or young fathers, or people who are living far away in rural areas. So what are you learning or thinking about the future of how the workforce will be impacted perhaps differentially by the trends that we've been discussing?

Nick Bloom (24:02): Great. So again, there's some really interesting stuff here. Also, some tremendously positive opportunities. So firstly, a couple of facts. It turns out young people, so folks in their twenties, are the least keen, certainly on fully remote. So one thing is you notice that age is a big determinant of people's preferences on being more remote. So if you talk to 20 somethings, they're like, "I want to be mentored, I want to be social." Often we have this with our students, they're like, "Look, there are five of us sharing an apartment. There's only one living room, and I don't want to work in my bedroom, so I want to go into work." So it turns out, as you look in the data, we've surveyed by now I think 200,000... We've been surveying 10,000 people a month in the US, and another 10,000 globally. It turns out that as you get into your forties, people have a higher preference to work remotely.

(24:53): The reason is folks in their forties have young kids, they have a house, they have more space. So one is there's a strong age gradient. People often ask a lot about gender, it turns out there isn't a huge variation in levels of work from home by gender. Women have a slightly higher preference, but not enormous. The much bigger gaps you see are having young children, both men and women with young children have a much stronger preference to work from home. And the other group is around disability. So if you have either disability from life or you are aging into it, we see a strong preference there. And that's where I think there's enormous benefits in the long run.

(25:30): So one thing I think it's going to open up is a lot of folks that are disabled, or maybe people with young kids, or folks close to retirement. So I think of my parents. They went from full on work to retirement, and it doesn't make really very much sense to go from 50 hours plus commuting a week to suddenly nothing. For a lot of folks in that age group, it would be, "Look, you can actually now work say three days a week, of which one of them is at home, how would that suit?" And that is very appealing, and it's going to push up what we think about as labor supply. So there'll be a lot of people that will come back slightly earlier part-time from work after kids, that will work a bit longer, students. And for an economy that's great, that will help increase growth, keeps people happier. Generally they can work a bit... Well, actually it'll help reduce inflation. So that is another very positive impact of work from home.

Russ Altman (26:19): Yeah, that is great to hear because even as a professor, which like you I am, I worry about the day that I say, "Okay, I'm not a professor anymore." And I go from 100 to zero. And this idea that there might be ways for me to ratchet down over several years is extremely appealing. And the other thing you mentioned, which makes perfect sense, is that people who are working remotely, they might be able to arrange their day so that they have a couple of jobs. And there's a whole issue, which I don't think we have to get into, about disclosing your full set of activities to your employer. But I just wanted to end, you said one thing that I wanted to jump on, which is, this is indeed a global phenomenon. I didn't know the degree to which this is a US or a Western Europe and US thing. Are other economies, India, China, Africa, are they all seeing the same trends?

Nick Bloom (27:07): Yes, exactly, trends is the perfect word. So levels are different. So the US, Canada, UK have about 30% of days work from home, that's kind of the highest tier. Scandinavia actually. You go to Southern Europe, central Southern Europe, Australia, New Zealand, you're more 20%. You go to Asia, Japan, China, it's more 15. You go to South America, Africa, it's even lower. But the change has been similar, because they both started lower before the pandemic. So globally... I mean, this morning, I was talking to someone in Sweden, and I talked to some folks in Germany, and Denmark, and Singapore, and Brazil, and Indonesia. I mean, I'm seeing the same thing around the world, that particularly graduates... So if you look at graduates around the world, it's become very standard to have one to two days a week now work from home. And so that really is the new normal.

Russ Altman (27:57): So there you see it, the future of the future of work. Thanks very much to Nick Bloom, that was the future of work from home. You have been listening to the Future of Everything with Russ Altman. You can follow me on Twitter @Rbaltman for now, and you can follow Stanford Engineering @StanfordEng.