US Daily: Remote Work, Three Years Later
Table of Contents
The share of US workers working from home (WFH) at least part of the week has stabilized at around 20-25%, below its peak of 47% at the height of the pandemic but well above the pre-pandemic average of 2.6%. In this US Daily, we discuss the implications of WFH for office demand, consumer spending, and productivity.
The persistence of WFH reflects both structural and cyclical factors. Structurally, the pandemic-related lockdowns spurred technological innovations that make teleworking easier, and surveys show that workers now place more value on being able to work from home. Cyclically, tight labor markets over the last two years have made employers more willing to allow employees to work remotely. Using state-level data, we find that a 1pp increase in the job-worker gap leads to a 0.3pp increase in the share of remote job postings. This implies that further labor market rebalancing should reduce the share of remote job postings from 11.5% to 10.8% in the next 3 years.
WFH has reduced office utilization rates but has not yet led to substantial declines in office occupancy rates because most firms are locked in long duration leases. Going forward, 17% of all office leases are scheduled to expire by the end of 2024, 47% between 2024-2029, and the rest after 2030. Our baseline estimates suggest that remote work will likely exert 0.8pp of upward pressure on the office vacancy rate by 2024, an additional 2.3pp over 2025-2029, and another 1.8pp in 2030 and beyond, though this is likely to be partially offset by a decline in new construction.
The shift to remote work has also changed the geographic distribution of retail spending and employment. While spending on services that require face-to-face contact has now fully recovered in the aggregate, the recovery has been skewed towards suburban areas and away from city centers where traditional office-related activities take place.
Economic studies disagree on the productivity effects of WFH, with estimates ranging from -19% to +13% and compared to our baseline of +3% for pandemic productivity gains more generally. The lack of consensus across these studies is likely driven by differences in how they measure productivity and the types of tasks and industries they study. More recent studies that measure productivity through complex performance metrics in industries involving high-cognitive tasks reveal more negative effects.
Remote Work, Three Years Later
The share of US workers working from home (WFH) at least part of the week has declined from its peak and stabilized at an elevated level. Combining various data sources, we estimate that the share of US workers performing at least some work from home remains at 20-25% (Exhibit 1), below its peak of 47% at the height of the pandemic but well above the pre-pandemic average of 2.6%.
Exhibit 1: The Share of Workers Working at Least Partly Remotely Has Declined by Roughly Half From Its Peak to Around 20-25%
*May 2020-Sep 2022 is based on the average of WFH Research, IPSOS, CPS. We use the implied linear relationship between WFH Research and the average to extrapolate for months after Sep 2022.
Source: WFH Research, IPSOS, Current Population Survey, Goldman Sachs Global Investment Research
The WFH rate varies across industries (Exhibit 2). The share of employees working remotely remains remarkably elevated in industries like information that require less face-to-face interaction, while it is much lower in contact-heavy sectors like retail and hospitality. As of July 2023, 16% of workers are in hybrid roles and 8% are in fully remote roles, suggesting that the hybrid work model remains the more prevalent option across industries relative to the fully remote model.
Exhibit 2: The Work From Home Rate Varies Across Industries
Source: Goldman Sachs Investment Research, WFH Research
We suspect both structural and cyclical factors are driving the persistence of remote work.
The pandemic caused several structural changes that have made remote work appealing to both firms and workers. The pandemic lockdowns spurred a wave of technological innovations that made teleworking easier and more widespread. The onset of remote work allowed workers to relocate away from offices with little to no short-term consequences, but these workers now face higher costs of returning to offices due to longer or more costly commutes.[1] At the same time, survey data also shows that workers prefer the flexibility and work-life balance of remote work, signaling a lasting shift in work environment preferences.[2]
Cyclical labor market tightness has also contributed to the persistence of remote work. The share of remote job openings increased rapidly with the onset of the pandemic and is now above 10%, roughly 2.5 times its pre-pandemic level (left-hand side of Exhibit 3). Using state-level panel data, we estimate that a 1pp increase in our jobs-worker gap is associated with a 0.3pp increase in remote work postings as a share of the local labor force, similar to our global economics team’s estimate based on cross-country data. Going forward, we expect that further labor market rebalancing will modestly weaken firms’ incentive to provide the remote work benefit and lead to a decline in the remote share of job openings from 11.5% to 10.8% in the next 3 years.
Exhibit 3: Firms Continue to Offer Remote Work Positions and Are More Likely to Do So in Tight Labor Markets
Source: Lightcast, WFH Research, Goldman Sachs Global Investment Research
The persistence of remote work has implications for office demand, consumption patterns, and productivity.
Remote work has depressed office utilization. Indeed, data from Kastle Systems tracking building access swipes across 10 major US cities shows that the average office utilization remains half of the pre-pandemic level (dark blue line on the left-hand side of Exhibit 4). But the depressed office utilization rates have not yet translated into significant declines in occupancy rates by commercial tenants, with the CoStar data showing a small drop from 90% to 86% in the past 3 years (light blue bars on the left-hand side of Exhibit 4).
The extent to which the high WFH rate translates into a higher office vacancy rate depends on (1) how frequently firms can renew their lease contracts, and (2) how much firms reduce their office demand at the time of renewal. First, the duration of lease terms in the office market is quite long, on average 4-7 years, according to a report by Compstak. For the inventory of office spaces as of August 2023, 17% is scheduled to expire by the end of 2024, 11% expires in 2025, and more than 35% expires after 2030. The lock-in effect of long lease duration limits firms’ ability to adjust office demand in the near term.
Exhibit 4: Elevated WFH Results in Lower Utilization of Office Space, but Tenant Occupancy Rate Remains High Due to the Long Duration of Most Leases
Source: CoStar, Kastle, Compstak
The second factor is how sensitive firms’ office demand is given the current remote work rate. A recent study using lease-level data finds that a 10% increase in the remote work share leads to a 4-5% reduction in office demand at the time of lease renewal. Combing these two factors, we estimate the remote work induced office vacancies for the next 10 years (Exhibit 5).
Our baseline analysis assuming further labor market rebalancing shows that remote work will likely exert 0.8pp of upward pressure on the office vacancy rate by 2024, an additional 2.3pp over 2025-2029, and another 1.8pp in 2030 and beyond. This is equivalent to an increase in vacant office space by 46 million sqft at the end of 2024, an additional 125 million sqft over 2025-2029, and another 96 million sqft in 2030 and beyond, a sizable impact compared to the 49 million sqft of new office construction completed in 2022. The increased vacant space from remote work is likely to crowd out new investment in office structures by $6.4 billion in 2024 and $6.0 billion in 2025.[3] We estimate the combined drag on annual GDP growth is likely to be small, with a decline of 0.03pp in 2024 and in 2025.
Exhibit 5: Office Vacancy Rates Will Rise if WFH Rates Stay Elevated
The projection uses GS forecasted labor market rebalancing for 2023-2026. For horizons that extend beyond our forecasts, we assume the labor market tightness stays unchanged. The vacancy rate is imputed using 2023 office inventory data from the Cushman & Wakefield market report.
Source: Goldman Sachs Global Investment Research
Real spending on services that involve face-to-face contact has mostly recovered to its pre-pandemic level (left-hand side of Exhibit 6). Categories associated with “fun” activities such as food and accommodation, recreation, and transportation have rebounded strongly, while spending on less “fun” activities such as personal care, laundry and clothing services remains depressed.
While the aggregate spending in these service categories has rebounded, the prevalence of remote work has skewed the recovery away from downtown where traditional office activities take place. The right-hand side of Exhibit 6 shows that both foot traffic at retail and recreation sites—a good proxy for consumer spending—and employment in retail services are much higher in suburban areas than in city centers.
Exhibit 6: Real Spending on Services Has Rebounded, but Recovery Is Skewed Away From Downtown Office Areas
Our sample includes Austin, Chicago, Washington DC, Dallas, Houston, Los Angeles, New York, Philadelphia, San Francisco, and San Jose, where the Kastle and Costar office occupancy data are available.
Source: Department of Commerce, Google Mobility Report, Department of Labor, Goldman Sachs Global Investment Research
In theory, WFH could either lower or raise productivity. On the one hand, remote work may lower productivity by reducing workers’ ability to learn from their peers, interfering with workers’ ability to focus on work-related tasks, and reducing creativity and innovation.[4] On the other hand, WFH may increase workers’ productivity by offering shorter commuting times, more flexible scheduling, and a quieter working environment.[5] Firms can also repurpose office-related expenses to other more productive uses.[6] The technological innovations spurred by the shift to remote work could generate positive spillover effects throughout the economy.
In previous research, we found that WFH adoption was positively correlated with post-pandemic productivity outcomes in the industry cross-section. This cautions against a “return to normal” explanation of last year’s productivity weakness. However, economic studies disagree on the productivity effects of remote work (Exhibit 7). The lack of consensus is likely driven by differences in how the studies measure productivity and the types of tasks and industries they study. Earlier work that used survey data with a self-assessed measure of productivity or experimental evidence in an industry that involved routine tasks (e.g. call centers) tended to find positive impacts of remote work. More recent studies that measure productivity through complex performance metrics and draw evidence from industries involving high-cognitive tasks (e.g. IT services) reveal more negative effects. One limitation of the academic studies is that they have largely focused on how remote work can affect productivity through changing workers’ performance. But remote work can also have effects on economy-wide productivity through other channels, such as helping firms reduce office expenses and spurring technological innovations. In previous research, we estimated that remote work and other pandemic changes boosted private-sector productivity by roughly 3% once these channels are considered (see here and here), though we continue to see considerable uncertainty around these estimates.
Exhibit 7: Estimates of the Impact of Remote Work on Productivity From Economic Studies
Source: Goldman Sachs Global Investment Research
We thank Elsie Peng and Jessica Rindels for their work on this report.
- 1 ^ Arjun Ramani and Nicholas Bloom, 2021 “The Donut Effect of Covid-19 on Cities”
- 2 ^ See Pew Research Center Survey, WFH Research, Flex Survey
- 3 ^ We estimate a 1% increase in office vacancy rate is associated with a $10.8 billion decline in fixed investment for office structures.
- 4 ^ Michael Gibbs, Friederike Mengel, and Christoph Siemroth, 2021 “Work from home and productivity: evidence from personnel and analytics data on IT professionals”David Atkin, M. Keith Chen, and Anton Popv, 2022 “The returns to face-to-face interactions: knowledge spillovers in Silicon Valley”Emanuel and Harrington 2023 “Working remotely? Selection, treatment, and the market for remote work”David Atkin, Antoinette Schoar, and Sumit Shinde 2023 “Working from home, worker sorting and development”
- 5 ^ Nicholas Bloom, James Liang, John Roberts, and Zhichun Jenny Ying, 2013 “Does working from home work? Evidence from a Chinese experiment”
- 6 ^ Jose Maria Barrero, Nicholas Bloom, and Steven J. Davis, 2021 “Why working from home will stick”
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