A Signaling Theory of Suboptimal Telecommuting
By Bryan Caplan
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.