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Distant working, bargaining energy and productiveness – Financial institution Underground

Lena Anayi

Distant working soared in the course of the Covid-19 (Covid) pandemic. Over half of British employees labored from residence in the course of the preliminary Covid lockdowns (first panel in Chart 1). And by February this yr, almost a 3rd of employees had been nonetheless doing so at the least a few of the time. However will this final? On this weblog publish, I discover corporations’ and employees’ attitudes to distant working, the extent to which these could differ, and components that may have an effect on negotiations between them on future distant working preparations.

Chart 1: Proportion of employees working from residence, full-time or hybrid(a)(b)

Sources: BBC/YouGov, Resolution Maker Panel (DMP), Labour Power Survey, ONS Enterprise Insights and Circumstances Survey (BICS), ONS Opinion and Way of life Survey, Prolific, and Understanding Society.

(a) BICS outcomes relate to staff solely, and DMP outcomes relate to full-time staff solely.
(b) The second panel presents the vary of outcomes (minimal and most) inside every class.

After all, because the Covid pandemic continues, many employees and corporations will nonetheless be determining their long-term distant working preferences. And lack of matched worker-firm knowledge containing data on each units of preferences means researchers could wrestle to precisely estimate the diploma to which particular person employees’ preferences are misaligned with these of their employers.

Misalignment in employees’ and corporations’ preferences round distant working

Nonetheless, numerous survey outcomes present that future distant working preferences differ throughout employees and corporations. The second panel in Chart 1 exhibits that, post-pandemic, employees want extra distant working than they count on shall be obtainable to them, and their expectations are barely larger than these of corporations. Many employees could subsequently favor extra distant working post-pandemic than their particular person employers shall be keen to accommodate.

It could even be potential to gauge a point of misaligned preferences by investigating the drivers of those. As an illustration, what if employees and corporations had been all motivated by the identical factor, reminiscent of maximising productiveness? If that’s the case, assuming mutual settlement on how distant working impacts this, there is probably not a lot disagreement round future preparations in any case.

Beginning with the drivers of employees’ preferences, I run a probit regression utilizing the Understanding Society family survey micro-data, with a dependent dummy variable for whether or not the employee needs extra distant working post-pandemic relative to pre-pandemic. As explanatory variables, I embrace employee demographics reminiscent of gender, age, stage of schooling, area, family measurement and whether or not they’re a guardian of dependent youngsters. I embrace employer trade (A38 group), agency measurement and the agency’s versatile working coverage. I additionally embrace job-related traits reminiscent of mode of employment (worker versus self-employed), pre-Covid earnings, weekly hours labored throughout Covid (whole, extra time hours, and alter relative to pre-Covid), workplace commuting time, job tenure, occupation (NS-SEC group), and whether or not the person is a ‘key employee‘, in addition to distant working standing pre and through Covid. And I embrace employees’ subjective assessments across the influence of distant engaged on their hourly productiveness throughout Covid, pre-Covid work-life steadiness, pre-Covid job satisfaction, and whether or not they skilled emotions of loneliness throughout Covid.

The regression outcomes (with statistically important regressors proven in Chart 2) reveal a number of issues.

First, employees’ distant working preferences are unrelated to employer traits, apart from their versatile working coverage. This implies that employees’ preferences can’t be predicted based mostly on their employers’ traits, implying that employees and corporations could typically disagree.

Second, preferences are additionally unrelated to employee demographic traits.

Third, employee preferences are positively related to whether or not the employee had been working from residence throughout Covid (with this making them 19% extra more likely to favour extra of it post-pandemic, all else equal), and whether or not they discovered it to be productivity-enhancing (with every 10 share level increase to productiveness making them 4% extra probably). Larger every day commuting time to the workplace additionally raises employees’ propensity to favour extra distant working (with every extra hour making employees 4% extra probably), as does dissatisfaction with work-life steadiness (8% extra probably) and basic job dissatisfaction (8% extra probably). In the meantime, emotions of loneliness throughout Covid decrease employees’ propensity to favour extra distant working post-pandemic (18% much less probably), as does being a ‘key employee’ (16% much less probably).

Maybe surprisingly, employees that had already been working remotely pre-pandemic are much less more likely to favour extra of it post-pandemic, suggesting a potential restrict to how a lot distant working employees in the end want.

Chart 2: Drivers of employee preferences round elevated distant working post-pandemic(a)(b)

Supply: Understanding Society.

(a) Common marginal results are reported as a result of non-linearity of the probit hyperlink operate, such that the estimated influence of any regressor varies as its amount will increase.
(b) N = 1,979. MacFadden R-squared = 0.27. Log-likelihood = -879.51.

Turning to the drivers of corporations’ preferences, I run an analogous probit regression utilizing the BICS firm-level knowledge. As explanatory variables, I embrace agency demographics reminiscent of agency age, measurement, area, trade (A38 group) and possession origin (UK/EU/US), and I additionally embrace pre-Covid data on (log) productiveness, stage of intangible belongings, and ratio of workplace rental prices to revenues. These data are drawn from corporations’ pre-Covid responses to the Annual Enterprise Survey (ABS). Moreover, I embrace data on whether or not corporations raised distant working ranges throughout Covid, peak distant working throughout Covid (share of employees), and their subjective evaluation of how distant working impacts productiveness (which I interpret as referring to employee effectivity).

The regression outcomes (with statistically important regressors proven in Chart 3) point out that corporations discovering distant working to be productiveness enhancing are 44% extra more likely to favour extra of it post-pandemic (versus these discovering it to be productiveness impartial), all else equal, whereas these discovering it productiveness lowering are 28% much less probably to take action.

Nonetheless, productiveness isn’t the one consideration for corporations. These with larger office-related overhead prices additionally favor extra distant working post-pandemic, with every extra share level enhance within the ratio of overhead prices to revenues making a agency 4% extra probably to take action. These corporations could want price financial savings by way of reductions in workplace hire, and as renters they might even have extra flexibility to make such changes. Price reductions also can contribute in the direction of improved agency productiveness by way of larger revenue margins.

Curiously, US-owned corporations are 14% much less more likely to favour extra distant working post-pandemic (versus UK owned), suggesting that cultural components may be at play.

Chart 3: Drivers of employer preferences round elevated distant working post-pandemic(a)(b)

Supply: BICS knowledge matched with ABS.

(a) Common marginal results are reported as a result of non-linearity of the probit hyperlink operate, such that the estimated influence of any regressor varies as its amount will increase.
(b) N = 2,659. MacFadden R-squared = 0.48. Log-likelihood = -5691.55.

For each employees and corporations, subsequently, productiveness issues are vital. However there are different vital components too, a few of which corporations and employees could overlook. Employees could want work-life steadiness, office camaraderie or shorter commutes, whereas corporations could want price financial savings arising by way of decrease workplace rents.

Negotiations between employees and employers: a bargaining energy story?

Competing preferences between employees and corporations could create alternatives for negotiation, if employers comply with this. BICS survey respondents had been requested in September 2021 about their ‘essential consideration when deciding who can return to their regular place of job’. Chart 4 exhibits that round half of corporations (52%) indicated a willingness to barter with employees, with round a 3rd (32%) unwilling to take action. Throughout that very same interval, corporations who had been keen to barter over working preparations had double the proportion of employees working remotely (26% versus 13%).

Chart 4: Whether or not the employer or worker determines future working preparations

Supply: BICS (wave 39).

Though the survey query asks particularly concerning the timing of employees’ return to workplaces, corporations’ decision-making round this can be assumed to correlate intently with their broader distant working preparations for the long run.

Are corporations which are keen to barter merely extra aware of worker preferences? Or maybe they’ve comparatively weak bargaining energy? Perhaps they’re higher in a position to accommodate worker preferences, because of being extra worthwhile?

There are numerous measures of each employer bargaining energy and agency profitability that permit us to check a few of these potentialities. I run one other probit regression utilizing the BICS firm-level knowledge (once more matched with pre-Covid ABS responses), this time with propensity to barter because the binary final result of curiosity. Controlling for agency measurement, productiveness and trade, I concurrently embrace numerous indicators of weaker agency bargaining energy as explanatory variables, every of that are individually positively related to propensity to barter. These embrace unionisation at office, reliance on migrant labour, whether or not the agency is at present struggling to rent, going through labour shortages or excessive workers turnover, or has lately raised employees’ wages, and firm-level labour tightness (ratio of vacancies to employment). I additionally embrace revenue margins (pre-Covid) and reported Covid influence on earnings as profitability metrics, each of that are individually positively related to propensity to barter. And I embrace corporations’ reported distant working productiveness impacts, and overhead prices relative to revenues.

I discover that reported productiveness impacts of distant working greatest explains corporations’ willingness to barter. Neither bargaining energy nor profitability measures matter when all components are thought of concurrently. Employers are 14% extra more likely to negotiate in the event that they deem distant working to be productivity-enhancing (relative to discovering it productivity-neutral). This can be as a result of they understand fewer productiveness dangers round doubtlessly permitting employees to go for continued distant working. In flip, employers are 21% much less more likely to negotiate in the event that they discover it to be productivity-diminishing.


Elevated distant working is more likely to stay a everlasting function of the post-pandemic British financial system. However the extent of this can rely upon each corporations’ and employees’ preferences, and these is probably not aligned. Corporations could favour decrease overhead prices, whereas employees could search higher work-life steadiness or shorter commutes. And even when they each search to advertise productiveness, they might disagree over the influence of distant engaged on this, as an example if employees fail to internalise its results on workforce cohesion or concepts era, or if corporations ignore its influence on employee engagement. When employees’ and corporations’ preferences differ, an employer’s willingness to barter with its staff is more likely to rely largely by itself evaluation of the productiveness impacts of distant working.

Lena Anayi works within the Financial institution’s Structural Economics Division.

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