Nick Bloom: Profitability, Performance, Retention | Work 20XX Ep20

Cold Open
Okay, great.
So I’ll just count us down, Nick.
Okay, in 3, 2, 1.

Jeff Frick:
Hey, welcome back, everybody. Jeff Frick here coming to you from the home studio for another edition of Work 20XX. And we're really excited about this next guest. He's actually been in the 'Work from Home' (WFH) space for like 20-odd years. And it's one of these cases where kind of the market comes to you, and it's a pretty great story. And he's super data-centric. So I got, I don't know, 4 hours worth of notes here that we'll jump into. But I promise to let him go before dinner, so. Joining us from Stanford University, he's Nick Bloom, the William Eberle Professor of Economics at Stanford and also the founder of the WFH Research. Nick, great to see you.

Nick Bloom:
Hey Jeff, thanks very much for having me on.

Jeff:
Absolutely. It was so fun to meet you a couple of weeks back at the Purposeful Intent event. It was kind of the who's who of remote work, kind of all aggregating into San Francisco. You gave a great keynote, went through some of the latest data. So it was a super event. Great to meet you.

Nick:
No, it was great. People are always surprised I'm 9’ 3” (2.8m) when they meet me, and they're like, really?

Jeff:
So again, I literally have more pages and notes here than will ever get through. But I want to start at the back. And actually, I started watching a TED Talk that you gave. I think it was like seven years ago, 2017, it's been a long time. But what was interesting about that is you were almost like asking people, please try one day of remote work. Just try one day. You know, you'll get all these great benefits. And I think of people like Kate Lister and I think of people like Adrienne Rowe who've been kind of trying to push this rock up the hill for a long time. Suddenly March 2020 comes, and the entire thing flips. Now everybody's talking about it. So pretty interesting change in the world. And I'm curious from an economics point of view, is there ever been a light switch kind of thing like that in the past that you kind of look at as a model of the change?

Nick:
You know, the closest thing in economics in kind of an amazing way is probably World War II. So World War II, what happened, you know before World War II, women didn't really work. So, you know, men worked. Women stayed home. Suddenly, World War II men have to go off and fight, called up for the militarization. And across Europe and the US, the government suddenly says, well, we need people who work in munitions factories to run schools, hospitals, factories, and women are called up in mass numbers. Turns out, they do a fantastic job, and that was a light switch turning on because post-World War II female labor force participation, it jumped a lot during the war and then just climbed and climbed and climbed. And so that was another one of these things. You realize we just been doing it all wrong for so many years, much as we discovered we could work from home. If you go back 70 years in World War II, they discovered you know, women are just as capable as men in doing these jobs.

Jeff:
So you started collecting data for the Work from Home Foundation (WFH Research), so talk a little bit about the data, and then we'll get into some of the findings. But just a little background, How's the survey work? What kind of stuff are you doing? And then, what are some of the other kind of core data sources that you leverage to find the insight?

Nick:
Yes, so sure. You know, I had been doing a lot of research and work from home before the pandemic, and it was kind of different. It was like randomized control trials (RCT) or surveys, really just trying to assess how much impact on productivity, what people liked about it was not really collecting core data. Then of course, the pandemic happened in March 2020, and there's an immediate question like, you know, so how many days are people actually working from home? Is it 5% of the population? Is it 25%, Is it 50%, you know, really basic figures people had no idea on. And the federal government is generally great at collecting data. I work a lot with the US Census Bureau, but they are slow moving. You know, they're like an oil tanker. You know, once they start going somewhere, they're going to keep going. But it just takes a long time to turn it, and so, you know, it was a national emergency. I mean, we kind of needed to figure this stuff out on the fly. So with Steve Davis and Jose Barrero, two Stanford colleagues, we discovered when we really set up this online survey. 

So the guts of it is we worked with a company actually called IncQuery. But, you know, there's a whole bunch of them out there, Qualtrics, etc. You are basically paying people about $2 to fill out this online survey. And we survey around 10,000 folks a month. Now there's a set of issues with it, which is some people don't take the thing seriously. So we actually drop about 20% of people that are called speeders. They go through too fast to be credible. We also have attention check questions. So we ask people what is 3 + 4? You're okay if you are six, seven or eight. We don't want to penalize people for bad math. But, you know, if you get it too wrong, you're kicked out. We asked them how many large cities have you lived in in your life? Answer 33 if you’re paying attention. We also ask them what color is grass? If you're paying attention, please click purple. And so folks that pass through the attention checks, we keep them in. So down to now only about 60%. And then the final step is we ask people their age, their gender, their education, their income, and their industry, and a re-weight that according to the current population survey so you get a nationally representative data point. Now, you know, and that wasn't enough. Right at the end of the survey, we asked people who did you vote for in the 2020 presidential election and we actually know the truth to that because you can pull up the county level polling data. So we benchmark against it. We get an incredibly accurate match both in level and across county

so after the cleaning and all that pain and this is a long process, we eventually come up with a number we think’s pretty accurate.

Jeff:
And you report a ton, you report a ton on X formerly known as Twitter as well on LinkedIn. So the high level, the research, it seems pretty conclusive that that hybrid is going to be, you know, the vast majority, you know, some small percentage I think 20% last time I looked want to be full-time remote and about maybe 30% are full-time in the office, thereabouts.

What I find interesting, though, is everyone kind of keeps looking for this ‘average’ number and even Julie Whalen from CBRE said, you know, everybody's given up on Friday. That's pretty much off the table and you know, talking to Phil Kirschner at McKinsey he’s like, yeah, it's kind of now is kind of this trade-off for this extra day. But what I find most compelling is that it's a use case where averages isn't really going to help anybody because it's really, as we learned from like Brian Elliott, it's the team level agreements and the team of execution where this is actually happening as opposed to, you know, this mass aggregate of everybody's taking Friday and half of Monday off. Is that accurate, do you think?

Nick:
Yeah, very much so. If you look across the US and actually company by company, what we see is there are three groups, there are 60% of people that have to come in every day. So when you go to, you know, McDonald's or, you know, your, the street is cleaned or you go out to a store, those are in-person jobs, you know, hospitals, teaching, etc.. That's actually the biggest group. 60% of folks come in every day. There's then 30% that are hybrid. That's probably most of your listeners. That's most of the world actually, I live in and we live in that's you know, most graduates, professionals, managers, my Stanford students, MBAs, they typically are in that hybrid world. And then there's the remaining 10% that are fully remote. A lot of this is things like call centers, data entry, payroll, this kind of stuff.

‍
Now, if you look at most large companies, they have a mix of all three and it makes total sense. So take Stanford my own institution. There's a bunch of stuff we have to have people in every day - food service, you know, security, cleaning, etc. There's then a bunch of people that are hybrid actually faculty, staff makes sense. They don't need to come in every day. But it's good to come in, you know, two or three days a week, maybe have Friday, Monday at home, and then we have IT support, call centers, etc., that are fully remote, and for us, that makes sense. But most companies you see it make sense it's profitable to do it and that basically why it's settled down and why it's now stuck.

Jeff:
So one of the there’s a lot there's a lot of big buzzwords that people or trigger words I should probably say one of them is productivity. And I was I was fascinated in your TED Talk when you talked about a use case example. I think it was called Ctrip but you specifically use the word performance and not productivity. And I don't know if that was intentional or not, but I picked up on it and I think it's probably because you talked about the performance reviews that they did at the company, which was used and the productivity went up on the control group that worked from home. Recently there was another report that just came out and you referenced it the other day about a 10% productivity decline for fully remote people. But when you dig into that, I think it was two reports that were referenced, it was a lot of kind of data entry call-center-y kind of stuff. And so when you think about productivity versus performance, productivity to me sounds like they're measuring those call center people on keystrokes or cases closed or, you know, I don't know versus maybe performance, which is maybe customer satisfaction retention, maybe some of these softer skills. So I wonder if you can share some of those details on that Ctrip example, because you know, that is great. You got to do a random sample and the people actually did really, really well.

‍Nick:
Sure. So I think for me, in many ways, the key thing is actually profitability.

Why don’t I go through, so hybrid, if you look at hybrid, is a classic hybrid. I always say it's like vanilla ice cream. So, you know, vanilla is the most popular flavor, but it's only 20% of sales. But even so, it's, you know, the most standard, so vanilla for hybrid is work from home Monday, Friday. Come in Tuesday, Wednesday, Thursday. We've done a randomized controlled trial of that. It looks like that is small positive impacts on productivity - performance, whatever you want to call it.

For example, in the company we did, they have various metrics like how many lines of code the code is, right, performance reviews, promotions, various things. They're all slightly positive. I wouldn't say it's an enormous number. When you interview people, what they say is basically, look, if I can work from home on Monday, Friday, it's I save a lot of commute time, means I'm less exhausted, should have a bit more time to work, and I can concentrate, like quiet, you know, deep work. I can do better, but I'm in the office a little bit less and it's maybe a little bit less meetings, you know, a little bit of face time net/nets about zero.

The other group is what you mentioned in some of these studies. They look at fully remote jobs. Now there's a mix of studies, the range of impacts, some of them are from like +13% all the way down to -30%. The number I gave -10% is kind of the average. Now, why you know, the classic study that you're correct is something where you can measure performance very tightly, like how many calls like, for example, when I looked at the call center, we looked at how many calls these folks answer. We can perfectly control for quality because I have a randomized audit of 1% - quality was totally unchanged. The only thing that happened in that study is that they answered 13% more calls. In other studies, they were showed down. You know, there's a spread. Imagine, you know, and I talk to firms, I often say, look, imagine it was -10%, fully remote. That's the center, imagine that's true. You don't want to think that means you don't want to do fully remote.

Because there's another huge benefit which you save a lot of money. So you take folks in a call center, say, and you say right ‘Now you can work fully remote’. Let's think that they're 10% less productive. Fine. Maybe they're less, you know, 10%, 20% for the sake of argument, I should say the number immediately though, you saved on all the space costs, that savings one, that's typically 10% - 20% of cost so you’re up already just on space. Point two is you can hire these people across the U.S. or internationally, which means you often save another 20% to 50%. Often I tell companies, look, hybrid is about recruitment, retention, productivity is kind of flat, but people love it. So you save a lot of money on recruitment and retention, fully remote - You may lose a bit on productivity, but you save a ton on costs. So it's also very profitable. They’re just slightly different strategies, but they're both, you know, profitable and hence why they're so popular now.

Jeff:
I want to dig into the profitability piece more, I guess, finance more in general. You know, Clayton Christensen, rest in peace. He had a thing where he was kind of upset that a lot of Wall Street rewards systems are built around ratios that he didn't think were valid to be able to compare, say, Ford and Cisco, which are completely different companies in different businesses. So finance comes out with ratios they can do compares and private equity people or investment managers can move the money around and that motivates behavior. I'm curious, at what point is the economic outline that you just went through in terms of the cost of real estate and the justification for the cost of real estate at the prior levels going to start to change the behavior. When analysts start asking the CFO to justify these big line items, it’s funny.

I just did some quick math. If you come in five out of seven days that’s 71% utilization of the office, okay, we take Fridays off, 4/7 says 57%, you're still over. You're still over 50%. But if you tip to 3/7 now, you've fallen below 50%. And I just wonder if the calculus of the cost of the real estate again, kind of over time, is going to change where the pressure is going to come from places like Wall Street to say, ‘Hey, this is not a cost that you necessarily need to carry anymore.

Nick:
Shure, definitely so. Here's where I think the future will be. There's a path to get there and there's a lot of adjustment and leases, etc.. But let's just think five years out, let's think, you know, here's the dream world. If you having folks working in the office say one or two days a week, you probably don't want to pay for at lease for a full-time office. Well, actually what may make much more sense, for example, there’s a company I'm working with called Tandem, is you say, office share. So imagine, Jeff, you have Monday, Tuesday, I have Wednesday, Thursday. We just close the place down on Friday. It's going great. We both pay half the rent. It's very easy for you to manage because everyone's in Monday, Tuesday, that's the only choice. And you know you're there together and it works well. So I think if you are going to be two days or less, I agree it doesn't make sense to pay for an office full time if you're thinking of three, certainly four days a week, I would suggest probably you might as well pay for your own office. Three’s kind of at the margin. You can have a three and a two kind of pairing up. Five, I’d think very seriously and hard about getting people in for five days. I just don't think in the research and data I've seen that fifth and final day in the office doesn't seem to improve performance and quite frankly pisses off employees big time. And like, what is the point? You know, like really upsetting your employees for no benefit? Why not, you know, have them come in four days and reduce your quit rates by 20%. So as a result, I mean not surprisingly five days a week in the office isn't very popular. It isn't very common, we, you know, there's a few kind of hard-assed investment banks that are trying to get their folks in five days a week. Have they succeeded?

Some. Not, you know, not that many. I mean, a fantastic quote on this is Lloyds of London, the big insurance company about six months ago announced that all their employees are going to come back five days a week. The reason I know that is I was talking to a recruiter and she said, you know, the second that announcement was in, guess what, I pinged every one of them on LinkedIn and started, you know, jumping on the phones and I was able to strip off like five Execs within like 2 hours. So it tells you that, you know, it's like you're bleeding in the water. Now, sharks are circling when you're announcing five days a week. You know, your competitors are like nibbling your employees away.

Jeff:
I just want to stick on the government and the policy for a minute. Because the other thing that's kind of getting buzzed around in the news right now is the Fed's trying to get people to go back to the office. But I talked to Kate Lister and she's talked about regulations of the Telecommunications Act, I have a bunch of it written down 20, 2000, 2003, where there was a mandate for the federal employees to work from home as much as possible for continuity in case there was, you know, a bombing or in case there was a global pandemic. So it's this interesting kind of juxtaposition between, you know, the benefits versus kind of this perceived ‘We need to get back’ for command and control or for whatever it is. But in fact, those Telecommunications Act bills have been around since about when you started this whole thing 20 years ago.

Nick:
Yes, so again, you know, it's one of these things they get so scrambled in the media, so, well, you know, what was basically announced is the federal government wants folks back in the office. But when they mean ‘back in the office’, what they mean is, you know, two, three days. Some people are pushing for more, I get it. But basically the mandates to come back for, you know, three days. So they're not talking about five days a week. You know, as a taxpayer and as a user of a lot of public services, I'd say about three days a week in the office makes sense. You don’t want them coming back five days, those extra two days probably doesn't make, you know, isn’t a lot of benefit. Why do you want three days rather than zero? Well, there are a lot of activities that are best done face-to-face, a lot of meetings, mentoring, training. Another big issue with the federal government is one of the challenges of work from home is evaluating how people are performing and how hard they're working when they're out of the office. Now, if you're say in a sales job where you can see very easily whether people are making the calls, you’re gonna let them work from home four days a week. You can look at their numbers, even five, the federal government typically doesn't have fantastic performance management. If you know, I worked in the UK federal government, you know, equivalent of Treasury actually. It’s not that well set up and as a result, a lot of management is by kind of watching people. Are they at their desks? Do they appear to be working? So I think the federal government employees coming in two, three days a week is perfectly reasonable. I think pushing them to come in, you know, four or five seems unreasonable. My reading of the evidence is mostly people are talking about two, three days a week. There are a few folks pushing for more. They turn out to be, guess what, the Mayors of big, you know, places like (Muriel) Bowser of, you know, (Washington) D.C.

Or Eric Adams in New York, who have an ulterior motive and that ulterior motive, of course, is called their tax base. So, you know, they're not really caring that much about how efficient these employees are. They’re caring that they come in and spend money in their shops. But, you know, that doesn’t make a lot of sense. I mean, as you know, every dollar a federal employee spends on sandwiches next to work is $1 less they're spending next to where they live at home, so you know, the biggest voices pushing back are people who have a personal interest in it rather than because they care about the federal employees.

Jeff:
Even in that TED talk again years ago, 2017, you talked about a big part of the pushback was basically management, you know, kind of not either, not in a position, not well-trained, buying it, whatever, but kind of bad management practices. And I think Brian Elliott just posted something on LinkedIn where somebody’s saying, you know, How do I know people are working? Well, it's like you had an example in your presentation of a senior person that said when they went in and looked that there was people that hadn't logged in in weeks and weeks and weeks or whatever. I mean, to me that just flashes a big red sign of, you know, that's just bad management. I mean, are you not keeping track of them, are you not giving them things to do, are you not checking in on some kind of a regular basis.

So, I mean, How much of do you think if this this has just been kind of bad management pushback, either because we don't have the training, we just don't have the systems, or we're just not capable of having the right metrics so that we can actually manage, you know, kind of outputs versus managing the back of their head that they're, you know, kind of inputs based management.

Nick:
You're exactly right. So this is a big HR issue. So why don’t I just go through? I mean, actually, this came from a story when I interviewed Marissa Mayer at Yahoo about what happened back in 2013, and she said, Look, when folks are in the office, you can basically manage them by walking around. That’s not great, it's maybe four out of ten management, but you can see, like, Jeff, if you're managing me, am I at my desk typing away when you walk by? Does the screen look like has excel on it or word or you know or am I watching Netflix or, you know, watching the baseball? So you have a reasonably good way to run, it's not perfect. I'm definitely not claiming this is particularly great, but you know, it's kind of livable. The problem is when I go home. Now when I go home, If you're used to that kind of old fashioned input based management, you can't see what I'm doing. So, you know, the knee jerk reaction that you saw in March, April, May 2020 is to install horrible surveillance software. I mean, that stuff is creepy and awful. I'd never advise it. And it's easily got around. Like a friend of mine said his sister has surveillance software that the company she works at uses it and when she walks, goes to walk the dog. She asks her Mom to tap the keyboard every, you know, every few minutes, so The surveillance software is terrible. So basically, if folks are at home. You have to go to the better option, as you said, which is output evaluation or performance evaluation, whatever you want to call it. So, for example, if I'm working for you, you may say what I'm going to do is I'm going to evaluate your sales or your product launches or your new clients. Your pieces is written, for example, I'm a professor, so it’d be some combination of teaching, university service and, you know, research.

And with good output evaluation, you can say, ‘Hey Nick, you can work from home Monday Friday’ your kind of get to manage yourself, but I'm going to evaluate you and every three months are going to have a performance review, maybe every six months, a pretty rigorous review. And, you know, if you do well, that's great. Higher pay, more promotion. If not, well, you know, we're going, we're going to have a serious talk, and I used to work in McKinsey long ago, and that was the way they ran the firm. And McKinsey has some good and bad sides about it, but their performance evaluation scheme is pretty, pretty effective. And on days that I work from home, which occasionally happened, I assure you I worked hard because I was aware that if I didn't work hard, it was going to be pretty obvious. And so you do need good performance evaluation systems to have work from home.

And this comes back to the point on the federal government. The issue I have of the federal government being heavily or fully remote is typically the federal government has very weak performance evaluation systems. If you look at what a lot of federal employees do, it's hard to evaluate that actually. You know, there's no sales targets, there's no profit, there's no, you know, mass customer counts, and so I'm not pushing for them to be in five days a week, but particularly a good performance evaluation is tough if it’s like a creative industry or something around mentoring or something that's, you know, rather intangible. You may want folks to come in two three days a week. So you have, you know, some great connection.

Jeff:
I think you had on one of your presentations even Homer Simpson can break the surveillance system, sitting, sitting in Marge's robe and smacking on the computer, I think with a mop from across the room where my or or my favorite line from Mårten Mickos right, the counter to what you just said is ‘It's so easy to fake it in the office’. So make sure you have that spreadsheet up and look busy and make sure you're bringing the boss a coffee, a coffee now and then. So let's shift gears a little bit. You talked about something called market size effects. And I think, I want to drill into this because I think a lot of people are too focused on what's happening kind of today and what's happened over the last couple of years. And you made the point that, you know, looking forward because of the change in the number of people that are working remote, that it's going to drive all this investment into technology and really change what this all looks like in five years from now.

A little bit about, you know, where this is going to go, not tomorrow, but you know, 2030 with exponential curves is like, you know, that's like 100 years from now compared to what it used to be.

Nick:
Yeah, exactly. You know, it feels like a lot of the debate around working from home right now feels like people are driving down the street looking in the rearview mirror. You can kind of roughly do it because you can make sure the dotted line is under the car if you're looking in the back. But it's not the best way to drive.

So, you know, to step back and set the scene. From 1965, we have data on work from home levels going back to 1965. So from 1965 to 2019, basically the eve of the pandemic, it was rising and doubling roughly every 15 years. So it was an amazingly low base, half a percent of days back in 1965, almost no one. And by 2019, it was like 5% - 6%. What was going on? Well, it was technology. So go back in the eighties, you have the first personal computers; by the nineties, you're getting laptops; by 2000’s it's the Internet. By late 2000s, it's starting to be cloud, video, of course, etc. All of them, it's just making it easier to work remotely.

Now fast forward a bit, what's happened during the pandemic is the number of people working from home has gone up about five times. Now, as you say, that generates what economists call market size effects. So every startup, every venture capital, every established firm suddenly sees, wow, they're like five times as many people working from home. If I can come up with the next video camera or app or design or screen or headset to service that market, I'm going to make a lot of money. And that has generated a kind of a stampede, a gold rush of people coming up with new products and ideas.

One paper I have looks at the number of new patents coming out of the U.S. Patent and Trademark Office that mentioned words like telework, work from home, remote work. It's kind of flat for many years, and then you hit the pandemic, and it starts steeply going up.

So putting your, you know, your crystal ball look, peering into it, what it tells you pretty convincingly is if we look five, certainly ten years out, the technologies we're using will be dramatically better. And as a result, the number of days that we work from home will be up. People keep thinking that we're going to return to some pre-pandemic level, but that's completely wrong. We're basically in the middle of a Nike swoosh. For 2023, we know from the SWAA data (Survey of Working Arrangements and Attitudes) I've been collecting on work from home days, the census, the Kastle (Systems) swipe card data, we’re basically flattened out. So we’ve fallen from 2020 to 2023. We're now in the flat bit of the swoosh, and we're about to start heading up again. So we are even three years from now; I think it's a pretty safe bet we'll be working from home more days than less.

Jeff:
And you talked about in that in your keynote the other day that, you know, we kind of fell back to kind of the natural curve that was there before the bump with the pandemic at this doubling rate. Do you see it accelerating, though, because of the acceleration of the technology? I mean, I think we had the three to me, the really three big breakthroughs were, you know, kind of cloud, powerful handsets, and fast connectivity.

Because now that allows us to basically work from anywhere, from our devices. But, you know, I think that the ChatGPT people are saying that the compute power that they're using compared to two years ago was like 10,000 times. I mean, the exponential curves are just ridiculous. So do you think that will actually increase that rate, or do you think that's just kind of a natural rate of conversion?

Nick:
I mean, I think it will continue growing. The rate is harder to predict, but just think about the kind of things that would make a big difference. So right now, for example, I'm looking at a year on a flat screen. It's kind of a small window because I have a camera right at the top If I expand you to the full window, I might looking down in your face. And it's not natural, so...

Sure, some things are much bigger screens, multiple cameras across the screen. So it's five or six use AI. Now when you watch a football match on TV, they don’t have one camera that follows it around; they have multiple ones and they go to the best view. More generally, looking further ahead, three-dimensional holograms.

If you've watched, you know, Star Wars, the Jedi Council, I mean that stuff seems like science fiction now, but in ten years time, I wouldn't be surprised if there are whole thing holograms. I was actually having lunch with Eric Yuan from Zoom about a year ago in his office, and he was talking about all these kind of cool things they're working on.

And he said, "Yeah, in the long run, you know, we're working on something that if you put your hand into the screen, your hand will come out the other side." And I was like, "Really, like surely that can't be right." And he just laughed, and I was like, "I don't know what you said, you know, it's hard to know."

If you reverse it around, I actually heard a fascinating interview on a podcast with a founder of Dropbox, and he said, you know, when I founded it in 2010, back then, only techies had more than one computer. So I aimed it at this very niche market of techies. Now, of course, nowadays, everyone uses cloud file sharing, and it's pretty critical technology.

So I think a couple of things are true. Everything we use is going to be better: screens, cameras, videos, etc., and there's going to be some stuff you can't even conceive of now that's going to come out, you know, three or five years from now; they're going to look back and think, "How do we live without it?"

So, you know, one backward-looking example, I've been working from home maybe one or two days a week for years, and I've long been on the telephone call and emailing files. I never even thought to think we could file share on the cloud and use video. I mean, maybe it seems obvious, it's just I don't know whether anyone else did it. It just seemed natural to just email files around and telephone call people all the time.

Ten years from now, we'll look back at 2023 and say, "I can't believe we were like zooming on these tiny laptops doing, you know, whatever."

So I think it's a very safe bet to say that technology is going to accelerate. Work from home is so large, there's so much money in it, there are so many billions of R&D dollars being poured into it. So it strikes me as absolute madness to predict that we're going to head back to the office.

Office occupancy, by the way, may go up, but not because more people are heading in. It's because offices have been converted to, you know, residential and retail. So the only thing saving office occupants is, you know, people aren't building many offices anymore and they're closing down.

There's actually now a net contraction of office, and have you seen it in 2023, the first year the square footage of total office space in North America contracted because there's more being converted to residential than being built. So that's the one thing that's going to save the office industry.

Jeff:
Wow, that's I did not know that. But I want to shift gears a little bit.
You've had Eric, I'm going to screw up his last name, Eric Brynjolfsson, Second Industrial Age, he and Andrew McAfee, and he's talked about, you know, that this office is really a remnant. You've talked about it too, something that happened in the 1800s, which is kind of the instead of the factory line. It was the paper line.

I mean, literally, I was around when you had your inbox in your outbox and you took it out of the little manila envelope with the string and you did whatever you had to do and you stuck it back in the envelope with the string and stuck it in the outbox.

I mean, it's so bizarre that we've got all this other technology, we've changed all the way that we do things, the way that we're entertained, the way that we travel, the way that we communicate.

And yet we're still there's still people stuck in this paradigm when all the reasons that you went to the office before, except for the socialization, is in your phone, right? I heard one of your interviews. I guess we won't have pictures in the cube anymore. It's like you have every picture you've ever taken in the history of your pictures on your phone all the time.

You don't have that one great picture that you had. That one picture of the family trip. So it's a really different, you know, it is kind of the next great epoch, don't you think?

Nick:
I totally agree. So I did an interview with The Guardian newspaper the other day, which is, you know, a great, you know, Centrist maybe left of center U.K. newspaper I really like.

And I think they titled it ‘The office is for socializing’. So you're right. So you go back to, you know, there are two functions of the office.

One I call ‘library’ mode. So library mode I have in mind undergrads, my undergrads at Stanford spend a lot of time in the library just before exams in particular. What are they doing there? They're not getting out books. They're using it as a way to basically enforce discipline on themselves, to work. They can probably go work in their dorms, but it's hard. Like it's distracting.

So there is the library mode version of the office. You go in, it's a place to get work done and quietly beaver away, and that was kind of 2017, 2018, 2019. Very few people are doing that because mostly we have enough discipline to do that at home. Or if not, we go to local Starbucks or, you know, WeWork or Radious or something.

The other version of the office, which is what's living on, which is what the future is, you know, socialization, social mode, as you said. So we go in, it's mentoring, it's meetings, it's presentations. Hey look, we met in person two weeks ago and it was so nice. So you don't need to be in person with someone every time, but it's much easier to work with them if you met with them in person, you know, every other week.

And it's much easier to mentor and connect, and so the future of the Office is the classic professional manager is probably going to be in a couple of days a week, a lot of meetings, presentations, lunches, training events, maybe on the road for another day a week. We can maybe the other couple of days a week they're working from home, and you know, most people actually want that. In our survey, 50% of Americans want to be hybrid. 30% want to be fully remote, and only 20% want to be fully in-person, so going from I mean a, we’re ‘all fully in-person’ to a ‘mostly hybrid’ and some of us are fully remote, it's made Americans a lot happier on average.

Jeff:
You know, it's funny, I was talking to somebody who was talking about development and he said, what you measure in days slips and days, what you measure in weeks slips and weeks. So, you know, whatever the unit of measure is, that's the unit of measure. And it strikes me that we're still talking about days of the week. We work in blocks of hours. And, you know, nobody complained when everybody was working after five or everybody's working on Saturday and on Sunday, it may have been your post.

Somebody just posted that a significant amount of people are working full days. You know, it was your post on Saturday or Sunday. So again, it just drives back to what are we measuring? You know, what are your customers paying your organization to deliver? And it's not punching the clock.

Nick:
Yeah, I mean that's I did post, I put it on LinkedIn today. What was fascinating is that I chose to in response to a question on LinkedIn. So LinkedIn has been really great for both of us for really lively discussion.

Someone said, 'Well, I was showing how hybrid work has appeared to work well on the weekend and someone said, ‘Well, how does that compare to fully in-person, fully remote?’ Turns out, it’s not entirely clear why but hybrid so people that are you know both in working some days in office, some days at home are much, have their work far more spread throughout the week so on average they're working one day on the weekend each week, which is pretty surprising.

I think what's going on and I can understand, it's like we’re all returning back to grad school or undergrads again. So you think when you're a student, nobody works 9 til 5 as a student, you know, couple of days you party, you go to the beach, you get hung over.

So it's like on and off. And so for a typical person, you know, I don't imagine I have kids. So I like seeing my kids. I may, you know, sometimes go to the gym, go shopping or stuff. That kind of stuff often is easier in the weekday.

So a classic person may say, look, I'm a big golfer or a skier, I'm going to go ski for the day, it’s quiet on a Wednesday, and I'll just work on Saturday. And there's totally nothing wrong with that. And I think that's what we're seeing in the data.

People are deciding to take a bit of leisure in the week and they're making up for it on the weekends and it's kind of like being underground. And that's the positive spin on it.

Jeff:
The negative spin is you don't have time to get your work done during the weekday because you're back to back to back to back to back to back meetings. And you know, you're trying to actually squeeze in dedicated heads down. I need 3 hours of work time. And the only time you can get it is when there's no meetings on the calendar.

Nick:
To be the nerd here. So the American Time Use Survey (ATUS) has really good data on working hours and in fact, it's slightly down. So not much. But I think we're working about I can’t remember the exact numbers, but it was like a 55-hour week's an average and is now down to 54 and a half.

So we're definitely not working any more. Not working much less. I'd say that difference is pretty immaterial. The only way you could worry. So I interpret most of the spread is positive. The only reason it could be negative is, you know, imagine, Jeff, you're my boss and you're already chaotic and leave a lot of the work to the weekend. I actually want a 9 to 5 schedule and work in the weekday and take the weekend off.

But you keep, you know, giving deliverables to do on a Saturday. So there are circumstances I can see where people don't want to work on weekends but do my guess though.

But you know, we're still collecting the data, which is what this is an active research area is mostly, it's probably people flexing. I have a paper looking at golf and, you know, that's one of the reasons I kind of come to this is golf playing is up 60% versus pre-pandemic. It's the same as it was on the weekends. All of the growth is come in the weekday, particularly during the working day.

And so from that, it's pretty clear there's a lot of work from home workers that are slipping out to play 2 hours of golf. And I think that's fine. Coming back to our early discussion, if you know you have good performance targets and you meet them that is totally okay. You go play golf for 2 hours and you work for 2 hours one evening, there's no problem with that. 

Jeff:
It's funny because I used to be a bag-carrying salesperson. And you know, if you're in the office, they kicked you out. Like, what are you doing here? Get out and see your accounts, you know, and you're, you know, you're out on the road and you had to deliver a number at the end of the month and you delivered a number. So, you know, that's a job that it's easy to judge performance if you will.

I want to bring up a couple of terms for you to help people to think about this. And one is choice versus coordination, which you talk about a lot to try to make this work. And the other piece is this performance gap or excuse me, preference gap between employers and employees. It's still, is still in the research in terms of the delta between what employers want and what employees want. And that does kind of then break down into this choice versus coordination. Wonder if you could share, you know, kind of best practices there.

Nick:
Sure. Yeah, I mean, choice versus coordination is like one of these kind of epic medieval battle. You have the two forces amassed on either side of the battlefield and they go at each other. So what is laid out is I even I've actually changed my mind on this.

So back in 2020 when it first started, and in fact my own research I was a big believer in choice. So it's pretty clear that people want different things, some want more in the office, some want less, some want different days, etc. So the natural thing, and that was my initial view, was, look, we should let employees choose.

Having talked to by this point more than a thousand firms and managers I have actually changed my mind. It's like that Keynes thing you know, "When the facts change, I change my mind. What do you do, Sir?" And it feels kind of like that, it turns out looking at the research and just talking to managers, as we talked earlier, the main reason you come into the office is to work with colleagues.

The problem is if you let people choose, you choose Monday, I choose Wednesday, you choose Thursday, whatever, and we just don't overlap. And it's even more complicated if you have teams of eight. It's not enough to have six people in because if two are at home, what are you going to do? You're going to come out of the meetings or get on Zoom. And then if you get on Zoom, people in the office are like, I came in to spend, you know, an hour on Zoom. I don't want to.

So it turns out as much as choice is fantastic. And I was a big believer when you actually, you know, the rubber hits the road and you actually have to run this. When you talk to real managers on the ground doing this, it turns out it doesn't work that well now.

It doesn't need to be a centralized mandate from on high. The most common setup of this kind of thing is team by team, group by group, division by division. However, people tend to work together at that level. You coordinate, and typically there's a bit of input. You know, you can imagine that, for example, you know, you're in an area where people really want to, you know, like.

Take Europe. In Europe, it turns out the schools, elementary schools will have half days on Wednesdays. That turns out to be a very popular day to work from home in the US, it's Friday. Australia as I discovered. People love to be in the office on Friday, so they like to go out for drinks after work. So as a manager you take a bit of input, but then you coordinate for your team.

And I don't actually the more I thought about it, the more I think it's not particularly radical is to go back to 2019. There are 168 hours in the week, but no one has said, Look, you can come in, Jeff, you come in for 40 hours, but you choose them. No, that never happened. I'd say, Jeff, you're going to, you know, I'd like you to come in 9 to 5, Monday to Friday, because that's when everyone else is in.

So the fact that we coordinated pre-pandemic, you basically, yeah, it seems kind of a perverse thing because if someone said, look, I choose to come in 8 p.m. to 5 a.m. every day, you'd be like, Well that doesn't really work. So, you know, I think choice is yes, within limits. But I think ultimately when I talk to firms now they’re pretty much coming down to coordination, at least at the team level.

Jeff:
Although there's a productivity element there and it was a great book back in the Go-Go days of 2000, you know, the Naked Guy on the Late Shift (The Nudist on the Late Shift: And Other True Tales of Silicon Valley) and I’m spacing the author's name, (Pro Bronson) and he talked about this coder. It's a Silicon Valley company, and he just like to code at night, naked at the office.

I don’t know if it's fictitious or not, but you know,  he had to do it at the office because there wasn’t fast Internet back then. But it was, it's kind of just lining up with your with your productivity hours, which for everybody isn’t 9 to 5,  So it's a

Nick:
That would be fun but for someone like that. They shouldn't come in the office full stop. Nick - They should just work from home 

Jeff:
Now they can, It wasn't available as an option in the year 2000.
We did not have the fast things. So another - go ahead 

Nick:
So folks that don't need to work with anyone, you know, they’re not even part of this conversation. We’re really only talking if somebody really can do their job on their own without any interaction, they shouldn't come in. They should be remote. The only people I'm really talking about here is folks that do need to work together because of mentoring, teamwork, etc., and it just seems natural that you want to coordinate.

And I don't really see any alternative, actually, I just don't see, you know, I know the choice thing is popular, but it tends to, when you actually talk to what's happening on the ground with firms there's a bit of a divide between, you know, the talking heads on LinkedIn versus actually what's happening on the ground. And what's happening on the ground is coordination, at least at the team level.

Jeff:
Let me ask another tough one that's in the chitter chatter right now, which is which is pay rates based on geo or based on skill, because as I think you've said and a lot of people said, you know, if there's a job that can be done fully remote or mainly remote, and that opens up the TAM (Total Addressable Market) of your, of your employment TAM and where you can go for people, what does that end up going to be? So that’s huge.

Nick:
You know, this came up. I was teaching an Exec group, and someone in the group, you know, I’ll anonymize this so it doesn't give it away. It's not that sensitive, but they run a large remote team.

And their company has very localized pay scales. So their company, you know, if you live in an expensive city, you’re paid more, you live in a cheap place, you're paid less.

And they said one of their team members came to them and said, another team member has moved from an expensive northern European city to a pretty low-cost southern European holiday resort.

And this team member is really upset and said this person has been paid a lot, but they're actually living in a cheap place. And the manager said, you know, they basically said to the group, look, this was a nightmare for me because the team member that moved is a really high performer.

So what am I going to do? I have someone that really, this highly performing, one of the stars of my team. Am I going to tell them off for moving to a different location because it's a nicer place to live? Like, why should I be snooping on someone that's nothing to do with me?

On the other hand, if I don't tell them off, the other team members are upset, and I breached company protocol, and they said, look, I'm like, I'm stuck between a rock and a hard place.

I think ultimately the issue is for fully remote employees. It doesn't make sense to have hyper-local pay scales. Managers shouldn't be snooping into where employees are living. Employees shouldn't find that their pay shifts every time they move. HR shouldn't be spending hours and hours every month coming up with these pay schemes.

Yeah, there's a multiple of, and firms should basically have at least a national or maybe even a continent or global pay scale, and you just pay amount X for the role.

And this has come up a lot because I've been asked this a lot by companies, and what I'm seeing is we are slowly moving that there is a big legacy of during the pandemic when teams were sent fully home and companies said, look, we're just going to keep you on your pay that you had pre-pandemic.

That made a lot of sense at the time. And I agree with that. The problem is you go from 2020 to 2023 where people have moved around the country, and because you happen to come from the San Francisco office, you're paid a lot because you happen to come from the Memphis office you’re paid a lower amount, but you live next door to each other.

And that just kind of highlights. You really eventually want to be moving towards a more national or global pay scale.

Jeff:
And then the other thing, which is a hornet's nest that we won't get too deep into, but just the regulations and taxes and health insurance and all those things that, you know, get complicated, crossing state lines, much less international lines.

And I presume, you know, based on the early comment that, you know, hopefully there'll be a lot of technology and innovation and just ways to make that a little bit less friction, because I'm sure it must be a nightmare on the management of things like taxes from the HR point of view.

Nick:
Totally, I mean, that's why, you know, again, this is great. You know, it's why I love LinkedIn. You know, you, me, Brian (Elliott), many of us live on LinkedIn. It was, I can’t remember who it was actually made a fantastic point, it was saying look, there's legal and tax regulations which make this harder. And I get that. And so I'm not saying doing something illegal and, you know, but I'm saying the direction of travel as I see it and as I talk to firms is trying to minimize localized pay to make life easier.

So you have 20 different pay scales across the U.S., maybe just, if you can go to one national U.S. pay scale, maybe, you know, one for Canada, whatever it is, but the more you can globalize, the easier life becomes. If you look at startups, they generally do that. They often, you know, hire coders to write apps, they’ll do a marketing pitch, they’ll do some data work, they’ll often just go to some platform and just post the job and hire the best person for it.

And so for companies, it typically makes sense. You just pay for the task, and you know, fine if the best person is in Brazil or Bulgaria or Nigeria. That's okay. I mean, if you’ve, you know, people often or the other issue that comes up is like, oh, my gosh, you're stealing jobs out of America, right, or out of Europe.

You know if anyone’s checked the news recently. We have a labor shortage in the U.S. You know, inflation is kind of a bit out of control. It's calming down, but it's too high. And one of the reasons there aren’t actually enough workers. It's not like, you know, there's high unemployment. And so for the U.S. and for Europe, actually, it's probably a good thing to take some of these. Typically, they're relatively repetitive, often quite mundane jobs that can be posted overseas, done abroad and let local workers do more face-to-face stuff, do higher-end jobs.

Jeff:
So do you see the prioritization of retention going up in the executives that you talk to because of the labor shortage? Because one of the other things that came out of your case study was I think you said that the work from home people had a 50% less quit rate, which is giant.

So, you know, with you know, we're in kind of a little economic malaise right now. But you know, the labor market is going to continue to be tight. So do you see the prioritization around retention and engagement, you know, maybe moving the needle a little bit? Is that going to be a primary driver?

Nick:
Yeah, I mean, that's the biggest reason for hybrid. If you look at it, most people's view is hybrid is you're about flat on productivity. It doesn't really save any space because you're typically in the same. Everyone's typically coming in Tuesday, Wednesday, Thursday. You know, you can hire a bit more broadly because you can hire, you know, rather than a one-hour commute, a two-hour commute. But again, this isn’t an enormous thing. The main thing is it keeps employees happy.

And the numbers we put in it from surveys is employees treat it as about an 8% pay increase, being able to work from home a couple of days a week. And for recruiters, one recruiter told me she would say, you know, they used to be the big two perks. It was health care and pension. Now is the big three: health care, pension, and work from home.

And so when I talk to execs, the bottom line is really recruitment and retention. I know we're not doing hybrid because we think it improves productivity. I mean, often they kind of worry a little bit, but net net, they're like it's about flat. They're doing it because it's very expensive to endlessly hire and train up people for them to leave.

Jeff:
That’s great. So we're at the end of our time. But I want to you the last word. And I could go for hours and hours and hours, but you've got your remote conference coming up. I noticed. Last year, I think it was in October. I think it's coming up in September. So why don't you give a plug for your conference? I'm sure you've seen some of the papers that are coming out. Who are going to be some of the speakers? What are you excited about for the conference? Or maybe it's not out yet. I don't know if the information is public yet.

Nick:
It's going to be, you know, live-streamed.
So anyone is welcome to it. There's a whole variety of papers.

I'll tell you the most amusing one, just because it's so funny when I read it, as soon as you read it, you’re like ‘ha’ that makes sense. Why wouldn't I have thought about it in advance. Is the weird and wonderful effects of work from home.

So it turns out there's a very detailed study in the UK that shows that work from home has significantly reduced house burglaries. Why? Because if you, you know, Mr. Burglar person thinking of breaking into a house and you're about to break in, you see someone sitting in the living room, you know, doing Excel spreadsheets, you're not going to break in.

Speaker 1: So it turns out that, you know, I have very detailed data from regional police forces in areas with big increases in work from home, have seen, guess what, dramatic drops in home break-ins during the day because there are people there. So it's like this whole conference is full of these amazing effects of work from home.

Another one that I've been working on that's kind of fun is I have amazing data on about 150 million journeys a day in the US by car and using this kind of mobility tracking stuff. And we see there's a lot less commuting, which is not surprising. People are working from home more. Turns out, you know, work from home workers are gifting folks that are driving to work faster commute time.

So what we've seen is commute volume is down, and speeds have gone up quite a bit. So, you know, all these people whinging about their colleagues that are working from home shouldn't be whinging at all; they are saving the people driving in an hour every day about 10 - 15 minutes and probably some gas money because suddenly the roads are only two thirds as full and we can see it very clearly in the data.

So everyone’s a winner.

Jeff:
We didn’t even get into commute.
The cost of externalities of the commute.

And now people are saying all the tire you know, the stuff that's coming off your tires when you've got to get new tires is in the air. So, I mean, reducing that commute is such a positive thing for, like you say, not only the people commuting. But the people that have to drive, you know, there's a lot of people that have to go in. They don't have the option. So it's beneficial for all.

Nick:
I agree. I mean, look, if you can get the next four cars in front of you on the road to be working from home, you can go that bit faster.

Jeff :
Well, Nick, I really appreciate the time. Like I said, I could go for hours and hours and hours, but. But I'll let you go. It's Friday. And so I really appreciate time today and keep up the good work and we'll just we'll see you on LinkedIn. It's great you publish you publish so much great information and share so much information. I think it's a it's a really terrific thing for people to have the data.

Nick:
Yeah, I have there’s about another ten in the pipeline and I’m excited. You’re like, I feel like permanently excited about what's about to come out, so. Hey Jeff, it was fantastic catching up. Thanks very much.

Jeff:
Thank you, Nick.
Alright, he’s Nick, I’m Jeff and you're listening to Work 20XX. Thanks for listening. Thanks for watching. Talk to you next time. Take care.

Cold Close
Awesome. Thank you.
That was great, Nick. Thank you.
Thanks very much. A lovely chat. We’re good.

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