Is it time to promote working from home?

Over the past few weeks I’ve been working mostly from home as part of the COVID lockdown.  However, now with the move back to Level One I’m heading back into the office on a more full-time basis.  

In the first few days back, I have heard a lot of people from around the building talking about how they prefer different work arrangements – and I’ve heard a lot of people say that they felt more work was being done away from the office.  And yet, teams appear to be making the choice to move back to the office.  Why is this the case?

Although it may be the case that the teams stated and real preferences differ, I suspect there is something else at play – strategic complementarity.  Once we understand this concept it can become clear why we can end up in a worse equilibrium with regards to our work arrangements even when given flexi-choice, and why explicitly promoting working from home could be a “win-win”.

My choice depends on your choice

To understand how strategic complementarity works it is useful to look at an individual’s choice regarding where to work in two scenarios: 

1. When everyone else is working from home,
2. When everyone else is working from office.

In scenario one, everyone else is working from home.  Because of this all meetings will be online (via Teams or Zoom), there will be no workplace gossip to miss out on, and no-one will look strangely at you if you fold clothes while you are in a meeting.  In this case there is a strong incentive to work from home.

In the second scenario, where everyone is working from the office, it becomes more difficult to work from home.  You get shut out of meetings, people catch up on each other’s lives without you joining in, and a decision to fold your washing during a meeting would go down poorly with your boss.  As a result, the incentive to work from home is much lower – and with the benefit of group chats and getting heard at meetings at work you have a strong incentive to also go to work.

Because you have a greater incentive to work from home when others do, and a greater incentive to work from the office when others do, these actions are strategic complements.  If someone decides to work from the office, it increases pressure for other people to work from the office – and if someone switches to work from home it increases the pressure to work from home.

This leads to multiple equilibria.  Namely, when the number of people choosing to work from home increases, the effectiveness of that type of arrangement works well and an additional person will have an incentive to work from home. Similarly, when the majority of people choose to work from the office increases, it functions well as well and an additional person has an incentive to work from the office. 

In a simplistic example, people in both cases choose to go with what the majority is doing, and we end up with two equilibria points – all work at home or all work in the office.

Is the equilibrium we choose the best (Pareto Optimal)?

The answer is not necessarily.  The equilibrium selected isn’t based on the underlying preference regarding working at home or the office – but instead is history dependent or based on what has happened in the past and what people expect others will do.

In our example above it sounded like the individual would like to work from home all things considered – but with a push to get back to normal and get in the office they know that their workmates will be in the office, as a result they also go to the office. As they are making their choice to go into the office based on the expectation that others will go to the office – and not because they actually prefer working in an office – this equilibrium is Pareto Inferior! 

So what is the takeaway here?  Just because historically, everyone chooses to be in the office, it doesn’t mean that we shouldn’t be open to better ways of working. If it is true that people are just as productive, and are happier, when working from home then that is something worth encouraging – but due to strategic complementarities it is not something that will organically occur if we simply state that flexi-work is allowed.