One advantage of working remotely is that it provides greater work-life balance and the flexibility to manage the time of day that the employee uses to do their job.
However, a recent study, which was conducted by economists from the University of Nottingham, the University of Sheffield, and King’s College London in the United Kingdom, found a pay gap between job offers that included the option of telecommuting and those that required 100% on-site or hybrid workdays.
Why does the study matter? The study took into account salaries and job offers from January 2018 to December 2023. The findings indicate that workers who physically attended the office received larger salary increases as compensation for the lack of telework benefits.
The inclusion of pre- and post-pandemic data provides a broader perspective on how pay varies in offers that allow telework, those that offer hybrid hours, and those that require office attendance five days per week.
Return-to-office policies have a cost. The study’s findings reveal that employees who work remotely experience a 2% to 7% slower salary increase compared to their counterparts who work in the office. Researchers consider this “consistent with a significant remote work wage penalty.”
Despite the lower wages, the paper says employees perceive the ability to telecommute as a valuable benefit, comparable to traditional company incentives like free childcare or company cars. As a result, those who can continue remote work see the slower salary increase as justified.
Commuting to the office incurs additional expenses. The study also indicates that the salary increases compensate for these extra costs, including public transport, fuel, and food expenses.
Additionally, according to the authors, employees who commute to the office daily are willing to sacrifice an average of 8.2% of their income for the option to work from home two to three days a week. However, those willing to make this sacrifice are typically highly skilled employees and those with high salaries rather than those in lower salary ranges.
Inequality in the opportunity to work from home. Researchers find that telework is more prevalent in sectors with higher-skilled workers, such as consultants or software programmers, who don’t require constant physical presence.
Moreover, individuals living in larger homes outside of major cities are more likely to work from home than those residing in smaller apartments in urban centers. Other researchers in Barcelona, Spain, recently reported similar findings regarding the relationship between purchasing power and telecommuting options.
Higher salaries have been rewarded for on-site work. Employers have balanced out perceived benefits of teleworking with higher salaries for those who, due to the nature of their work or company policies requiring a return to the office, can no longer take advantage of this model.
This has mitigated the risk of a pay gap between remote employees and those who commute to the office. “There are arguments suggesting companies should encourage or even mandate that their workers should come back into the office, and you might argue that if working from home increases inequality it gives a further argument for doing that. Our research shows that it doesn’t increase inequality so you can’t use this as a reason to get people back in the office,” Paul Mizen, vice dean at King’s Business School, King’s College, said in an interview.
Stricter return-to-office policies. Recently, some companies like Amazon and PwC in the UK have implemented stricter policies for returning to the office, reigniting the debate. Some of these policies don’t include salary compensation for employees who are teleworking. Based on the findings of the British study, this lack of compensation could put remote workers at a disadvantage compared to those who previously worked in the office and received higher salaries.
Image | Austin Distel
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