Who benefits from remote work?

Some five years after the coronavirus pandemic triggered a mass shift to remote working, the debate over its merits remains as fierce as ever.

Advocates of remote work point to greater flexibility and improved access to workers, while critics argue that collaboration, culture and productivity suffer when staff work from home.

New research from UNC Kenan-Flagler Business School suggests both sides might be right.

And a different question could matter more: Who benefits from it?

Remote work appears to lift startups far more than established companies, boosting the productivity of young firms and helping them hire and grow more quickly, according to research by Finance Professors Abhinav Gupta and Elena Simintzi at UNC Kenan-Flagler Business School and their colleague Arpit Gupta of NYU Stern School of Business.

Their research findings add an important wrinkle to the remote-work debate. Rather than producing the same outcome everywhere, remote work appears to have very different effects on startups and established firms.

“It’s not a one-size-fits-all story,” Simintzi says. “Young firms become more productive, scale up quicker and attract talent faster. We don’t observe the same benefits with larger companies.”

The researchers found that programmers at startups who adopted remote work became markedly more productive. Compared with their counterparts at bigger businesses, they moved up 12 percentage points in productivity rankings — a measure of where a worker sits relative to others based on their output.

At established firms though, the productivity of coders moved in the opposite direction, falling by 9 percentage points. Even after accounting for other factors that might influence output, the results held up.

Gupta and Simintzi drew on data from more than 3,500 U.S. firms and over 37,000 employees. They tracked software developers’ output on GitHub and linked it to company remote-work policies and hiring data.

Their findings further suggest that remote work could help startups overcome one of their biggest challenges: access to skilled workers. Young businesses that work remotely increased employee growth by about 7% after Covid struck in 2020, while bigger companies saw no comparable increase.

The researchers found the fully remote startups hired substantially more people and posted more jobs, suggesting that access to a wider pool of recruits — beyond their immediate geography — was a key driver of their productivity boost.

What is more, remote startups were able to hire workers at cheaper rates of pay — roughly 2% to 5% lower salaries — while simultaneously lifting productivity, which the authors say is evidence that remote work gave them access to a larger labor market.

“Unlike large firms, startups typically operate from a single location and can’t draw on the same talent pools,” says Simintzi. “Remote work changes that because it allows them to tap into a much larger, national, or even international market for talent.”

The biggest lifts in productivity came outside the largest technology hubs — the Bay Area, San Jose, Seattle or New York City — suggesting remote work was particularly valuable for startups with a smaller local talent pool from which to draw.

“There’s been a lot of debate saying companies locate in tech hubs because that’s where the skilled workers are,” says Gupta. “But remote work reduces the importance of where a company is located. A startup no longer needs to be in San Francisco to compete.”

What gave startups a boost offered far less of an advantage to larger employers, which experienced more employee departures, which largely offset any gains in hiring.

By contrast, startups that adopted fully remote work policies saw even larger productivity gains — 3 to 4 percentage points higher — than those using hybrid arrangements, where employees spend part of the week in the office.

The pattern was the reverse for large companies, where fully remote work was associated with productivity declines of 1 to 3 percentage points.

This suggests that the fewer restrictions firms place on where people can work, the larger the pool of potential recruits becomes. And that is more of a boost for smaller companies.

“Remote work does help level the playing field,” says Simintzi.

Additionally, female employees showed larger productivity boosts than men at remote startups. This is consistent with previous evidence suggesting that women place a higher value on flexibility at work, say the researchers.

“Startups should embrace remote work,” Gupta says. “It allows them to hire people they might never have been able to attract otherwise. If you can access talent beyond your immediate location, you can unlock productivity and compete with much larger companies.”