Preamble
This blog is about work. How and where we work, and why the discussion generated by these questions is relevant to the future of work. The world of work is evolving. This blog will provide some history and context, highlight the push and pull between employees and employers, and sample some Return To Office (RTO) policy considerations. It’s important enough to repeat: The world of work is evolving. Correspondingly, this blog will try to keep pace.
Confirming and Refuting, Part 1
The COVID-19 pandemic has had an impact on how, and where, many people work. Prior to the pandemic, the vast majority of workers spent 5 days in the office every week. The shutdowns in response to the pandemic forced employees to work from home, or not at all, for an extended period of time. Companies have shared various reasons for instituting their RTO policies and mandating that their employees work from an office location at least part of the time, as we shared in our September 2024 article titled “Why RTO”. In this article, we’ll choose a few of the shared reasons and examine if the data confirms or refutes the justification.
Physical presence required
We’ll start off with the easiest one: jobs that require a physical presence.
Research shows significant decreases in English and Math standardized tests during the 2020-2021 school year, with one caveat. English scores fell by 6% for hybrid or fully virtual learners, but only 3% for learners who were fully in-person. And Math scores fell by 14% for hybrid or fully virtual learners, but only 4% for fully in-person learners. Clearly, fully in-person students learn better than hybrid or fully virtual students. And in-person learning is not possible without teachers being fully in-person.
While no similar research exists for wait staff, store employees, or other jobs that require a physical presence, the logic is fairly sound. In order for a restaurant to provide service to its customers, many of their employees need to be physically present - there would be no food without the chefs and cooks, there would be no clean flatware or cutlery without dishwashers, there would be no orders placed or food delivered without servers, etc. In order for a physical retail store to provide service to its customers, employees need to be physically present to restock inventory, answer questions, find the right size or style of outfit or shoe, etc. Even the cashier role is making a comeback, with major retailers scaling back their automated checkout process.
Regulation
On the surface, regulation seems like a logical justification for being in the office also - if the regulatory body for an industry requires employees to be in the office, then employers are justified in mandating their employees return to the office. As we dig deeper, however, it sometimes becomes clear that “regulation” is wielded as an indiscriminate justification.
One example is in the financial industry. A large number of brokerage firms have ordered their employees back into the office, citing a new FINRA (Financial Industry Regulatory Authority) regulation as the rationale. A FINRA-registered individual’s work location is subject to periodic inspection by FINRA and other regulatory bodies to ensure that rules are being obeyed and investors are protected. During the pandemic, some of these regulatory requirements were relaxed. As of June 1, 2024, FINRA rolled out a new pilot program allowing registered individuals’ home office locations to be treated as a non-branch location, with specific inspection requirements. Instead of trying to comply with the inspection requirements for registered individuals’ home offices, most of the major brokerage houses instituted a mandatory fully in-office policy, citing new regulatory policies as the reason. In reality, the brokerage houses could have allowed their employees to remain remote by defining a process by which the FINRA inspections could commence.
Local economy
It would be an intuitive observation that normally-full office buildings being empty for an extended period of time would lead to an impact on the local economy around those buildings, and research confirms this hypothesis.
Table 1 shows the decrease in foot traffic for large
metropolitan areas during the pandemic lockdown
Resident density category | Ratio of workers to residents | Change in foot traffic |
Category 1 - 50th percentile of resident-to-worker ratio | 0.43 | +1.05% |
Category 2 - 50th-75th percentile | 1.9 | -13.67% |
Category 3 - 75th-90th percentile | 5.73 | -57.11% |
Category 4 - 90th-95th percentile | 14.05 | -176.96% |
Category 5 - 95th+ percentile | 56.17 | -740.67% |
There are a lot of numbers in the table, so let’s illustrate this data using two examples from our theoretical “large metropolitan area”.
Example 1: A mixed-use neighborhood - Category 1
Let’s say that a specific neighborhood in a large metro has a mix of office buildings and residential towers, with a resident population of 10,000 people and an inbound commuter population of 4,300 (a ratio of 0.43 inbound workers to residents). On average, local businesses would have seen an increase of 105 customers (+1.05%) in aggregate on a daily basis during the shutdown. While the inbound commuters who work in this area are no longer frequenting those establishments, the local residents who no longer have to commute elsewhere are filling the void.
Example 2: The “central office district” - Category 5
Let’s say that a central office district within the same large metro has a lot of corporate offices and a smattering of residential towers, with the resident population being the same 10,000 people and an inbound commuter population of 561,700 (a ratio of 56.17 inbound workers to residents). On average, local businesses in this area would have seen 74,067 fewer customers (-740.67%) in aggregate on a daily basis. There’s no way that the relatively small resident population can fill such a huge drop in customers from the missing commuters. It’s no surprise that many small independent businesses in these areas shut down as a result.
A similar trend can be seen across all urban classifications - areas with higher inbound commuter density had the sharpest decrease in foot traffic.
Table 2 shows the decrease in foot traffic
across all classifications and categories
Urban Classification | Cat 1 | Cat 2 | Cat 3 | Cat 4 | Cat 5 |
Large central metro | 1.05% | -13.67% | -57.11% | -176.96% | -740.67% |
Large fringe metro | 2.47% | -2.85% | -13.7% | -32.88% | -115.72% |
Medium metro | 1.7% | -3.21% | -14.98% | -45.1% | -149.61% |
Small metro | 1.2% | -1.27% | -3.88% | -7.06% | -16.36% |
Micropolitan | 1.16% | -0.26% | -1.62% | -3.51% | -5.99% |
To give a bit of context to the urban classifications above:
For large central metros, think New York City or Los Angeles - population over 1M and very high population density
For large fringe metros, think of Newark, NJ or Anaheim, CA - high population and high population density, within easy reach of a large central metro
For medium metros, think of Harrisburg, PA or Provo, UT - population above 500K and medium population density
For small metros, think of Flagstaff, AZ or Albany, NY - population above 100K and medium to low population density
For micropolitan areas, think of Concord, NH or Manitowoc, WI - population generally under 100K and low population density, but not rural
As mentioned above, the research seems to confirm the fact that a fully remote work policy, broadly enacted by companies in the higher density metropolitan areas, does impact the local economy. As a result, this justification for mandating employees back to the office is valid, especially if the company has a disproportionately large presence in the neighborhood.
The Bottom Line
Physical presence, regulation, and local economy are proven to be valid justifications for RTO, though some companies could be more selective instead of carting out “regulation” as broad justification for a unilateral full-RTO policy.
Up Next
Citations
Pandemic Schooling Mode and Student Test Scores: Evidence from US States, National Bureau of Economic Research, November 2021.
Banks don't want to inspect your home office, so they're forcing hundreds of employees to come in five days a week, Forbes, May 2024
The Impact of Remote Work on Local Employment, Business Relocation, and Local Home Costs, Bureau of Labor Statistics, March 2023
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