Abstract Flexible work arrangements are increasingly becoming the norm across many countries, particularly in developed nations such as Canada and the United States. Remote work (work-from-home, or WFH, for short) has gained significant popularity in recent years, especially after the outbreak of the COVID-19 pandemic in March 2020. Building on seminal contributions by Bloom et al. (2015) and Davis et al. (2024), we develop a simple theoretical model that captures the trade-off between externalities associated with remote work and those derived from in-office work. The model is based on the premise that both productivity and firm profitability are influenced by the intensity or proportion of remote work arrangements by firms. Ultimately, higher workforce productivity and firm profitability due to remote work translate into higher wages. By considering different collaboration structures among employees, the model demonstrates that while remote work can lead to cost savings and positive externalities, excessive adoption may undermine benefits, increase management complexity, and raise the risk of employee shirking. The central theoretical result is an inverted U-shaped relationship between the extent of remote work and wages. To test this prediction, we use data from the Canadian Labour Force Survey to examine the relationship between industry-level remote work intensity and individual wages. The empirical findings reveal that wages rise with remote work intensity up to a threshold, approximately 52.1–63.9%, beyond which they begin to decline, supporting the model’s non-linear prediction.
Fang et al. (Tue,) studied this question.