New Harris Research Finds that Return-to-Office Policies Drive Senior Employees Away and Reduce Innovation

One effect of the COVID-19 pandemic is that many workers who formerly worked five days a week in an office now work from home all or some of the time. And this trend will likely continue, according to a new working paper co-authored by Austin Wright, an assistant professor in the University of Chicago Harris School of Public Policy.   

The study, which looks at major technology companies, shows that mandates for employees to return to the office (often referred to as “return-to-office” or “RTO” policies) drive employees away, with senior employees leaving at the highest rates, likely leading to significant human capital costs in terms of output, productivity, innovation, and competitiveness.  This is especially true for the companies implementing strict RTO policies.

As of June 2023, an estimated 28% of all companies (and 75% of tech companies) in the United States were either fully remote or had a voluntary in-office option. Despite this reality, employers and employees are often at odds on this development, with some employers even reinstating full RTO policies. Wright and his co-authors, David Van Dijcke and Florian Gunsilius, both from the University of Michigan, set out to explore the impact of these policies and a series of related questions. What are the effects of these decisions on the labor market? If employees prefer hybrid or full work-from-home options, will they leave employers who institute RTO policies? If so, which type of employees are more likely to leave, and where will they land?

They studied the effects of RTO mandates at three large tech companies—Microsoft, SpaceX, and Apple. Together, the three companies account for over 2% of employment in the tech sector and 30% of its revenue.

In other words, what happens at these companies matters for the American economy and is important to the wider debate around the return to office. Because these companies initiated their RTO mandates before a wave of layoffs hit the tech industry from late 2022 onwards, the authors were able to disentangle the causal effects of the RTO mandates. The authors’ novel methodological approach, which allows them to study in detail what happens within each company, revealed the following:

• Following the return-to-office (RTO) mandate, the authors estimate a reduction in tenure among employees that escalates with tenure duration; in other words, long-tenured and more senior employees were more likely to leave.
• Importantly, these senior employees were leaving to join direct, large competitors, and not start-ups. This means that RTO mandates not only add significant human capital costs from the hiring and training costs required to replace senior employees, but they also add the competitive costs of lost operational knowledge.
• The authors do not find evidence of distributional differences in the share of men vs. women who leave for other companies; the share of leavers that flow into unemployment; the share of leavers that accept a demotion in their title at their new job; or the share of leavers changing roles at their new job. Recent surveys have suggested that women have a stronger preference for working from home, making the gender difference findings all the more striking.
• Finally, the lack of counterfactual changes in unemployment status, demotions, and job roles suggests that leavers have good outside options, given that they appear to find employment in similar roles and levels of seniority.

“The bottom line, says Wright, “is companies that mandate return to office could face significant downsides in terms of employee productivity, as well as a loss of innovation and competitiveness.”

The study was released as a working paper through the Becker Friedman Institute for Economics at UChicago’s Working Paper series.

This article is adapted from a research brief from the Becker Friedman Institute.