A Recession Won't Bring People Back to the Office

A Recession Won't Bring People Back to the Office

Some analysts assume that employees will lose their leverage and return to the office as the economy slows down. This theory is based on a mistaken assumption.

Dror Poleg

Executives, landlords, and analysts think remote work is a temporary blip. They assume that as the economy slows down, employees will lose their leverage and come back to the office.

This theory is based on a mistaken assumption. The main driver of hiring from anywhere is employers' need to access a bigger talent pool and, to a lesser extent, cut costs and increase their own flexibility.

As the economy becomes more competitive, specialized, and volatile, these needs will only intensify.

"Tech workers got what they wanted. That's over," declares the Wall Street Journal. In a piece published this morning, Katherine Bindley quotes executives and investors who share their views on the future of work. One recruiter tells of a "financial services" client who was willing to let new hires work remotely last year but no longer does. The overall impression is that employees better brace themselves. A tweet by Bill Gurley, a legendary venture capital investor, summarizes the mood:

"For employees that have only known this world [of cheap interest rates, abundant capital, and war for talent], the idea of layoffs or cost reduction (or being asked to come into the office) is straight up heresy. In many ways this is not their fault. Excess capital led to excessive showering of employee benefits and heightened expectations."

Gurley is right about "excessive showering" of benefits and "heightened expectations." But he is wrong to bundle remote work with other perks. Remote work is indeed a perk. And the only reason it will stop being a perk is by becoming a standard — by becoming more common, not less.

Gurley and others assume that the decentralization of the office is driven by petulant employees. But that is not the case. As I pointed out in The New York Times:

In the decade before the pandemic, the world's largest and most innovative companies — Amazon, Facebook, Google, Apple, and others — Amazon, Facebook, Google, Apple, and others "started splitting their headquarters into multiple locations." Stripe even went a step further. In 2019, it "opened" a remote hub located... nowhere. As their CTO put it at the time, the company wanted to "tap the 99.74 percent of talented engineers living outside the metro areas of our first four hubs" in San Francisco, Seattle, Dublin, and Singapore.

As I pointed out in my book, also before Covid, the new offices opened by tech giants were not "regional headquarters" of "local branches." Instead, "they are a base for employees that contribute to the development of key products and services, as well as for some of the company's key executives." Seeing employees collaborating on core activities in multiple locations, I raised a simple question: "If employees can collaborate across offices, why do they need to be in the office at all?"

In many cases, the answer is that they don't, at least not in the office. Employees can still meet; they might even share a small office or on-demand meeting room a few times a week. But they don't need to be in the same place as all of their colleagues, all day, every day, or anywhere close to that.

Even before Covid, companies started decentralizing their operations. The main reason they did so was not because job applicants were petulant; it was because companies wanted to hire from a larger talent pool. Productivity and innovation are dependent on the matching of candidates with specific skills and experiences to increasingly specialized tasks. When you hire from a larger pool (across multiple locations), you are much more likely to find a candidate who fits the role perfectly. And that someone could be tens (or hundreds) of times more impactful than an equally qualified but not ideally matched candidate.

Dating markets illustrate this point: You might find a smart, beautiful, and rich partner in almost any city. But suppose you have multiple other requirements (someone who likes Leonard Cohen, keeps kosher, is artistic, and values education over anything else). In that case, you have a much higher chance of finding your partner online or in a much larger city. And just like in dating, that candidate would be worth much more to you than all the other intelligent, beautiful, and rich candidates out there — because that candidate can do something that all the others can't.

Historically, companies concentrated their activities in a handful of large cities because large cities enabled them to hire from a relatively large talent pool and enjoy the (genuine) benefits of in-person collaboration. But once remote collaboration became a viable option during the 2010s, companies had to choose whether they cared more about maintaining the intensity of in-person collaboration or hiring from a much larger talent pool (across multiple cities). Even before Covid, companies showed a clear preference to hire from a larger pool even at the expense of less in-person collaboration.

This preference will only intensify as the economy becomes more dependent on the matching of creative talent to specialized tasks. In such a world, success is far less predictable, and it is much harder to plan ahead. Production is no longer a linear process where clear inputs produce clear outputs. Instead, it is a creative process that is more akin to gambling or film production than to industrial planning.

As a result, companies themselves are showing a growing preference to increase their flexibility, reduce long-term fixed costs, and have the freedom to tap into the resources they need, wherever and whenever they need them.

This is not necessarily good news for employees. But it points to a world where work will only become more flexible and more distributed.