The Office Leak Hypothesis

Yesterday, I had a chat with Eliot Brown about his new book about the rise and stumble of WeWork and Adam Neumann. The full recording is available here.

Next week, I'm speaking to Richard Florida's MBA students at the University of Toronto. Richard and I will have a chat about the future of cities, work, and beyond. I'll try to take some notes and share once ready.  

I am still working on another piece but wanted to share two ideas about the relationship between viruses and the future of work.

The word "contagion" is in the news quite often these days. But contagion is not just a biological phenomenon; it is also a social one. Humans tend to "infect" those around them, causing them to adopt similar behaviors, expectations, and even values.

Matt Clancy just posted an analysis of several studies about entrepreneurship. It turns out that entrepreneurship is contagious: People whose coworkers have a history of entrepreneurship are more likely to become entrepreneurs themselves. At the same time, being surrounded by successful entrepreneurs also discourages young people with bad ideas from giving them a try. The net effect of this is probably that more contact with successful entrepreneurs ultimately leads more people to become entrepreneurs and be better at it. That's a "disease" we should encourage.

As part of my own research for an upcoming piece, I came across research about the virality of salaries. CEO compensation has grown nearly 1000% since 1978 (while typical worker compensation increased by far less). Economists explain this increase in various ways, most notably with the fact that corporations themselves have become bigger. Technology and globalization make it possible for companies to serve bigger markets, and the CEO's pay increases with the size of the economic opportunity for the company as a whole.

But the growth in the size of companies and markets does not fully explain the rapid rise in CEO compensation. A highly-cited study by Gabaix and Landier identifies "contagion" as another possible source for this increase. Based on this theory, once a few companies increase the pay of their CEO, many other companies in the same industry tend to do the same.

The reasons for the original increase do not matter and don't have to be relevant for any other companies. For example, a company might pay its CEO a huge salary because the CEO had unique power over the board of directors or a regulatory change in the company's jurisdiction. But once one or a small number of companies start paying their CEOs more, many other competing companies start doing the same — even if none had a "rational" reason to do so initially. In a competitive market, employee perks are contagious. And the market for multinational CEOs has been very competitive over the past few decades.

The market is very competitive for many other roles — engineers, designers, product managers, even lawyers. In such a market, other perks are likely to be contagious. This is why more and more companies allow their employees to work remotely part or all of the time. Remote work has become contagious. Once a few companies offer it, almost anyone else who wants to compete for talent will have to fall in line.

More importantly, remote work itself is a mutation. Most people did not even know they wanted it, and most companies didn't know they could offer it. Covid-19 forced all of us out of the lab (the office) and into the wild. Leaving our normal lives, we all tried and adopted various new tools and behaviors.

And so, the real Covid variants are the people we've become over the past 18 months. It's not exactly clear who we are. But just like the pathogens that kicked off this pandemic, it's evident we're no longer the same.

Have a great weekend.