The recent bans on telecommuting indicates a market failure: a ban on telecommuting may or may not be a good policy for the company, but it’s definitely bad for the environment. Telecommuting is a classic positive externality and should be subsidized.
In economics, an externality is a spillover effect, a consequence of a transaction between two parties that is not translated into a price mechanism. When an industrial plant dumps toxins into a lake, that hurts surrounding communities, but the plant doesn’t pay, so the government intervenes. When children are better educated, it is good for the whole community, so the government intervenes. In both cases the reason the government intervenes is because a free market provides too much of an undesirable good (pollution) or too little of a desirable good (education). In this essay I will argue that free markets provide too little telecommuting, and therefore the government should intervene by subsidizing it.
Telecommuting creates many benefits that are internalized: studies indicate that it increases productivity, it certainly increases worker satisfaction and it opens up more jobs to females (very few women can have a nursery built next to their office, as Mrs. Mayer has done). A recent Stanford study preformed in China finds:
Home working led to a 13% performance increase, of which about 9% was from working more minutes per shift (fewer breaks and sick-days) and 4% from more calls per minute (attributed to a quieter working environment). Home workers also reported improved work satisfaction and experienced less turnover, but their promotion rate conditional on performance fell.
These sorts of benefits are “internalized”; companies see them on their bottom line, and therefore increase the amount of telecommuting. The study finds $2,000 savings per employee per year. However, other benefits (environmental, congestion, social mobility) are not, and therefore there is reason to suspect that the amount of telecommuting is less than optimal. A Texas A&M study finds that commuting to work costs the economy about $121 billion dollars.
A study in Brussels finds significant decreases in congestion from telecommuting, along with myriad environmental advantages. Critical scholars note that, while it is certainly harmful for workers to spend hours in the car pumping out greenhouse gasses and pollutants, when they stay home they are more likely to use heating, water, etc. Essentially, that the office has economies of scale.
Generally, rebound effects are small, and Peter Arnfalk of Lynd University writes in the New York Times, “There are environmental rebound effects (like increased trips for purposes other than work), but these are relatively small compared with the reduced commuting distance.” Rebound effects also can represent increased consumer utility, which negates some of the (already small) effect. If, for instance, my boss keeps the office too cold, and working at home I can be warmer, I do use more energy, but I am gaining utility – far be it for economists or policymakers to try to judge utility, better to leave that to consumers.
Another advantage, one that has been largely ignored is social mobility. The United States is one of three countries that does not guarantee paid maternal benefits, which means that access largely depends on wealth. A Rutgers study finds:
In March 2011, only 11% of private sector workers and 17% of public sector workers reported having access to paid family leave through their employer; those percentages dropped to 5% and 14% respectively for those earning in the bottom quarter of wages.
That means many poor and lower-middle class women choose between spending time with their child and their job. The same study finds that many of these women end up on public assistance and the job is not waiting for her. That entrenches wealth in the upper class and leads to better outcomes for the children of upper middle class and rich families and hurts the woman’s mobility. While some of this benefit is internalized, it is certainly not all of it. A survey conducted by Ispos finds:
A strong majority of employees in 24 countries ‘agree’ equally (83% – 36% strongly, 47% somewhat) on two assessments of telecommuting: that it will keep talented women in the workforce instead of leaving temporarily or completely to raise children and that telecommuters have less stress due to less time spent in getting to their workplace.
It’s likely that some of these benefits are internalized, while others (benefits for children, social benefits from more women in high positions) are not.
In America we tend to fear government intrusion- often for good reason. We want more women in the workforce but find quotas unfair. We want lower carbon emissions, but we don’t like the high up-front costs of public transit. By subsidizing telecommuting we can get the advantages without the downsides.
Rather than mandating telecommuting, the EPA can identify the quantifiable economic benefits of the program and then provide a subsidy for the portion of those benefits to companies that adopt telecommuting. This would more accurately reflect the social and environmental benefits of telecommuting, and would increase equity and efficiency without unnecessary intrusion.
Win-win-win.