The economics of telecommuting, with an application to the manufacturing sector

Delynne Jo Bolin, Purdue University

Abstract

The first essay of this work looks at variation in the provision of telecommuting as a fringe benefit when workers differ ex post in their preferences for telecommuting and firms differ in the gain to reducing turnover due to different levels of investment in specific training. We find firms gain by offering telecommuting through lower average quit rates and lower expected present value of compensation due to flatter wage profiles. Comparative statics show that these gains are increasing in the amount of firm-specific training provided the worker. The second essay explains the extent of telecommuting usage by focusing on the cost of monitoring worker effort as the major component in the firm's provision cost. A simple linear principal-agent model shows that, the easier it is to monitor effort remotely relative to on location, the more likely the firm is to hire a telecommuter. In terms of the number of tasks performed, we find that those which are relatively less costly to monitor are accomplished on days the agent works from home and those that are harder to monitor are done at the office. Lastly, we look at how differences in measuring the output of workers alters the value of restricting outside activities. Our theory suggests that the less costly is monitoring, the more likely pay is performance-based and, as the worker is allowed more on-the-job freedom, the more likely she is to telecommute. The third essay investigates the effect of telecommuting on labor force participation. A multinomial logit model suggests that telecommuters differ significantly in terms of characteristics from both nontelecommuters and those choosing not to participate. We also find that telecommuting encourages, to a greater degree than traditional work arrangements, new participation, rather than substitution, in the workforce. The final essay looks briefly at the impact of telecommuting on the manufacturing sector and find that positions which are relatively easier to monitor remotely are more likely to be assigned to telecommuters. In addition, we find strong evidence that the offer to telecommute by manufacturing firms attracts into the labor force individuals who are characteristically less likely to participate.

Degree

Ph.D.

Advisors

Barron, Purdue University.

Subject Area

Labor economics|Management

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