A simple model of working from home

Abstract

The paper describes a simple model of working from home. The model extends the standard consumption vs unpaid hours decision faced by individuals to make labour a location-specific good. We drew three main insights from the model: (1) increased access to working from home increases labour supply as some time saved from commuting is diverted to working hours; (2) the commute is a major cost which is borne entirely by the individual who supplies labour — this cost drives much of the welfare improvements that occur when working from home is permitted and; (3) paying a different wage to office vs home-based labour yields an efficient outcome. However, when wages cannot vary by location, firms and workers will likely make adjustments over time to make the distribution of work more efficient; such as by investing in home-based work technologies, or by developing processes to make distributed work more productive.