The Economics of Telecommuting: Theory and Evidence

Although considerable research examines the effect of telecommuting on worker productivity and quality of work life, less analysis addresses the managerial problems associated with selecting, monitoring and compensating telecommuters. We propose a model based on contract theory to analyze some key managerial decisions on telecommuting, specifically: 1) What factors influence the manager’s decision to support telework, 2) How managers should decide which workers will have the opportunity to telecommute, and 3) How managers should monitor and provide incentives to workers who participate in telecommuting programs. Based on the model, we find that managers ’ willingness to allow telecommuting is related to the amount of information they have about their employees and that employees who telecommute should have incentives based both on subjective evaluations and objective performance measures. We also find that telecommuting is influenced by the productivity difference between home and office, the role of teamwork, and the outside benefits of working at home. Using data from the 1998 Workplace Employment Relationship Survey (WERS98), we test these predictions and find that most of our hypotheses are supported by the data.