Economic and Social Reports
The long-term wage growth of teleworkers before the COVID-19 pandemic

Before the COVID-19 pandemic, working from home was unlikely to be viewed as compatible with the supervision of employees, most of whom generally worked on-site. Some firms might have perceived—rightly or wrongly—that some teleworkers were less committed to the organization than other employees. For these reasons, individuals working from home may have received fewer promotions than other employees, if any.^Note  Some teleworkers might not have pursued offers for highly paid jobs that provided no opportunity to work from home. In all of these scenarios, employees working from home would have experienced lower wage growth in the long term than other employees.

Alternatively, firms may have allowed some of their highly skilled employees—who would have experienced strong wage growth regardless of their work arrangements—to work from home to retain them within the organization. These teleworkers might have experienced stronger wage growth than their colleagues working on-site, not because of telework per se, but because of their higher-than-average abilities and growing contribution to the performance of the company. Other highly skilled teleworkers might have experienced strong wage growth by moving to high-paying firms.

Did employees who worked from home before the COVID-19 pandemic experience weaker or stronger wage growth than other employees in the long term? This question is currently unanswered. While several studies have assessed whether teleworkers earned more or less than other employees at a given point in time (Oettinger, 2011; White, 2019; Pigini & Staffolani, 2019; Pabilonia & Vernon, 2022), no study has—to the authors’ knowledge—compared the long-term wage growth of teleworkers with that of other employees to date.

This study fills this information gap and compares, for the commercial sector,^Note  the wage growth experienced from 2005 to 2015 by employees who worked from home in both of these years with that experienced by employees who worked outside the home in both of these years.^Note  To do so, the study integrates data from Statistics Canada’s Longitudinal Worker File and the 2006 and 2016 Census of Population.

If part of the increase in work from home triggered by the COVID-19 pandemic persists in the years to come, employees working from home will likely be a less selective subset of the Canadian workforce than they were before the pandemic. Firms’ attitudes towards telework and their ability to monitor teleworkers’ performance will likely change as well. For these reasons, the long-term wage growth of teleworkers before the COVID-19 pandemic is unlikely to predict precisely the long-term wage growth of teleworkers in the years to come. Nevertheless, comparisons of the long-term wage growth of teleworkers with that of other employees before the COVID-19 pandemic are important for a variety of reasons. First, they sharpen the understanding of labour markets before 2020. Second, they provide a benchmark against which to gauge the future earnings trajectories of teleworkers. Finally, they help inform discussions about the potential benefits and disadvantages of work from home.

Employees who worked from home before the COVID-19 pandemic earned more than other employees

Men and women who worked from home before the COVID-19 pandemic received higher wages than other employees.

In the commercial sector, average log weekly wages of male employees working from home in 2015 were 0.207 points higher than those of other male employees (Table 1, column 1, second panel). This represents a pay difference of 23%.^Note 

This pay difference drops to 13% (0.122 points) after controlling for worker characteristics such as age, education, immigrant status, language proficiency and activity limitations; job characteristics such as full-time status, union status and pension coverage; and firm characteristics such as industry of employment and firm size (Table 1, column 2, second panel).^Note  The pay difference drops to 10% (0.093 points), but remains statistically significant, when the focus is on wage differences between teleworkers and other employees within firms, i.e., when controls are added for firm fixed effects (Table 1, column 4, second panel).

For women, the 2015 wage differences between teleworkers and other employees obtained in multivariate analyses vary between 12% (0.108 points) and 16% (0.150 points).

The higher pay rates of teleworkers—relative to other employees—are also observed in 2005.

Pay differences observed in 2005 between employees who worked from home both in 2005 and 2015 and employees who worked outside the home in both years are more substantial. For men, these pay differences amount to 19% (0.176 points) when controlling for worker characteristics, job characteristics and firm fixed effects (Table 1, column 4, third panel). The corresponding estimate for male employees who worked from home (or not) in 2005 equals 10% (0.096 points) (Table 1, column 4, first panel).

Employees who worked from home both in 2005 and 2015 saw their wages increase less than other employees from 2005 to 2015

Employees who worked from home both in 2005 and 2015 experienced slower wage growth than employees who worked outside the home in both years.^Note  From 2005 to 2015, average log weekly wages of male teleworkers in this sample grew by 0.083 points (9%), compared with 0.166 points (18%) for other male employees. Average log weekly wages of female teleworkers increased by 0.107 points (11%), compared with 0.200 points (22%) for other female employees.

Most of these differences in wage growth remain in multivariate analyses that control not only for worker, job and firm characteristics, but also for the average wages received from 2002 to 2004 and for transitions (parental leave, job loss, injury or illness) experienced by workers between 2005 and 2015 (Table 2). The mechanisms underlying this slower wage growth for teleworkers remain to be identified. Despite this weaker wage growth, employees who worked from home both in 2005 and 2015 did not have lower wages than other employees in 2015 (Table 1, fourth panel).

Conclusion

This study shows that Canadian employees who worked from home both in 2005 and 2015 initially had higher wages, but experienced slower long-term wage growth than their counterparts who worked outside the home in both years.

Several limitations must be noted. Even though a rich set of control variables has been used, none of the differences (in wages or long-term wage growth) documented in this study can be given a causal interpretation. Moreover, such differences may vary across occupations or population groups. Sample size limitations precluded separate multivariate analyses of wage growth differences along these dimensions. Lastly, for reasons mentioned above, it is unclear whether the patterns found during the 2005-to-2015 period will hold in the years to come.

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Authors

Tahsin Mehdi and René Morissette are with the Social Analysis and Modelling Division, Analytical Studies and Modelling Branch, at Statistics Canada.

References

Baert, S., Lippens, L., Moens, E., Weytjens, J., & Sterkens, P. (2020). The Covid-19 crisis and telework: A research survey on experiences, expectations and hopes (IZA Discussion Paper No. 13229). IZA.

Oettinger, G. S. (2011). The incidence and wage consequences of home-based work in the United States, 1980-2000. Journal of Human Resources, 46(2), 237–260.

Pabilonia, S. W., & Vernon, V. (2022). Telework, wages, and time use in the United States. Review of Economics of the Household, 46(2), 237–260.

Pigini, C., & Staffolani, D. (2019). Teleworkers in Italy: who are they? Do they make more? International Journal of Manpower, 40(2), 265–285.

White, D. R. (2019). Agency theory and work from home. Labour, 33(1), 3–25.