The effect of remote work on labor productivity and wage inequality: an empirical study using large-scale panel data

The emergence of telework due to the Coronavirus pandemic raises many interesting questions related to the influence of such phenomena on labor productivity and inequality in the distribution of wages. In this study, the problem of the influence of teleworking on labor productivity and inequality in the distribution of wages is studied empirically using a panel dataset of 4,250 employees working in 310 firms belonging to six different economic sectors in Uzbekistan from 2019 to 2024. Productivity was defined in terms of hourly value added and supervisor rating scale, and the measure of wage inequality included Gini coefficient, percentile ratios, and log variance of wages. From the results, it is evident that telecommuting raised the productivity of output by 6.2 percent on average and raised the performance score by 0.22 points. From the instrumental variable estimate, the effect is greater (7.3 percent). The wage effect from telecommuting is highly heterogeneous, in the sense that the coefficient value ranges from nearly zero in the tenth percentile to 11.5 percent in the ninth percentile. Additionally, 44 percent of the rise in Gini coefficient during the period examined was due to the growth in telecommuting. This effect is significant for IT sector and financial sector, while being insignificant for retail sector and transportation sector. To summarize, the empirical analysis clearly shows that remote work has a strong effect on raising labor productivity in knowledge-based industries but at the same time leads to the growing income inequality as the productivity and wage benefits from remote work are largely captured by high earners. The study concludes that remote work accounts for about 44% of the growth in wage inequality after the pandemic. In addition, the highest productivity effects are seen in the IT and finance industries (9.5% and 7.2%, respectively), while retail and transport industries are unaffected. It is evident that remote work has a dual role as an instrument of productivity improvement and inequality, requiring some policies to mitigate the negative effects including skill development and investing in infrastructure, among others.

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