The Costs and Benefits of Home-Based Telecommuting

The contents of this report reflect the views of the authors who are responsible for the facts and the accuracy of the data presented herein. The contents do not necessarily reflect the official views or policies of the State of California. This report does not constitute a standard, specification, or regulation. The contents of this report reflect the views of the authors who are responsible for the fact and accuracy of the data presented herein. The contents do not necessarily reflect the official views or policies of the State of California. This report does not constitute a standard, specification, or regulation. ABSTRACT This report evaluates the costs and benefits of home-based telecommuting. Combining empirical data from the literature with a Monte Carlo simulation technique, a distribution of cost-benefit ratios is produced from three perspectives: the employer, the telecommuter, and the public sector. The study develops a new framework that identifies costs and benefits associated with telecommuting. As part of this new framework, we allow the quantification of many of the uncertainties associated with telecommuting, such as air quality benefits or productivity benefits. Depending on the underlying assumptions, the results indicate that telecommuter benefit-cost ratios are generally above one if the employer bears the majority of the equipment cost burden. If the telecommuter is required to purchase new equipment (i.e., a computer and software), it is probable for the telecommuter to experience benefit-cost ratios less than one – the " break-even " point – even when the telecommuter is faced with long commute distances. For the employer, the cost-effectiveness of telecommuting is dependent largely on productivity benefits. Still, employers need only to experience a reasonable gain in total productivity – approximately 15% or more on telecommuting days, for an employee earning $35,000 per year – to balance the costs. Even when parking and office space benefits are included, productivity lies at the heart of the telecommuting cost-benefit analysis from the employer's perspective, and in almost all cases, the employer's case relies on some assumed maintenance or increase in productivity as the primary benefit. It is also shown that the potential for office and parking space benefits are high, although these benefits remain somewhat questionable. Based on our analysis, we conclude that the public sector air quality and construction avoidance benefits remain somewhat questionable based on the current knowledge, and difficult to justify. The only plausible scenarios with significant public sector benefits …