Work from home and labor market outcomes in developing economies

Work from Home (WFH) has emerged as one of the most significant changes in the global labor market due to the pandemic. The substantial macroeconomic impact of this shift, along with the notable differences from traditional Office Working (OW)-particularly in terms of costs and commute time-warrants a comprehensive analysis of its effects on labor market outcomes. This paper presents a formal model that elucidates the impact of transitioning from OW to WFH on both consumption and working hours. The model predicts that, with the shift to WFH, both working hours and consumption increases. Empirical evidence from Peru indicates that workers who transition from OW to WFH work an additional 2,3 hours per week, see an 8,6% increase in income from their primary job, and experience a 6,5% reduction in per capita consumption. This decline in consumption is attributed to stringent government-imposed confinement measures, which have outweighed the positive effects of remote work. Supporting this hypothesis, higher income quintiles-where consumption restrictions have been less severe-have either experienced increased consumption or only minimal impact, suggesting that WFH has enabled consumption smoothing within these groups. Additionally, the effects of WFH vary depending on the gender of the workers