EXECUTIVE OFFICE OF THE PRESIDENT

COUNCIL OF ECONOMIC ADVISERS

WORK-LIFE BALANCE AND THE ECONOMICS 

OF WORKPLACE FLEXIBILITY

MARCH 2010
WORK-LIFE BALANCE AND THE ECONOMICS OF WORKPLACE FLEXIBILITY

EXECUTIVE SUMMARY

American society has changed dramatically over the past half century. Women have 

entered the labor force in growing numbers and families have increasingly relied on more than 

one earner to make ends meet. And yet, children still need to be taken to the doctor and elderly 

parents still need care. Moreover, more adults older than 25 are attending school. Because these 

changes have caused many workers to face conflicts between their work and their personal lives, 

they also inspire a need and desire for more flexibility in the workplace. 

Flexible workplace arrangements can be in terms of when one works, where one works, 

or how much one works (including time off after childbirth or other life events). They include a 

variety of arrangements such as job sharing, phased retirement of older workers, and 

telecommuting, that allow workers to continue making productive contributions to the workforce 

while also attending to family and other responsibilities.

This report presents an economic perspective on flexible workplace policies and 

practices. The first section reports some of the changes in the U.S. workforce that have 

increased the need for flexibility in the workplace.

• Women comprise nearly one-half of the labor force; in nearly one-half of households all 

adults are working.

• In 2008, approximately 43.5 million Americans served as unpaid caregivers to a family 

member over the age of 50. Nearly one-fifth of employed people were caregivers who 

provided care to a person over age 50.

• The increasing demand for analytical and interactive skills—those largely obtained 

through post-secondary education—means it is all the more important and common for 

individuals to pursue additional education while also working. 

The second section examines the current state of flexible work arrangements and reports 

that many employers have adapted to the changing realities of American workers.

• Overall, over one-half of employers report allowing at least some workers to periodically 

change their starting and quitting times. However, less than one-third of full-time 

workers report having flexible work hours, and only 39 percent of part-time workers do. 

This discrepancy between the employer and employee reports may be due to differences 

in data collection or because more employers would be willing to accommodate the needs 

of individual workers but these workers are not aware of it. 

• Less-skilled workers have less workplace flexibility in terms of the scheduling of when 

they work than do more highly-skilled workers.
• Flexibility in where to work is less common: only about 15 percent of workers report 

working from home at least once per week. 

• Finally, most employers offer at least some workers the ability to return to work 

gradually after a major life event such as the birth or adoption of a child, although job 

sharing appears less widespread.

 

The report concludes with a discussion of the economic benefits of workplace flexibility 

arrangements.

• Almost one-third of firms cite costs or limited funds as obstacles to implementing 

workplace flexibility arrangements. However, the benefits of adopting such management 

practices can outweigh the costs by reducing absenteeism, lowering turnover, improving 

the health of workers, and increasing productivity.

• The costs and benefits of adopting flexible arrangements differ across industries and 

employers of different sizes.

• Because many employers may not have accurate information about the costs and benefits 

of workplace flexibility practices and because some of the benefits may extend beyond 

the individual employer and its workers, wider adoption of such policies and practices 

may well have benefits to more firms and workers, and for the U.S. economy as a whole.

• A factor hindering a deeper understanding of the benefits and costs of flexibility is a lack 

of data on the prevalence of workplace flexibility arrangements, and more research is 

needed on the mechanisms through which flexibility influences workers’ job satisfaction 

and firm profits to help policy makers and managers alike
1

INTRODUCTION

American society has changed dramatically over the past half century. Women comprise 

nearly one-half of the labor force; in nearly one-half of households all adults are working. And 

yet, children still need to be taken to the doctor and elderly parents still need care. Moreover, 

more adults are attending school. These and other changes have caused many workers to face 

conflicts between their work and personal lives. These changes also inspire the need and desire 

on the part of workers for more flexibility in the workplace. Flexibility can be in terms of when 

one works, where one works, or how much one works (including time off after childbirth or 

other life events). “Workplace flexibility” generally refers to arrangements—such as job sharing, 

phased retirement of older workers, flexible hours, and provision of computers to facilitate 

telecommuting—that allow workers to continue making productive contributions to the 

workforce while also attending to family and other responsibilities.

This report presents an economic perspective on flexible workplace policies and 

practices. The first section looks more closely at some of the changes in the U.S. workforce that 

underlie the need for increased flexibility in work arrangements. The increasing demand for 

analytical and interactive skills—those largely obtained through post-secondary education—

means it is all the more important and common for individuals to pursue additional education 

while also working. These trends raise the value of flexibility in the workplace as it helps

workers balance work and family responsibilities.

The second section examines the current state of flexible work arrangements. It finds 

that although the majority of employers report allowing at least some employees flexibility in 

their work schedules, far fewer full-time workers report having such flexibility, although there is 

variation across the workforce. Notably, less-skilled workers report the least workplace 

flexibility. A majority of employers are also willing to accommodate a gradual return to work 

after a major life event, such as the birth or adoption of a child. In contrast, it is less common for 

workers to be able to shift where they work (by, for example, working from home) and only 

about one-third of firms report allowing some of their employees to job share.

The report concludes with a discussion of the economic benefits of such practices and 

policies. One can think of accommodating flexibility in the workplace as a component of a 

worker’s total compensation package, along with other benefits such as health insurance and 

retirement benefits. If employees value flexible arrangements more than the costs to the 

employer of providing them, flexibility can be a cost-effective tool for attracting and retaining 

workers. The costs to firms of adopting such management practices can also be outweighed by 

reduced absenteeism, lower turnover, healthier workers, and increased productivity. Because 

many employers may not have accurate information about the costs and benefits of workplace 

flexibility practices and because some of the benefits may extend beyond the individual 

employer and its workers, wider adoption of such policies and practices may well offer benefits 

to more firms and workers, and for the U.S. economy as a whole. That said, a lack of current 

data on the prevalence of arrangements and too few studies on the mechanisms through which 

workers’ job satisfaction and firm profits are affected hinder a deeper understanding of the 

benefits and costs of workplace flexibility policies and practices.
2

THE EVOLVING NEEDS OF AMERICAN WORKERS

The structure of American society has changed significantly over the last half century. In 

1968, 48 percent of children were raised in households where the father worked full-time, the 

mother was not in the labor force, and the parents were married; by 2008, only 20 percent of 

children lived in such households. The result: children are increasingly raised in households in 

which all parents work in the labor market (for single-parent households, this means that the one 

parent works; for two-parent households, both parents work). For example, as shown in Figure 

1, in 1968, 25 percent of children lived in households in which all parents were working fulltime; 40 years later, that percentage had nearly doubled.1

The changing environment in which children are raised reflects in part a shift in the 

nature of the workforce. In 1950, women constituted about 30 percent of the labor force; in 

2009, they comprised nearly half. The fraction of full-time workers who were parents in fulltime working families (defined as families with children where all parents work full-time) has 

risen from about 18 percent to 26 percent since 1968.

2

 

At the same time, people born around 1940 have a life expectancy over 10 years longer 

than those of the previous generation (born in 1910), producing added responsibilities for the 

care of older family members as well.3

 1 These changes have all caused many workers to face conflicts between their work and their personal lives. The 

Families and Work Institute’s 2008 National Study of the Changing Workforce found that 41 percent of workers 

report that job and family life interfered with each other “a lot” or “somewhat.” 

 According to one national study, approximately 43.5 

2 CEA calculations based on the Current Population Survey. 3 Shrestha (2006).

24.6

39.7

48.3

0

10

20

30

40

50

60

1968 1988 2008

Figure 1

Children with All Parents Working Full-time

Percent with all parent(s) at work

Notes: Full-time workers were employed for at least 14 weeks in the previous year, working at 

least 35 hours per week. Sample is persons under 18 with at least one parent in the household.

Source: Current Population Survey.
3

million Americans—the majority of them women—served as unpaid caregivers to a family 

member over the age of 50 in 2008.4 Nearly one-fifth of employed people in 2008 provided care 

to a person over age 50.5

In addition, the importance of strong workplace skills in the U.S. labor market has been 

increasing over the past several decades. In the mid-1960s, college graduates earned about 50 

percent more than high school graduates (on average) and this premium has more than doubled

in the time since then. Research also suggests that as much as one-third of the productivity 

growth between 1950 and 1993 was due to education.6 The growing need for a post-secondary 

education derives from the skills employers demand in the modern American workplace. 

Occupations that have grown in their share of employment require a greater intensity of nonroutine analytic and interactive skills than do occupations that have been declining. Most 

forecasts are that these trends will continue.7

American workers are, in response, increasingly returning to post-secondary schools even 

after they are past the traditional school age. Between 1970 and 2006, the percentage of students 

enrolled in degree-granting institutions who were 25 years or older increased from 28 percent to 

39 percent.

8 While post-secondary institutions, notably community colleges, have attempted to 

adapt to their changing student bodies with classes held in the evenings, on weekends or online,

more effort is needed. Among students who did not complete a post-secondary education 

program, one of the most commonly cited changes that would have been helpful for completing a 

college degree would be for programs to offer more courses in the evenings, weekends, and the 

summer so people can work while attending school.9

Evidence suggests that, on average, workers may not need to reduce the number of hours 

they work to balance these new family responsibilities and other activities. Technological gains 

have helped to decrease the intensity of some previously time-consuming tasks at home, such as 

cooking and cleaning, which is estimated to have more than offset the increase in working and 

commuting time for women.

10 Economists estimate that relative to the mid-1960s, on average 

Americans in recent years have had more time to spend on socializing, passive leisure, active 

leisure, volunteering, pet care, gardening, and other activities.11 Note, however, that these 

statistics represent overall averages and therefore include many young, unmarried, and/or 

childless individuals. As a result, these statistics may not adequately represent the time 

constraints of working caregivers. 

 4 National Alliance for Caregiving (2009).

5 CEA calculation based on data from National Alliance for Caregiving (2009) and labor force statistics from the 

Bureau of Labor Statistics.

6 Jones (2002).

7 Council of Economic Advisers (2009a).

8 Department of Education (2009).

9 Johnson et al. (2009).

10 For example, evidence from the Residential Energy Consumption Survey shows that the percentage of households 

with dishwashers increased from 35 percent in 1978 to 50 percent in 1997. See Greenwood, Seshadri, and 

Yorukoglu (2005) for review of the evidence of the effect of technology on labor female labor force participation. 11 Aguiar and Hurst (2007).
4

In part, the need for flexibility derives from the fact that the gap between the time spent 

on market and nonmarket work for men versus women has narrowed. Compared with 1965, in 

2003 women spent more time on market work and significantly less time on nonmarket work 

such as food preparation, kitchen cleanup, and washing clothes. For men, the patterns were 

reversed; between 1965 and 2003, men have spent substantially fewer hours on market work and 

somewhat more hours on nonmarket work.12 With men and women both performing nonmarket 

and market work, often one or both of them need the ability to attend to family responsibilities 

such as taking children and parents to doctors’ appointments. 

THE PREVALENCE OF WORKPLACE FLEXIBILITY IN THE UNITED STATES

American workers increasingly need to balance employment with other responsibilities, 

but to what extent does the workplace accommodate these needs? While drawing on many 

sources, this section primarily relies on two nationally representative surveys to better 

understand the prevalence of different types of workplace flexibility in the United States. The 

first survey provides the perspective of employers through the Alfred P. Sloan Foundation’s 

2008 national survey of private employers, the National Study of Employers. This survey 

provides one of the most comprehensive and detailed sources of firm-level data on programs and 

policies related to work-life balance.13 As an employer’s perspective on workplace flexibility 

may differ from that of its employees, the discussion also includes analysis of the May 2004 

Current Population Survey (CPS), a nationally representative survey of households.14 These 

data provide the perspective of the average U.S. worker on the extent to which their job provides 

such flexibility and are the most recent available at the national level. Note that both surveys 

reflect conditions before the current recession began.15 

The discussion focuses on flexibility in the scheduling of hours, the place of work, and 

the numbers of hours worked, as well as those that cut across these categories.16 It also 

considers the special circumstances of small businesses and firms in the manufacturing sector. 

Flexibility in the Scheduling of Hours

One of the most important sources of flexibility is the ability of workers to have some 

control over when they work. Examples include flexibility in when a worker arrives at or leaves 

work, the scheduling of breaks and overtime, and compressed workweeks (such as when one

works more hours four days a week and a partial day one day a week). As shown in Figure 2, 

below, data from the National Study of Employers suggest that in 2007, 79 percent of employers 

allowed at least some workers to periodically change their starting and quitting times, within 

 12 See Table II in Aguiar and Hurst (2007). 13 The 2008 sample includes 1,100 employers with 50 or more employees. These data are helpful both because of 

the relatively large sample size and because most other data sources, such as the Current Population Survey, do not 

contain detailed information on the prevalence of many of these practices. 

14 The May 2004 Current Population Survey included a supplement on work scheduling and the prevalence of workat-home. 15 Data for the National Study of Employers data were collected from April through August, 2007. 16 Workplace Flexibility (2010a).
5

some range of hours. Fewer employers (32 percent) allowed at least some workers to change 

starting and quitting times on a daily basis.

In contrast, data from the Current Population Survey show that in 2004, only 28 percent 

of full-time workers reported they had flexible work hours that allowed them to vary or make 

changes in the time they began and ended work, as shown in Table 1. Flexibility was more 

common for part-time workers (39 percent). Box 1 below discusses the differences in reported 

prevalence of flexible work arrangements between the Current Population Survey and the

National Study of Employers.

17

 17 Current Population Survey, May 2004; Bond, Galinsky, and Sakai (2008). 

79

32

37 38

10 8

0

10

20

30

40

50

60

70

80

90

Periodically change starting 

and quitting times within some 

range of hours

Change starting and quitting 

times on a daily basis

Compress workweek by 

working longer hours on fewer 

days for at least part of the year

Some employees

Most or all employees

Figure 2

Percent of Firms Offering Either Some Employees or All or Most Employees 

Selected Workplace Flexibility Benefits, by Benefit Type

Note: Samples restricted to firms with over 50 employees. 

Source: 2008 National Study of Employers.

Percent
6

Table 1 shows other differences in reported workplace flexibility by worker 

characteristics. While one might expect that working women are more likely to report having a 

flexible schedule given family responsibilities, in fact, the data suggest that in 2004 men were 

slightly more likely to report having such flexibility than were women. In contrast, differences 

across racial or ethnic status and educational attainment were somewhat larger. Whites and 

Asians were more likely to report having workplace flexibility compared to Blacks and 

Hispanics. 

BOX 1: WHY IS THERE SUCH A LARGE DIFFERENCE IN REPORTED 

PREVALENCE BETWEEN THE TWO SURVEYS?

One important reason for the difference between the two surveys is that in the 

employer-based surveys, employers report that they provide flexibility for “some” or “most” 

workers but do not otherwise indicate the prevalence. If many employers only provide a 

benefit to a minority of their workers, the percent of workers with a benefit will be smaller 

than the percent of firms offering the same benefit. In addition, there may be a difference 

between an organization’s policies and their implementation. The National Study of 

Employers attempted to address this issue by asking if the organization “allows employees 

to...” or “provides the following benefits or programs...” rather than if it has “written 

policies.” However, if workers are unaware that their managers would be willing to 

implement such practices or are unaware of such policies, they will report less availability of 

such arrangements than will their employers. Second, the National Study of Employers is a 

survey of employers in which the respondent is an organization rather than an individual. As 

a result, the data describe the benefits provided by a typical employer rather than those to a 

typical employee. Given that, by definition, larger employers represent more workers than do 

smaller firms, statistics about the average employer may not be representative of the 

experiences of the average worker. Finally, the data on workers are from 2004 while those

from the employers are from 2007 and the prevalence of such practices may have grown in 

the interim. That said, data from the 2005 National Study of Employers reveals patterns of 

workplace flexibility that are broadly similar to the results presented in the 2008 Study.
7

Table 1

Flexible Time by Race, Ethnicity, Sex, and Work Status

Percentage with Flexible Work 

Hours

Full-time Workers 28

Men 28

Women 27

White 29

Black 20

Other Races 27

Hispanic 18

Less than HS 

Diploma 15

HS Diploma or 

Equiv 21

Some College 28

BA or Higher 38

Part-time Workers 39

Notes: Sample excludes self-employed workers. White and Black refer

to workers who identified exclusively with that race, respectively. 

Other Races includes all multiracial groups. Hispanics are coded using 

a separate question and may be any race. Full-time workers usually 

worked 35 or more hours each week at their principal job (or usually 

worked 35 hours at all jobs if hours at their principal job varied), while 

part-time workers usually worked less.

Source: Current Population Survey, May 2004.

In addition, these data reveal substantial differences in the prevalence of flexible 

schedules by educational attainment. Workers with a bachelor’s degree or higher were more 

than twice as likely to report having flexible work arrangements as were those with less than a 

high school diploma.18 Economists have focused on two explanations for this pattern. First, as 

discussed in the next section, flexibility is a form of compensation. Just as more educated 

workers enjoy higher earnings and are more likely to have benefits such as employer-sponsored 

health care, they are also compensated with more flexibility. In addition, one study suggests that 

the nature and context of low-wage jobs—such as the need for around-the-clock coverage—may 

make giving flexibility to some low-wage workers more costly.19 To explore this issue more 

fully, Figure 3 shows the relationship between the percent of full-time workers in an occupation 

that have flexible schedules and the percent that do not have a high school degree. Occupations 

such as management and business and sales that have a high degree of flexibility also have a low 

percentage of workers with less than a high school degree; workers in occupations with a low 

degree of flexibility, such as construction, also tend to have a high percent of workers with less 

than a high school degree.

 18 The Current Population Survey also shows that workers in lower-income households report lower levels of 

flexibility. 

19 Corporate Voices for Working Families (2006).
8

The CPS data also reveal substantial cross-industry differences in the flexibility of 

scheduling. As shown in Figure 4, only about one-quarter of full-time workers in manufacturing 

reported having the flexibility to change their working hours in 2004, compared to about 40 

percent of workers in the financial activities and professional and business services industries. 

These differences may reflect the potential difficulties that manufacturing companies have in 

adopting policies and practices that result in a more flexible workplace, a point further discussed 

at the end of this section. 

Management, 

business, and 

financial 

Professional and 

related

Service 

Sales and related 

Office and 

administrative Farming, fishing, 

Construction and and forestry

extraction Installation, 

maintenance, and 

repair Production 

Transportation 

and material 

0

10

20

30

40

50

0 10 20 30 40 50 60

Percent with less than high school degree

Figure 3

Flexible Hours by Occupation and Education

Percent with flexible hours

Notes: Sample limited to full-time workers. Plotted regression line is weighted by number of 

workers in each occupation. 

Source: Current Population Survey, May 2004. 
9

Flexibility in the Place of Work 

Many jobs require an individual to be physically present at the worksite. For example, 

teachers, sales clerks, and assembly-line workers cannot fulfill many of their obligations from an 

off-site location. Managers and members of teams may need face-to-face contact. For other 

workers, however, a substantial fraction of their work could, in principle, be conducted from 

home or a satellite office. One study estimated that in 2000 more than half of all jobs were 

amenable to telecommuting, at least on a part-time basis,20 and undoubtedly that fraction has 

increased since then as a result of the spread of high-speed internet and mobile technology.

21

The National Study of Employers provides an opportunity to understand the extent to 

which employers have adopted policies and practices that allow for flexibility in where 

employees work. The difference between the share of firms that provided this dimension of 

flexibility to “some” workers versus “most or all” workers in 2007 is striking. For example, as 

shown in Figure 5, 23 percent of employers reported allowing some workers to work at home on 

a regular basis; only 1 percent of employers allowed most or all of their employees to do so. At 

the same time, it was more common for employers to report allowing employees to work from 

home occasionally.22

 20 Potter (2003). 21 Smith (2002). 22 Bond, Galinksy, and Sakai (2008).

0 5 10 15 20 25 30 35 40 45

All industries

Construction

Educational and health

Mining

Transportation and utilities

Manufacturing

Leisure and hospitality

Agriculture and forestry

Public administration

Wholesale and retail trade

Media and communications

Financial activities

Professional and business

Other services

Figure 4

Flexible Hours by Industry

Percent of full-time wage and salary workers with flexible hours

Notes: Industry code is for primary job. Full-time workers usually worked 35 or more hours at 

principal job.

Source: Current Population Survey, May 2004.
10

In this case, the reports of workers track those of employers as 11 percent of all paid 

wage and salary workers work from home at least once per week as part of their primary job. 

The rates of working from home were similar for all men and women. Self-employed 

individuals were far more likely to report working from home (48 percent).23 Overall, 15 

percent of workers report working from home.

Flexibility in Number of Hours of Work 

A third way employers provide workplace flexibility is in the number of hours an 

employee works. Flexibility of this sort can be further divided into practices that reduce the 

number of hours worked in a given week and those that allow employees to take leaves of 

absence (paid or unpaid). 

In 2007, 29 percent of employers reported allowing some workers to share jobs, and 41

percent reported allowing at least some individuals to move from full-time to part-time and back 

again while remaining at the same position or level. A smaller percent of firms allowed most or 

all employees to take advantage of these forms of flexibility. Interestingly, there has been 

relatively little change in the prevalence of these practices since 1998.24

Allowing employees to take a leave of absence after an important life event also provides 

flexibility in the amount of work. Partially as a result of the Federal Family and Medical Leave 

Act (FMLA) of 1993, this form of flexibility is now widespread although it does not cover all 

 23 CEA calculations based on the Current Population Survey, May 2004. 24 Bond, Galinsky, and Sakai (2008).

50

23

3 1

0

10

20

30

40

50

60

Work some regular paid hours at home 

occasionally

Work some regular paid hours at home on a 

regular basis

Some employees

Most or all employees

Note: Survey includes firms with over 50 employees.

Source: 2008 National Study of Employers. 

Figure 5

Percent of Firms Offering Either Some Employees or All or Most Employees 

Work-At-Home Workplace Flexibility Benefits 

Percent
11

workers.25 Data from the Bureau of Labor Statistics’ 2006 Employee Benefits Survey show that 

82 percent of all workers in the private sector had access to unpaid family leave in 2007. 

Further, as shown in Figure 6, in 2007 77 percent of employers allowed some workers to 

gradually increase their hours after the birth or adoption of a child while 57 percent allowed 

some or most employees to do so. Almost three-quarters of employers permitted their 

employees to take paid or unpaid time away from work to improve their education or job skills. 

A majority of employers also allowed at least some workers to take extended career breaks. 

Paid leave is an important source of workplace flexibility, especially for workers who 

lack financial resources. The 2008 National Study of Employers suggests that roughly half of 

surveyed employers (47 percent) allowed most employees a few days off to care for mildly ill 

children without losing pay or having to use vacation days. Slightly more than half (56 percent) 

of employers reported giving female employees paid maternity leave. In most cases, however,

 25 The FMLA requires both Federal and private employers with more than 50 workers to provide up to 12 weeks of 

unpaid leave per employee each year. This leave must include access to health benefits. The employers must have 

worked for the employer for at least 12 months (not necessarily consecutive) and 1,250 hours within the past year. 

The FMLA can be used for the birth and care for a newborn or adopted child, care for an immediate family member 

with a serious health condition, medical leave for the employee herself, or in circumstances relating to an immediate 

family member’s being called onto active duty as a member of the National Guard or Reserves. Evidence suggests

that the FMLA increased leave coverage and usage but did not appear to have a significant negative effect on the 

wages and employment of women. See Waldfogel (1999). Note however, that the Act does not apply to workers at 

smaller firms, part-time workers, or employees that recently joined a firm. In addition, the FMLA does not extend 

to unmarried partners or same-sex couples, regardless of marital status, to care for their partners when they become 

ill.

77 74

53

41

29

57

40

25

13

8

0

10

20

30

40

50

60

70

80

90

Return to work 

gradually after 

childbirth 

or adoption

Take paid or 

unpaid leave for 

education or 

training to 

improve job skills 

Work reduced 

hours over a 

period of time 

prior to full 

retirement

Move from full 

time to part time 

and back again 

remaining in the 

same position or 

level

Share jobs

Some employees

Most or all employees

Note: Survey includes firms with over 50 employees.

Source: 2008 National Study of Employers. 

Figure 6

Percent of Firms Offering Either Some Employees or All or Most Employees 

Selected Workplace Flexibility Benefits, by Benefit Type

Percent
12

the pay was less than an employee’s typical pay; only 16 percent offered men paid time off after 

the birth of their child. However, paid vacation appears to be more common; data from the 

Employee Benefits Survey shows that 75 percent of workers had paid vacation, and 76 percent 

received paid holidays in 2008.

Finally, as reflected in Figure 6, flexibility in the number of hours of work can ease the 

transition to retirement for older workers. In 2007 more than one-half of employers allowed at 

least some workers to phase into retirement by working reduced hours, and 25 percent of the 

firms allowed most or all of their employees to do so. Other survey data also find that this form 

of flexibility is common. According to a 2008 survey of more than 140 mid-sized and large 

employers by Hewitt Associates, 47 percent of firms offered some sort of phased retirement 

arrangement in 2007, although only 5 percent have formalized phased-retirement programs.26 

These types of arrangements are most common in the health care/social assistance, education, 

and manufacturing sectors and at larger firms.27

Not only do employers report offering these types of arrangements, but workers report 

using the benefits. According to the Health and Retirement Study, in 2004 nearly half of 

surveyed retirees had engaged in some sort of phased-retirement arrangement prior to fully 

retiring and approximately one-in-eight workers between the ages of 63 and 73 engaged in some 

sort of phased retirement work arrangement.28 Most workers who participate in phasedretirement arrangements are below the traditional retirement age.29 

Other Forms of Workplace Flexibility

Perhaps the ultimate form of workplace flexibility is the evaluation of employees based 

on what they produce rather than the number of hours they work. This management practice, 

called “results-only work environment” (or ROWE), allows for flexibility along multiple 

dimensions because it permits workers to choose when, where, and for how long they work, as 

long as they are sufficiently productive. Clearly, this level of flexibility is not practical for all 

circumstances; for example, one large employer adopted these practices for headquarters 

employees but not for retail store employees. Moreover, in many cases, the output of workers is 

difficult to measure directly. That said, a manager in one county government that has 

experimented with these practices concluded that “the county wins, the staff person wins, and it’s 

a better balance.”30 

In addition to ROWE, there are other practices that employers can adopt to promote 

flexibility along many dimensions. The following case study shows how the Executive Office of 

the President (EOP) has used telecommuting to provide many forms of flexibility to its 

employers.

 26 Hewitt Associates (2008). 27 Workplace Flexibility 2010 (nd.b). 28 Workplace Flexibility 2010 (nd.b).

29 One study found that more than half of so-called “phasers” in 2004 were younger than 60 years old. (Sloan Work 

and Family Research Network (2009)).

30 Kerrigan (2010).
13

Small Businesses and Manufacturing

The discussion above makes clear that there is substantial heterogeneity across firms in 

terms of flexible workplace policies and practices. Two types of firms where many argue 

flexible policies are particularly difficult to implement (and thus likely to be less prevalent), are 

small businesses and manufacturing firms. For example, in response to a 2006 Department of 

Labor Request for Information concerning the FMLA, one commenter argued that intermittent 

leave “is more burdensome to a call center/manufacturing environment than to other types of 

work that do no[t] need to be managed in the same way.” An HR administrator claimed that 

because manufacturing employers do not have employees who are cross-trained to work “...the 

production process is often slowed down or brought to a halt when an employee is out.” Finally, 

a small business owner argued that the flexible work arrangements in the FMLA put “undue 

financial pressure” on his small business.31 This subsection therefore examines workplace 

flexibility at small firms and manufacturing firms in more detail.

Small Businesses. Some argue that while flexible scheduling may work in large firms, 

each member of a small business’s team can be critical to business operations, making it too 

costly to implement such practices. At the same time, one challenge with flexible work 

schedules can be difficulty ensuring that workers are productive while they work from home. 

 31 Regulations.gov (2007).

BOX 2: TELECOMMUTING AND THE EXECUTIVE OFFICE OF THE PRESIDENT

Over the past several years, the EOP has increasingly used technology as a way of 

meeting the growing demands for flexibility of its employees. For several years, most EOP 

employees have used wireless devices to stay connected while off site, and recently, the EOP 

has begun a transition to full remote access. To date, more than half of all EOP employees 

have been issued secure mobile workstation laptops, and all employees can connect to the 

network through the internet from any computer in the continental United States. 

This flexibility also allows staff to access their official files from remote locations, 

helping employees balance work and family responsibilities. For example, some employees 

can leave work early to spend time with their children and work remotely in the evening. In 

addition, this technology helps the government operate effectively during emergency 

situations. As an example, in February of 2010, the Washington, D.C. area was blanketed 

with over 30” of snow over a 12-day period. The snow shut down major roads and transit 

systems in the area, preventing employees from reaching their offices safely. As a result, the 

Office of Personnel Management closed federal offices for four days, and yet more than 60 

percent of EOP employees logged on remotely to continue their work. Workplace flexibility

capability substantially reduces the cost of such “shutdowns” to taxpayers by allowing 

employees to continue some of their work, even if they cannot reach the office. According to 

one estimate, the snow closures would ordinarily cost the federal government over $100 

million per day in lost productivity. By allowing federal employees to continue their work, 

however, telecommuting capabilities saved over $30 million per day, for a total savings of 

more than $150 million over the five snow closures in December 2009 and February 2010.
14

Because managers and employees may interact more frequently at small firms, it may be easier 

for these firms to implement such practices and still be able to monitor a worker’s productivity. 

Data from the National Study of Employers suggest that while some of these concerns may be 

valid, in fact as shown in Figure 7 below, small firms (50–99 employees) provide as much as or 

more flexibility to their employees as do large firms (1,000 and more employees). 

We emphasize that this survey did not include employers with fewer than 50 workers. 

Other data suggest that for the smallest employers, leave policy is usually handled on a case-bycase basis.32

Manufacturing. Figure 4 showed that in 2004, full-time workers in manufacturing were 

significantly less likely to have flexible work arrangements than were all full-time workers in the 

private sector. This difference may be due to technological difficulties that limit the amount of 

flexibility manufacturing firms can give their workers. For firms that rely on formal shifts, 

 

 32 Specifically, a survey conducted by the National Federation of Independent Business Research Foundation in 

2004 includes information from more than 750 firms with fewer than 250 employees. National Federation of 

Independent Business (2004). This study found that the vast majority of employers (82 percent) handled requests 

for time off due to family or medical leave on a case-by-case basis. Small businesses also typically did not have 

formal policies governing short absences for doctor’s appointments or parent-teacher conferences; 81 percent of 

firms also handled such requests on a case-by-case basis. Note however, because of the difficulty of accurately 

surveying very small firms, the results may not be nationally representative.

56

25

41 40

11 10

3 1

54

20

33

37

7 5

2 1

0

10

20

30

40

50

60

70

Return to 

work 

gradually 

after 

childbirth 

or 

adoption

Phase into 

retirement 

by working 

reduced 

hours over 

a period 

of time 

prior to full 

retirement

Take 

paid or

unpaid time 

away from

work for 

education

or training 

to improve 

job skills

Periodically

change 

starting 

and 

quitting

times 

within 

some range

of hours

Change 

starting

and

quitting 

times on a 

daily basis

Compress 

workweek 

by working 

longer hours 

on fewer 

days for 

at least 

part of

the year

Work some 

regular 

paid 

hours at 

home 

occassionally

Work some 

regular 

paid 

hours at 

home on 

a regular 

basis

Small employers (50-99 employees)

Large employers (1,000 or more employees)

Figure 7

Percent of Firms Offering Most or All Employees Selected Workplace Flexibility 

Benefits, by Benefit Type

Percent

Note: Survey includes firms with over 50 employees.

Source: 2008 National Study of Employers. 

Hours Time Place
15

employees may not be able to leave at non-standard times without disrupting their colleagues. 

In addition, the on-site physical nature of many manufacturing jobs may make telecommuting 

impossible.

Despite these challenges, there are at least two strategies that some manufacturing 

companies have used to increase workplace flexibility. First, some manufacturing firms 

encourage workers to be trained not only in their own tasks but also in the tasks of workers 

“upstream” and “downstream” from them. Increasing the breadth of training can help ensure 

that workers understand how their inputs were created and how their output will be used, and 

may contribute to increased productivity. This modern manufacturing practice has the benefit of 

ensuring that workers can more effectively fill in or otherwise compensate for one another in 

case a worker cannot be present at a particular time.

As another strategy, some firms such as Kraft Foods, discussed in the following box, 

have been able to use retired workers as a source of labor to help meet short-term labor demands 

created by workers’ absences.

33

 33 Boston College Center for Work and Family (2004).

Box 3: KRAFT FOODS

In December 2002, Kraft Foods began a flexible work program called “Fast Adapts” 

for hourly employees and production supervisors who work in manufacturing facilities. Kraft 

is a multi-national food- and beverage-manufacturing company which, together with its many 

subsidiaries, employs tens of thousands of workers in the U.S. Most of its employees are 

hourly workers.

Kraft Foods began the Fast Adapts program in response to employee dissatisfaction, 

particularly among hourly workers, in its manufacturing plants who reported in surveys during 

2001 and 2002 that the available flexible work options were not as useful to them as they were 

to professional workers. The program offers options for manufacturing workers to increase 

their work flexibility including shift-swapping for hourly workers, single-day vacations, 

employment of hourly retirees, tuition reimbursement for online courses, and job sharing. 

Thus, whereas before some employees had to take vacation in one-week increments, the 

single-day vacation policy allows even hourly workers to take one-day vacations. Also, 

employing retirees to cover worker absences means that regular workers are not always 

required to cover for co-workers by working overtime or weekends. All hourly workers are 

eligible for Fast Adapts if the policy is deemed conducive to the employees’ specific work 

process, plant policy, or union contract. If not, there are options in place to create alternative 

flexible work solutions.

The directors of work/life initiatives at Kraft Foods feel that Fast Adapts is a success. 

A 2003 survey showed improvement in hourly worker’s satisfaction with work-life 

integration. The success of the program has been attributed to accountability and autonomy. 

Plant managers are held accountable for developing flexible work strategies, but they have the 

autonomy to create the arrangements that work best for their individual plants.
16

THE ECONOMICS OF WORKPLACE FLEXIBILITY

Employers that have adopted flexible workplace practices cite many economic benefits 

such as reduced worker absenteeism and turnover, improvements in their ability to attract and 

retain workers, and other positive changes that translate into increased worker productivity.34

But, workplace flexibility has costs as well. For example, the associated fixed costs of 

recruiting, training, and monitoring an employee can raise the cost of hiring a worker part-time 

rather than full-time. In addition, some projects that have short deadlines and that cannot be 

easily divided make it costly to not have an employee working full-time. In fact, almost one 

third of firms cite costs or limited funds as obstacles to implementing workplace flexibility 

arrangements.

35

This section discusses the small but growing research literature assessing the impact of 

flexible workplace practices on workers and employers before laying out an economic rationale 

for why wider adoption of such practices could be good for the American economy. 

The Empirical Evidence on the Economic Impacts of Flexible Workplace Practices

Worker compensation has many components, such as wages, health and retirement 

benefits, sick leave, and vacation time. And employers have discretion over which benefits to 

provide their employees, resulting in differing compensation “packages.” There is evidence that 

workers take into account the entire compensation package—and not only wages—when 

considering job offers. For example, it has been well established that workers must be paid 

higher wages to accept jobs without health insurance, partly to help pay for their health 

expenses.36 Similarly, workers who have little workplace flexibility require higher wages to help 

pay for services such as emergency child care and elder care.37 Given that workers consider the 

entire compensation package, if the value to employees of flexible arrangements exceeds the 

costs of providing them to the employer, flexibility is a cost-effective tool for attracting and 

retaining workers. 

Unfortunately, quantifying the costs and benefits of these arrangements is challenging. 

It is clear that employees place high value on flexibility. A study of more than 1,500 U.S. 

workers reported that nearly a third considered work-life balance and flexibility to be the most 

important factor in considering job offers.38 In another survey of two hundred human resource 

managers, two-thirds cited family-supportive policies and flexible hours as the single most 

important factor in attracting and retaining employees.39

 34 A Better Balance (2008); Corporate Voices for Working Families (2005).

 And while we do not have direct 

estimates on the cost of providing flexible workplace arrangements, costs associated with other 

workplace outcomes can provide some insights into the likely net benefit for employers in the 

form of reduced turnover, lower costs for recruitment, reduced absenteeism, and more productive 

workers.

35 Bond, Galinsky, and Sakai (2008). 36 Council of Economic Advisers (2010). 37 Baughman, DiNardi, and Holtz-Eakin (2003). 38 Hudson Highland Group, Inc. (2008). 

39 Williams (2001).
17

Do Flexible Work Arrangements Reduce Turnover and Help Recruitment? 

Recruitment and retention are so important to employers because the costs associated with 

turnover—both direct and indirect—can be high. When an employee leaves a firm, frequently he

or she must be replaced. Recruiting can include costs such as advertising for the position, time 

interviewing, agency and search firm fees, referral bonuses, hiring a company recruiter, and 

relocation assistance. In addition, when a worker separates from a firm, he or she takes with him 

or her firm-specific knowledge (such as how to manage a computer program that is used only by 

that firm).40 Such losses are likely to be especially costly for firms that extensively train their 

workers with such “firm-specific” skills.41 In addition, managers report that a competitive 

compensation package (which could include flexible work schedules) is especially important for 

retaining particularly productive workers who are at risk of receiving competing offers of 

employment from other firms.42

Combined, these costs can be considerable. For example, one study found that hiring 

costs account for more than $2,500 per hire in large firms, or approximately 3 percent of total 

annual labor costs for a full-time equivalent worker.43 Another study argues “visible” costs such 

as advertising and orientation costs account for only 10-15 percent of total turnover costs of 

making a hire.

44

With such considerable costs to recruiting new workers, employers have an incentive to 

find ways to recruit those likely to remain with the firm for some time and to find cost-effective 

ways to retain them. For such reasons, flexible work practices can potentially pay for themselves 

if they help a company reduce turnover or increase recruitment.

There are several ways that flexible work arrangements can help reduce turnover. 

Workers with more flexible arrangements report higher levels of job satisfaction, more loyalty 

and commitment to their employers, and “high likelihood[s]” of remaining with their employers 

for the following year.

45 Flexible work arrangements can also decrease turnover by encouraging 

individuals to remain working at a firm even after a major life event such as the birth of a child.46 

The research on the impact of flexible workplace practices on turnover is small.47 Case 

studies of firms such as the Detroit Regional Chamber of Commerce, highlighted in the

following box, provide qualitative insights into perceived benefits.

48

 40 Becker (1964); Mincer (1974); Lazear (2003).

 In addition, larger studies 

of the effect of policies that allow new parents to take paid time away from work on the 

employment and wages of workers find that such arrangements encourage new parents to stay in 

41 It is not surprising, therefore, that researchers have documented that firms that provide on-the-job training (for 

firm-specific skills) for their employees aim for lower rates of voluntary turnovers (Pencavel, 1972). 42 Salop and Salop (1976); Weiss (1980). 43 The study included more than 300 large organizations. Data referred to the 2007 calendar year. The average size 

of the company in the report has annual revenue of $5.7 billion and roughly 17,000 employees. See 

PricewaterhouseCoopers LLP. (2009). 

44 See Baughman, DiNardi, and Holtz-Eakin (2003). 45 See Gerhardt (2001) for references for studies that link satisfaction with retention. 46 Baum (2003). 47 The literature on the impact on recruitment is even smaller since one needs to know about those individuals who 

were not hired.

48 Sloan Work and Family Research Network (2005b).
18

the labor force.49 In a survey of 120 randomly-selected employers in New York, economists 

found that those that offered flexible sick leave and child care assistance had significantly lower 

rates of turnover.50 Other studies report that firms with more flexible telecommuting practices 

had lower turnover.51 

Do Flexible Work Schedules Reduce Absenteeism? Worker absenteeism can be costly 

to a firm by creating uncertainty over the workforce size and composition that a manager can 

expect on any given day. In companies where multiple workers perform similar tasks, workers 

can help compensate for one of their missing colleagues. In smaller firms or firms where each 

worker’s job is different and critical to a company’s mission, however, unplanned absences may 

be especially costly if each member of a team is important for the firm’s output. One report 

suggests that “just not wanting to go to work” that day was enough to keep 34 percent of workers 

from showing up at least once a year.

52 One study estimated that employee stress due to 

concerns about balancing obligations with children and work leads to higher rates of 

absenteeism, with absenteeism costs to businesses ranging from $496 to $1,984 per employee 

per year.53

Although some absences are inevitable, existing evidence suggests that smart workplace 

arrangements can reduce them. For example, the few studies that followed workers as they 

switched between firms that offered a flexible work schedule (such as work-at-home options) to 

those that did not have found that workers tended to miss work more in the new firms.

54

 49 Ruhm (1998). 

 

50 Baughman, DiNardi, and Holtz-Eakin (2003). 51 See Yasbek (2004) and Computer Economics (2008). 52 Ferrara (2009). 53 Corporate Voices for Working Families (2004). 54 Dionne and Dostie (2007). For other evidence, see Yasbek (2004); Comfort, Johnson, and Wallace (2003); 

Akyeampong (2001).

Box 4: FLEXIBLE WORK ARRANGEMENTS AND TURNOVER AND RECRUITMENT:

THE EXPERIENCE OF THE DETROIT REGIONAL CHAMBER

The Detroit Regional Chamber, the chamber of commerce serving Southeast 

Michigan, has a tailor-made flexible work schedule program for its highly-skilled workers. 

The flexible work program was originally implemented as a way to recruit and retain talented 

workers. Between 10 percent and 15 percent of employees have a standard flexible schedule 

that involves coming in and leaving the office earlier than normal business hours would 

permit. Other flexible work options include reduced lunch hours in exchange for early 

departure time, telecommuting, and even part-year scheduling. The Chamber arranges 

flexible work options based on individual needs as long as they do not interfere with work 

objectives. 

Since its implementation in 2000, retention rates have increased from 75 percent to an 

average of almost 90 percent. Turnover rates are significantly lower than rates across the 

southeast Michigan region. Furthermore, employee testimonials show that the workplace 

flexibility is highly valued by current and prospective employees. 
19

Perhaps the most compelling study of the impact of flexible work scheduling on 

absenteeism comes from within a single large public utility that temporarily adopted a flexible 

work schedule in one of its sub-units while retaining standard scheduling for other sub-units.55 

As shown in Figure 8, prior to the program, the average rates of absenteeism were roughly 

similar between the sub-unit that was offered a flexible work schedule and those that were not. 

In the year after the program was adopted, the sub-unit with a flexible schedule reported a more 

than 20 percent reduction in absences, with the absenteeism rate in the other sub-units essentially 

unchanged. Moreover, when the company reverted back to standard scheduling for all of the 

sub-units considered after a one-year trial, the rates of absenteeism of the two groups of sub-units 

became, once again, similar. 

As a rough estimate, these results, if they generalize to other firms, suggest that 

wholesale adoption of flexible workplace schedules could save about $15 billion a year.56 

Do Flexible Work Schedules Improve Health? A growing literature links job stress to 

poor health (such as chronic hypertension and heart disease).57

 55 Dalton and Mesch (1990). For this company, flexible work scheduling meant allowing workers to distribute their 

working hours during the day without changing the total numbers worked in a day. 

 And researchers are increasingly 

56 Nicholson et al. (2005) estimate that the annual cost of workforce absences due to illness was $74 billion. If 

workplace flexibility reduces absences by 20 percent and if all of this reduction translates into lower costs for 

employers, the implied savings due to flexibility are almost $15 billion a year. Note, however, that this estimate 

includes only absences due to illness, so the total cost due to all absences is likely to be higher. At the same time, 

there are several reasons why the estimate of cost savings may be too large. Most importantly, the results from the 

intervention that reduced absences by 20 percent may not generalize to other firms. In addition, the estimates of the 

annual cost of absences due to illness calculated by Nicholson et al. (2005) may overstate the true cost. 57 See Mann (2006) for a literature review. As noted by Mann, this literature is not well-settled. More research 

could help determine the importance any relationship between job stress and health.

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

Before the program During the program After the program

Offered a flexible work schedule

Not offered a flexible work schedule

Figure 8

Average Absence Rates With and Without Flexible Work Scheduling

Absence rate, days

Sources: Dalton and Mesch (1990); CEA estimates.
20

linking poor worker health to poor economic outcomes, such as lower productivity and slower 

economic growth.58 As a result, it is not surprising that recent studies establish a positive 

relationship between flexible workplace arrangements and worker health.59 

The most compelling evidence comes from a workplace intervention conducted at 12 

Midwestern grocery stores. The researchers at Michigan State University and Portland State 

University found that workers supervised by family-supportive managers reported improved

physical and mental health.

60 A second study conducted by researchers at the University of 

Minnesota found that a workplace intervention to allow employees greater control over their 

work time resulted in employees being less likely to say that they felt obliged to come to work 

when they were sick, or to not see a doctor even though they felt they should. The intervention 

also resulted in improved sleep quality, increased energy, and reduced psychological stress 

among employees.61

Do Flexible Work Schedules Improve Productivity? An important question is whether 

flexible work-life arrangements increase worker productivity. Several studies document a 

positive relationship between workplace flexibility and worker productivity.62 The two case 

studies in boxes, below, explore this relationship.

63 One documents the productivity increases 

experienced by a bank after restructuring its scheduling policies. The other describes how a 

telecommuting program increased the productivity for a large technology company. A

mechanism through which more flexible workplace practices may enhance productivity is by 

allowing firms to recruit and retain the best workforce.64 In a larger study of over 700 firms in 

the United States, United Kingdom, France and Germany, researchers found a significant 

positive relationship between work-life balance practices and total factor productivity.65

 58 See, for example, Davis et al (2005); Council of Economic Advisers (2009b); Bloom and Canning (2005). 

Research has also explored the link between good health on the one hand and more productive employees and lower 

turn-over on the other. For example, data from the National Study of the Changing Workforce show that 35 percent 

of employees who say their overall health is “excellent” are highly engaged on the job, compared to 23 percent of 

those who say they are in “poor” overall health. Similarly, 68 percent of employees who say they are in “excellent” 

health report that they are “not at all likely” to leave their job, compared to just 45 percent of employees who say 

they are in “poor” health (Aumann and Galinsky, 2008). Again, this research suggests that workplace flexibility 

policies that improve employee health can provide substantial economic benefits for the employer.

 The 

59 See, for example, Grzywacz, Casey, and Jones (2007); A Better Balance (2008). 60 Work, Family, & Health Network (2008a). 61 Work, Family & Health Network (2008c). Another study conducted at the Harvard School of Public Health 

which looked at the relationship between a range of workplace policies and informal practices and health outcomes 

in four extended-care facilities in Massachusetts found that employees exposed to managers with low creativity and 

lack of openness to work-family issues were more likely to have cardiovascular disease risk factors (Work, Family, 

& Health Network, 2008b). Finally, a study conducted by researchers at Pennsylvania State University found that 

on days when hotel workers reported an interpersonal stressor at work, children reported spending one less hour than 

usual with their parent (Work, Family & Health Network, 2008d).

62 Anecdotal evidence also points to this conclusion. For example, an employee at Texas Instruments, a company 

that has given its employees more flexibility, said that “workplace flexibility has enabled me to improve[her] focus 

and performance.” 

63 Georgetown University Law Center (2010). Sloan Work and Family Research Network (2005a). 64 For example, Konrad and Mangel (2000) note that, among professionals, work-life conflicts tend to arise when 

employees reach their peak productive years in their 30s and 40s. Thus, the workers who most need work-life 

balance policies could also be the most productive. 

65 Bloom, Krestchmer and Van Reenen (2006). This same study contains a reference to a large number of papers 

that document a positive correlation between flexibility and outcomes like productivity. 
21

authors believe that this correlation could be driven by a third factor—good management. Wellmanaged firms both have higher productivity and tend to embrace flexible workplace practices. 

Importantly, the study finds no evidence that workplace flexibility harms productivity.

BOX 5: FLEXIBLE SCHEDULES AND WORKER PRODUCTIVITY:

THE CASE OF FIRST TENNESSEE BANK

One example of a company using flexible work arrangements to increase worker 

productivity is First Tennessee Bank (FTB). FTB, a financial services company with banking 

sites in several Southeastern states, first implemented a flexible work program in 1992. The 

program replaced previous company-wide attendance policies, allowing managers at 

individual banks to decide attendance and scheduling rules. Part-time work options were

available to any employee who had been at the bank at least one year, and these workers 

could reduce their hours to as few as 20 per week while retaining benefits.

The FTB flexibility program has been successful in increasing productivity at the 

bank. In 1997, customer retention was 96 percent at FTB, compared to an industry average of 

87 percent. This may have been due to changes in the accounts-reconcilement department 

following implementation of a workplace flexibility program. The department restructured its 

schedule to include 12 hour days at the beginning of the month in return for time off at the 

end of the month, and as a result the amount of time it took the group to reconcile an account 

fell from 8 days to 4. This productivity increase resulted in a 50 percent increase in customer 

quality responses. The following figure shows this gain in productivity. 

89

96

87

82

84

86

88

90

92

94

96

98

Pre-flexible work program Post-flexible work program Industry average

Customer-Retention Rates at First Tennessee Bank 

and Across the Banking Industry 

Note: Industry experts at the time generally said the highest customer-retention rate possible was 

97%, due to unavoidable loss of customers who move or die.

Source: Flynn (1997).

Customer-retention rate, percent
22

The Economic Case for Wider Adoption of Flexible Workplace Practices and Policies

The evidence cited above strongly suggests that workers clearly gain from workplace 

flexibility. They are happier, healthier, and more likely to remain with a firm that grants such 

flexibility. 

As for whether such policies and practices result in increased firm profits, generally 

speaking, there are three possibilities (assuming perfectly competitive markets and that managers 

are well informed about the costs and benefits of a flexible workplace). One is that the costs of 

the arrangements outweigh the benefits such that firm profits fall. In this case, we would not 

anticipate that firms would embrace such arrangements. A second possibility is that the benefits 

and costs are such that firms’ profits are unchanged by a move to flexibility. In this case firms 

are likely to be indifferent about the adoption of a flexible workplace, but might be open to 

persuasion by workers or other interested parties. The third possibility is that the net benefits are 

such that firms also gain from workplace flexibility. In this case, simple economics suggests that 

we should see such policies and practices adopted. 

An innovative paper attempting to study the impact on firm profits tracked the 

announcements of new work-life balance policies (such as dependent care or flexible work 

arrangements) by Fortune 500 companies in The Wall Street Journal. It found that on average, 

firms’ stock prices rose 0.36 percent on the days following announcements of work-life balance 

initiatives.66

 66 Arthur (2003).

Such evidence indicates that flexible practices boost investors’ perceptions of the 

BOX 6: CISCO SYSTEMS

In 1993, Cisco Systems, a large multinational internet network provider, began a 

formal telecommuting program for managers and employees. 

Cisco’s telecommuting program was one of the first among Silicon Valley companies. 

It began out of the need to better organize the company’s global workforce. Since many 

workers travel, it became necessary to enable them to work remotely. The program allows 

employees to work from home or keep flexible hours by using broadband technology to work 

in remote locations. The company does not necessarily require a set schedule as long as 

employees accomplish work objectives within appropriate time frames. More than 90 percent 

of employees currently telecommute at least some of the time using residential broadband 

services.

Cisco’s flexible work arrangement has resulted in cost savings for the company. In 

2003, it saved $195 million due to increased worker productivity. The company believes that 

telecommuting allows workers to be more focused and dedicated to their jobs. In addition, the 

telecommuting system allows the company uninterrupted access to mission-critical resources 

in the event of severe inclement weather. The company also hopes to save on rental costs, 

given its locations in many high rent business districts. Workers appreciate the flexibility the 

company offers. Anecdotal evidence suggests it helps in recruiting employees, since the 

company is seen as a good place to work. In 2010, Cisco ranked number 16 on Fortune’s 100 

Best Companies to work for.
23

value of a firm, which may derive from their beliefs about the impact of the policies on worker 

productivity. 

And yet, many firms have not adopted such practices. As documented earlier, less than 

one-third of full-time workers report having access to flexible work hours. If these practices 

generate such large economic benefits for both workers and firms, why don’t more workers have 

access to them? 

One possible explanation is that the relative costs and benefits of these practices differ 

across and within firms. For example, employers in the financial services industry may find it 

possible to allow employees to work occasionally from home, while food service companies 

would likely find such practices infeasible. Economic theory suggests that the firms with the 

greatest (net) gains to adopting flexible practices should be among the first to embrace them. 

Existing studies of the effect of flexible arrangements come from firms that have already adopted 

these practices. Therefore, the evidence presented above may overstate the economic benefits 

that firms that have not yet adopted flexible arrangements would enjoy. Moreover, from a 

strictly economic perspective, if firms maximize profits, those that find such policies improve 

their profitability would adopt them while those that find them too costly would not. In this case, 

there would be no economic gains to additional firms adopting such policies. 

That said, there is still an economic rationale for why additional firms and the U.S. 

economy could benefit from wider adoption of flexible workplace practices. There is a growing 

literature that suggests not all firms adopt the most efficient practices, especially in less 

competitive industries. For example, in the manufacturing sector where productivity is more 

easily quantified (and even in the context of professional football), managers of firms sometimes 

appear to fail to make the best choices.67 Economists argue that one factor that may contribute to 

the incomplete adoption of the best management practices is lack of information.68 Due to the 

changing nature of the labor force, it is likely that the best practices from years ago do not 

provide enough flexibility for today’s workforce.69 Just as U.S. automotive firms took years to 

embrace lean manufacturing despite the practice’s documented improvements in productivity,

70

firms today may be failing to adopt flexible arrangements. In this case, encouraging supervisors 

at firms to reevaluate their management practices in light of the evolving demands of workers 

can make both the firm and the workers better off. One way to help is for companies to establish 

“right to request” policies which lay out the circumstances and procedures by which workers can 

ask their supervisors to consider altering their work arrangements to meet their needs for 

flexibility.

A second justification for promoting work-life balance is that flexible practices may help 

society in ways that are not taken into account by either an employer or employee (what 

economists call “social benefits”). For several reasons it is possible that these social benefits are 

 67 Romer (2006); Bloom and Van Reenen (2010). See also Levitt (2006); Cho and Rust (forthcoming), Bloom, 

Kretschmer, and Van Reenen (2006); and Yasbek (2004). 68 Bloom and Van Reenen (2010). 69 Griliches (1957), Cohen and Levinthal (1990), and Levitt and March (1988), among many others, also develop 

models where a firm’s adoption of a new technology is not immediate. See also Nelson and Winter (1982). 70 Bloom and Van Reenen (2010).
24

larger than the private ones. For example, some economic models have emphasized that firms 

may be reluctant to offer benefits packages that are particularly attractive to workers for whom 

the benefits are most costly to provide. The classic example is generous health insurance 

packages which may attract the sickest workers. If a similar dynamic operates with flexible 

workplace arrangements, then too few employers may offer such arrangements and those that do 

will pay a higher cost.71 If more firms offer flexible workplace arrangements, the cost for all 

will decline, allowing more workers to benefit from the increased flexibility.

In addition, on average adopting flexible practices likely encourages labor force 

participation among those workers that would otherwise find it too “costly” to work or invest in 

workplace skills.72 Taxpayers and society as a whole benefit from having productive individuals 

in the workforce because they are more likely to make contributions in the form of taxes (and 

conversely are less likely to use the social safety net). As another social benefit, allowing 

workers to work during atypical hours can reduce the commuting time for other workers that 

may not be taken into account by a profit-maximizing manager.73 One study found that in 2005, 

peak-period drivers spent 38 extra hours a year in traffic as a result of highway congestion, up 

from 14 hours in 1982.74 Moreover, over a third of drivers report that traffic congestion is a 

serious problem in their community.75 

Given the changing nature of the U.S. workforce, the tendency for some firms to fail to 

update their workplace practices, and the potential for benefits to society as a whole, many firms 

may find embracing more flexible work helps their workers, their bottom line, and the country as 

a whole.

CONCLUSION

The non-work responsibilities of the typical American worker have changed dramatically 

over the past 50 years, largely as a result of the entrance of women to the workforce in large 

numbers. While four decades ago women spent much more time performing nonmarket work—

taking care of children and older family members, and keeping an organized and efficient 

home—and men primarily performed market work, more recently the household division of 

labor has blurred. As a result, the fraction of children raised in households where all of their 

parents work full-time has nearly doubled, and the percentage of full-time workers who are 

 71 Summers (1989) explains this as an example of asymmetric information. Suppose that providing the benefit is 

costly and that a firm does not have accurate information about an individual’s probability of using the benefit. 

When a firm offers a benefit it attracts the workers who value it most. If the benefit is most costly to provide to 

these workers, the cost to the firm of offering the benefit will increase. The cost would be lower if all firms offered 

the same benefit. (Levine (1991) provides a related argument). Evidence on the magnitude of this effect in the 

context of flexible work arrangements is limited (see Yasbek (2004) for some evidence), but in other contexts there 

is clear evidence that asymmetric information is economically important (Cutler and Reber, 1998).

72 Goldin (2006) has documented links between changes in women’s expectations about future careers and increases 

in women’s human capital investment. Similarly, the adoption of flexible practices may cause women to invest 

more in preparation for their careers. Klerman and Leibowitz (1999) explore the short-run effects of work place 

flexibility on the labor force patterns of new mothers.

73 Walters (1961). 74 Lomax and Schrank (2007). 75 Deshpande and Elmendorf (2008).
25

parents in full-time working families has increased substantially. And because their parents are 

living longer, an increasing number of workers also find that they must make time to care for 

them as well. As a result, many workers report difficulty juggling their work and family 

responsibilities.

Many employers have adapted to the changing realities of American workers. Overall, 

over one-half of employers report allowing at least some workers to periodically change their 

starting and quitting times; however fewer than one-third of full-time workers report having 

flexible work hours, and only 38 percent of part-time workers do. This discrepancy between the 

employer and employee reports may be due to differences in the data collection, but it may also 

reflect that more employers would be willing to accommodate the needs of individual workers 

but their workers are not aware of it. The flexibility to regularly work from home appears even 

less common: only about 15 percent of all workers report working from home at least once per 

week. Finally, most employers offer at least some workers the ability to return to work gradually 

after a major life event such as a childbirth or adoption, although job sharing appears less 

widespread.

As in all business decisions, critical factors in adoption are the costs and benefits of a 

program. Indeed, almost one-third of firms cite costs or limited funds as obstacles to 

implementing workplace flexibility arrangements. At the same time, these practices can reduce 

turnover and improve recruitment, increasing the productivity of an employer’s workforce. 

These practices are also associated with improved employee health and decreased absenteeism, a 

major cost for employers. Although the literature has identified potential benefits along a variety 

of dimensions, the costs and benefits of adopting flexible arrangements differ across firms and 

industries and employers of different sizes.

Nonetheless, there are several reasons to suspect that wider adoption of work-life 

practices may benefit employers and workers. First, some employers may not have adopted

these policies simply because they overestimate the difficulty and cost of doing so and are 

unaware of potential benefits. In addition, should more firms adopt such practices the benefits to 

society, in the form of reduced traffic, improved employment outcomes, and more efficient 

allocation of workers to employers, may be greater than the gains to individual firms and 

workers. 

A factor seriously hindering our deeper understanding of the benefits and costs of 

flexibility is a lack of data. The largest detailed survey of employers reflects practices from three

years ago and does not contain information for the smallest firms; nationally-representative data 

from workers are six years old and only provide limited understanding of the prevalence of 

flexible practices. More importantly, evidence on the effects of flexibility on worker 

productivity, absenteeism, turnover, and health is limited. While the existing evidence has 

established that there is a strong connection between flexibility and productivity, research that 

explores the mechanism through which flexibility influences workers’ job satisfaction and a 

firm’s profits would better inform policy makers and managers alike.

Although the literature is small, the best available evidence suggests that encouraging 

more firms to consider adopting flexible practices can potentially boost productivity, improve 
26

morale, and benefit the U.S. economy. Especially at this time as the U.S. rebuilds after the Great 

Recession, it is critical for the 21st century U.S. workplace to be organized for the 21st century 

workforce.
27

REFERENCES

A Better Balance. 2008. “The Business Case for Workplace Flexibility.” March. New York, 

NY.

Aguiar, Mark, and Erik Hurst. 2007. “Measuring Trends in Leisure: The Allocation of Time 

Over Five Decades.” Quarterly Journal of Economics 122, no. 3: 969-1006.

Akyeampong, E. 2001. “Fact Sheet on Work Absences – Perspectives on Labour and Income.” 

Ottawa, ON: Statistics Canada.

Arthur, Michelle. 2003. “Share Price Reactions to Work-Family Initiatives: An Institutional 

Perspective.” Academy of Management Journal 46, no. 4: 497-505.

Aumann, Kerstin, and Ellen Galinsky. 2008. “The State of Health in the American Workforce: 

Does Having an Effective Workplace Matter?” 2008 National Study of the Changing 

Workforce. New York, NY: Families and Work Institute.

Baughman, Reagan, Daniela DiNardi, and Douglas Holtz-Eakin. 2003. “Productivity and Wage 

Effects of ‘Family-Friendly’ Fringe Benefits.” International Journal of Manpower 24, 

no. 3: 247–59.

Baum, Charles. 2003. “The Effects of Maternity Leave Legislation on Mother’s Labor Supply 

after Childbirth.” Southern Economic Journal 69, no. 4: 772–99.

Becker, Gary S. 1964. Human Capital. Chicago, IL: University of Chicago Press.

Blatter, Marc, Samuel Mühlemann, and Samuel Schenker. 2009. “The Costs of Hiring Skilled 

Workers.” Working Paper 15. Zurich, Switzerland: Swiss Leading House (November). 

Bloom, David E., and David Canning. 2005. “Health and Economic Growth: Reconciling the 

Micro and Macro Evidence.” Working Paper 42. Stanford, CA: Stanford Institute on 

International Studies CDDRL (February).

Bloom, Nick, Tobias Krestchmer, and John Van Reenen. 2006. “Work-Life Balance, 

Management Practices and Productivity.” Centre for Economic Performance, London 

School of Economics.

Bloom, Nick, and John Van Reenen. 2010. “Why Do Management Practices Differ across 

Firms and Countries?” Journal of Economic Perspectives 24, no. 1: 203–24.

Bond, James, Ellen Galinsky, and Kelly Sakai. 2008. “2008 National Study of Employers.” 

New York, NY: Families and Work Institute.
28

Boston College Center for Work and Family. Carroll School of Management. 2004. “Increasing 

the Visibility of the Invisible Workforce: Model Programs for Hourly and Lower Wage 

Employees.”

Cho, Sungjin, and John Rust. Forthcoming. “The Flat Rental Puzzle.” The Review of Economic 

Studies.

Cohen, Wesley, and Daniel Levinthal. 1990. “Absorptive Capacity: A New Perspective on 

Learning and Innovation.” Administrative Science Quarterly 35: 128–152. 

Comfort, Derrick, Karen Johnson, and David Wallace. 2003. “Part-time work and

Family-Friendly Practices in Canadian Workplaces.” The Evolving Workplace Series. Ottawa, 

Canada: Statistics Canada and Human Resources Development Canada (June). 

Computer Economics. 2008. “Telecommuting Policies Can Lower IT Employee Turnover.” 

Irvine, CA.

Corporate Voices for Working Families. 2004. “After School for All: A Call to Action from the 

Business Community.” March. Washington, D.C.

––––––. 2005. “Business Impacts of Flexibility: An Imperative for Expansion.” July. 

Washington, D.C.

––––––. 2006. “Workplace Flexibility for Lower Wage Workers.” October. Washington, D.C.

Council of Economic Advisers. 2009a. “Preparing the Workers of Today for the Jobs of 

Tomorrow.”

––––––. 2009b. “The Economic Case for Health Care Reform.”

––––––. 2010. “Exploring the Link Between Rising Health Insurance Premiums and Stagnant 

Wages.” 

Cutler, David M., and Sarah J. Reber. 1998. “Paying for Health Insurance: The Trade-Off 

Between Competition and Adverse Selection.” Quarterly Journal of Economics 113, no. 

2: 433–66.

Dalton, Dan R., and Debra J. Mesch. 1990. “The Impact of Flexible Scheduling on Employee 

Attendance and Turnover.” Administrative Science Quarterly 35, no. 2: 370–87.

Davis, Karen, et al. 2005. “Health and Productivity Among U.S. Workers.” New York, NY: 

The Commonwealth Fund (August).

Dionne, Georges, and Benoit Dostie. 2005. “New Evidence on the Determinants of 

Absenteeism Using Linked Employer-Employee Data.” Working Paper 05-21. 

Montreal, QC: CIRPÉE (June).
29

Department of Education (National Center for Education Statistics). 2009. Digest of Education 

Statistics, 2008 (NCES 2009-020), Table 190.

Deshpande, Manasi, and Douglas W. Elmendorf. 2008. “An Economic Strategy for Investing in 

America’s Infrastructure.” Strategy Paper. Washington, D.C.: Brookings Institution 

(July).

Ferrara, Jason. 2009. “One-Third of Workers Play Hooky.” CareerBuilder (January 26).

Gerhardt, Jr., Paul L. 2001. “Employee Retention Through Job Satisfaction.” Tacoma, WA.

Georgetown University Law Center. 2010. “Flexible Work Arrangements: Selected Case 

Studies.”

Goldin, Claudia. 2006. “The Quiet Revolution That Transformed Women’s Employment, 

Education, and Family.” American Economic Review, Papers and Proceedings 96: 1–

26.

Greenwood, Jeremy, Ananth Seshadri, and Mehmet Yorukoglu. 2005. “Engines of Liberation.” 

The Review of Economic Studies 72, no. 1: 109–33.

Griliches, Zvi. 1957. “Hybrid corn: An Exploration in the Economics of Technological Change.”

Econometrica 25, no. 4: 501–522.

Grzywacz, Joseph G., Patrick R. Casey, and Fiona A. Jones. 2007. “The Effects of Workplace 

Flexibility on Health Behaviors: A Cross-Sectional and Longitudinal Analysis.” Journal 

of Occupational and Environmental Medicine 49, no 12: 1302–09.

Hewitt Associates. 2008. “Retiring Boomers Prompt Increased Employer Interest in Phased 

Retirement Programs, According to Hewitt Survey.” Lincolnshire, IL, July 30 

(http://www.hewittassociates.com/Intl/NA/enUS/AboutHewitt/Newsroom/PressReleaseDetail.aspx?cid=5451). 

Hudson Highland Group, Inc. 2008. “In the Game of Hiring, Flexible Employers Win.” New 

York, NY.

Johnson, Jean, et al. 2009. “With Their Whole Lives Ahead of Them.” New York, NY: Public 

Agenda. 

Jones, Chad. 2002. “Sources of U.S. Economic Growth in a World of Ideas.” American 

Economic Review 91, no. 1: 220–239.

Jones, Chad, and Paul Romer. 2009. “The New Kaldor Facts: Ideas, Institutions, Population, 

and Human Capital.” Working Paper 15094. Cambridge, MA: National Bureau of 

Economic Research (June).
30

Kerrigan, Heather. 2010. “The Results of ROWE.” Governing (February 10).

King, Miriam, et al. 2009. Integrated Public Use Microdata Series, Current Population Survey: 

Version 2.0. [Machine-readable database]. Minneapolis, MN: Minnesota Population 

Center [producer and distributor].

Klerman, Jacob A., and Arleen Leibowitz. 1994. “The Work-Employment Distinction among 

New Mothers.” Journal of Human Resources 29, no. 2: 277–303.

––––––. 1999. “Job Continuity Among New Mothers.” Demography 36, no. 2: 145–55.

Konrad, Alison M., and Robert Mangel. 2000. “The Impact of Work-Life Programs on Firm 

Productivity.” Strategic Management Journal 21: 1225–1237.

Lazear, Edward P. 2003. “Firm-Specific Human Capital: A Skill-Weights Approach.” Working 

Paper 9679. Cambridge, MA: National Bureau of Economic Research (May).

Levine, David I. 1991. “Just-Cause Employment Policies in the Presence of Worker Adverse 

Selection.” Journal of Labor Economics 9, no. 3: 294–305.

Levitt, Barbara, and James G. March. 1988. “Organizational Learning.” Annual Review of 

Sociology 14: 319–40.

Levitt, Steven. 2006. “An Economist Sells Bagels: A Case Study in Profit Maximization.” 

Working Paper 12152. Cambridge, MA: National Bureau of Economic Research 

(March).

Lomax, Tim, and David Schrank. 2007. “The 2007 Urban Mobility Report.” College Station, 

Texas: Texas Transportation Institute (September).

Mann, Samuel. 2006. “Job Stress and Blood Pressure: A Critical Appraisal of Reported 

Studies.” Current Hypertension Review 2, no. 2: 127–38.

Mincer, Jacob. 1974. Schooling, Experience, and Earnings. New York: Columbia University 

Press.

National Alliance for Caregiving. 2009. “Caregiving in the U.S.: A Focused Look At Those 

Caring for Someone Age 50 or Older.” November. Bethesda, MD. 

National Federation of Independent Business. 2004. National Small Business Poll: Family and 

Medical Leave. 4, no. 2.

Nelson, Richard R., and Sidney G. Winter. 1985. An Evolutionary Theory of Economic Change. 

Harvard University Press.
31

Nicholson, Sean, et al. 2005. “How to Present the Business Case for Healthcare Quality to 

Employers.” Applied Health Economics and Health Policy 4, no. 4: 209–18.

Pencavel, John H. 1972. “Wages, Specific Training, and Labor Turnover in U.S. Manufacturing 

Industries.” International Economic Review 13, no. 1: 53–64.

Potter, Edward E. 2003. “Telecommuting: The Future of Work, Corporate Culture, and 

American Society.” Journal of Labor Research 24, no. 1: 73–84.

PricewaterhouseCoopers LLP. 2009. “US Human Capital Effectiveness Report.” New York, 

NY.

Regulations.gov. 2007. “Request for Information on the Family and Medical Leave Act of 

1993.” Comments from DeAna M. Boren ESA-2006-0022-0279, Leslie Masaitis ESA2006-0022-0307, and Steve Mackell ESA-2006-0022-0318.

Romer, David. 2006. “Do Firms Maximize? Evidence from Professional Football.” Journal of 

Political Economy 114, no. 2: 340–65.

Ruhm, Christopher J. 1998. “The Economic Consequences of Parental Leave Mandates: 

Lessons from Europe.” Quarterly Journal of Economics 108, no. 1: 285–317.

Salop, Joanne, and Steven Salop. 1976. “Self-Selection and Turnover in the Labor Market.” 

Quarterly Journal of Economics 90, no. 4: 619–27.

Shrestha, Laura B. 2006. “Life Expectancy in the United States.” CRS Report RL32792. 

Washington, D.C.: U.S. Congressional Research Service (August).

Sloan Work and Family Research Network. 2009. “Questions and Answers about Phased 

Retirement.” Chestnut Hill, MA: Boston College.

––––––. 2005a. “Workplace Flexibility Case Study: Cisco Systems and Telework.” Chestnut 

Hill, MA: Boston College.

––––––. 2005b. “Workplace Flexibility Case Study: The Detroit Regional Chamber’s Flexible 

Work Schedules.” Chestnut Hill, MA: Boston College.

Smith, Mark. 2002. “5 Ways to Equip Telecommuters.” Connected Home Media (May 6).

Summers, Lawrence H. 1989. “Some Simple Economics of Mandated Benefits.” American 

Economic Review 79, no. 2: 177–83.

Waldfogel, Jane. 1999. “The Family Gap for Young Women in the United States and Britain: 

Can Maternity Leave Make a Difference.” Journal of Labor Economics 16, no. 3: 505–

45.
32

Walters, A. A. 1961. “The Theory and Measurement of Private and Social Cost of Highway 

Congestion.” Econometrica 29, no. 4: 676–99.

Weiss, Andrew M. 1980. “Job Queues and Layoffs in Labor Markets with Flexible Wages.” 

Journal of Political Economy 88, no. 3: 526–38.

Williams, Joan. 2001. Unbending Gender: Why Work and Family Conflict and What to Do 

About It. Oxford University Press.

Work, Family, & Health Network. 2008a. “A Behavioral Measure of Supervisory Support.” 

Portland, OR.

––––––. 2008b. “Family-Responsive Workplace Policies and Practices in Small Business.” 

Portland, OR.

––––––. 2008c. “Flexible Work and Well-Being Center.” Portland, OR.

––––––. 2008d. “Work Stress, Health, and Parenting Among Hotel Employees.” Portland, OR.

Workplace Flexibility 2010. nd.a. “Flexible Work Arrangements: The Fact Sheet.” 

Washington, D.C.: Georgetown University Law Center.

––––––.. nd.b. “Legal and Research Summary Sheet: Phased Retirement.” Washington, D.C.: 

Georgetown University Law Center.

Yasbek, Philippa. 2004. “The Business Case for Firm-Level Work-Life Balance Policies: A 

Review of the Literature.” Wellington, UK: Department of Labour (January).