Work from home and labor market outcomes in developing economies

Purpose: This study aims to examine the theoretical and empirical effects of work from home (WFH) on labor market outcomes, including hours worked, consumption and income. Design/methodology/approach: A formal model is introduced to explain the effects of WFH on consumption and hours worked. The model predicts that transitioning from office work (OW) to WFH increases both working hours and consumption. These predictions are tested using a difference-in-differences approach. Findings: Empirical evidence from Peru supports the theoretical model’s predictions: workers who transition from OW to WFH work an additional 2.3 h per week, see an 8.6% increase in income from their primary job and experience a reduction in per capita consumption. The effects on consumption align with the model’s predictions after controlling for pandemic restrictions. Consumption declines are most pronounced in lower-income groups, where pandemic restrictions were stricter, while higher-income quintiles – less affected by these restrictions – show stable or increased consumption, suggesting that WFH facilitates consumption smoothing. Additionally, WFH’s impact varies by gender, highlighting potential disparities in labor market outcomes. Research limitations/implications: This study relies on a static model to assess WFH’s impact, and the main analysis covers 2019–2020, later extended to four periods for robustness. Practical implications: The WFH’s positive effects on hours, consumption and income contribute to both academic discourse and policy development. From a policy perspective, the results suggest that supporting WFH aligns with efforts to improve consumption and well-being. If WFH remains widespread post-pandemic, labor regulations must adapt to balance its benefits, costs and responsibilities for both employers and employees. Originality/value: We extend the labor market model to analyze the theoretical effects of WFH on hours worked, consumption and welfare. This is the first study to examine the empirical effect of WFH in developing economies like Peru.