The false wage premium
Remote work has moved from emergency measure to structural transformation. What began during the Covid-19 pandemic as a public health necessity has become a defining feature of modern labor markets. Across advanced economies, hybrid and fully remote arrangements remain widespread, reshaping how companies recruit, manage and compensate talent.
But one question continues to divide economists and executives: Does working from home increase wages? A new study published by the Centre for Economic Policy Research (CEPR) and based on detailed French administrative data suggests the answer is both yes and no.
The research, by Julien Sauvagnat (Bocconi Department of Finance and CEPR), together with Huiyu Li (Federal Reserve Bank of San Francisco) and Tom Schmitz (Queen Mary University of London and CEPR), uncovers a sizable wage gap between remote and on-site workers. Yet a deeper analysis reveals that this premium tells us more about labor market selection than about the productivity effects of remote work itself.
A 12% Wage Gap Even Within the Same Job
Using matched employer-employee records covering the universe of French firms, the authors compare workers within the same detailed occupation, industry and commuting zone. The headline result shows a wide salary gap exists between the two groups: “Within the same detailed occupation, industry and commuting zone, workers who work from home earn on average 12% higher hourly wages than fully on-site workers.”
At first glance, this suggests remote work might boost productivity, and that as a consequence firms reward this boost with higher pay. But the researchers carefully layer controls into their analysis, progressively accounting for education, age, gender, tenure, contract type and firm characteristics such as size and productivity.
The premium shrinks, but it does not disappear.
Even when comparing workers inside the same firm, remote workers earn more. So, is working from home causing higher wages?
The Turning Point: Looking at Pre-Pandemic Wages
The breakthrough comes when the researchers examine workers’ wage histories. By linking employees to their earnings in 2018 and 2019, they uncover a decisive pattern: “Workers who work from home post-pandemic already made higher hourly wages before the pandemic.”
In other words, remote workers were already higher earners before remote work became widespread. Once pre-pandemic wages are introduced as a control variable, the remaining premium nearly vanishes: “When introducing pre-pandemic hourly wages as a control variable, the premium drops to just 1.1% and becomes statistically indistinguishable from zero.”
This explains everything. The apparent wage advantage of remote workers reflects who they are, not what remote work does to their pay.
Or, as the authors put it: “The empirically observed WFH wage premium may be due to higher-paid workers selecting into WFH, rather than a causal effect of WFH on wages.”
Using an Abowd-Kramarz-Margolis (AKM) wage decomposition — a benchmark method in labor economics — the premium disappears entirely once persistent worker characteristics are taken into account. Selection, not productivity, explains the gap.
Remote Work and Hidden Inequality
The disappearance of the premium does not mean remote work is economically irrelevant. Quite the opposite.
A large body of prior research shows that employees value remote work highly and are often willing to accept wage discounts in exchange for flexibility. If high-wage workers are both earning more and disproportionately accessing remote work, then wage inequality understates overall welfare inequality. Put differently, the most advantaged workers may be receiving both higher salaries and superior working conditions.
This insight reframes the policy debate. Discussions around return-to-office mandates are not simply about productivity or collaboration. They may also influence how talent sorts across firms and how inequality evolves. If remote flexibility is concentrated among top earners, restricting it could disproportionately affect the ability of firms to retain high-performing employees. Conversely, firms that offer flexible arrangements may attract already high-productivity workers, reinforcing sorting dynamics in the labor market.
The Productivity Question Remains Open
The study does not claim that remote work has no productivity effects. Rather, it shows that any such effects are not reflected in higher wages once worker selection is properly accounted for.
Three possibilities remain. Remote work may not systematically increase productivity. It may increase productivity, but firms may capture the gains. Or productivity gains could be offset by the fact that remote work is itself a valued amenity, leading to lower wage demands.
Distinguishing among these mechanisms requires further research. What Sauvagnat and his colleagues make clear is that the observed wage premium associated with working from home largely reflects who works remotely, not what remote work does to pay.
