Suggested Citation:
Shafizadeh, Kevan R., Patricia L. Mokhtarian, Debbie A. Niemeier, Ilan Salomon (2000) The Costs and Benefits of Home-Based Telecommuting. Institute of Transportation Studies, University of California, Davis, Research Report UCD-ITS-RR-00-23

This report evaluates the costs and benefits of home-based telecommuting. Combining empirical data from the literature with a Monte Carlo simulation technique, a distribution of cost-benefit ratios is produced from three perspectives: the employer, the telecommuter, and the public sector. The study develops a new framework that identifies costs and benefits associated with telecommuting. As part of this new framework, we allow the quantification of many of the uncertainties associated with telecommuting, such as air quality benefits or productivity benefits.

Depending on the underlying assumptions, the results indicate that telecommuter benefitcost ratios are generally above one if the employer bears the majority of the equipment cost burden. If the telecommuter is required to purchase new equipment (i.e., a computer and software), it is probable for the telecommuter to experience benefit-cost ratios less than one – the “break-even” point – even when the telecommuter is faced with long commute distances.

For the employer, the cost-effectiveness of telecommuting is dependent largely on productivity benefits. Still, employers need only to experience a reasonable gain in total productivity – approximately 15% or more on telecommuting days, for an employee earning $35,000 per year – to balance the costs. Even when parking and office space benefits are included, productivity lies at the heart of the telecommuting cost-benefit analysis from the employer’s perspective, and in almost all cases, the employer’s case relies on some assumed maintenance or increase in productivity as the primary benefit. It is also shown that the potential for office and parking space benefits are high, although these benefits remain somewhat questionable.

Based on our analysis, we conclude that the public sector air quality and construction avoidance benefits remain somewhat questionable based on the current knowledge, and difficult to justify. The only plausible scenarios with significant public sector benefits occur 1) over a small, localized area (such as along a single transportation corridor) or 2) within a single non-attainment air quality basin where the air quality benefits can be aggregated and used toward meeting attainment goals. Still, given these conditions, the measurable public sector benefits are negligible because conservative input assumptions prevent the benefits from exceeding the losses caused by reduced fuel tax revenues.

This report identifies situations during which telecommuting is most attractive as a travel demand measure to its primary stakeholders: the telecommuter and the employer. Also included with this report is the TELESIMM (telecommuting economic simulation model) spreadsheet and program that can be used to perform Monte Carlo simulations on critical input values. The spreadsheet can be customized by individual users or modified by other researchers as better data become available.

Keywords: telecommuting, cost-benefit analysis, simulation, telecommunication