Does telecommuting kill service innovation?

Telecommuting gained an increasing importance for containment and employee protection since the Covid19-pandemic started. Telecommuting can give employees the autonomy to decide how to work, with a lot of unstructured time boosting creativity and innovation activity of employees. On the other hand, casual interactions in the firms between employees, lead to an information exchange that favors innovation. Telecommuting prevents casual interactions and, thus, might hamper innovation. Using individual-level data from 16,151 German employees, this paper analyzes the impact of telecommuting and its intensity on innovation in services. The analysis is based on a Probit model and Lewbel’s instrumental variable methods with generated instruments. The results reveal that telecommuters are more likely to be innovative in services. The intensity of telecommuting indicates that frequent telecommuting of employees is most beneficial for service innovation compared to other intensities, and women benefit even more than men from frequent telecommuting. Lewbel’s instrumental variable methods with generated instruments support robustness and causality of the findings.