At a glance
- A transforming workforce and the long-term slowing in population growth are likely the greatest threats to many banking organizations.
- These shifts can have a long-lasting impact on financial institutions that do not act now.
- Enhancements to current working conditions, company culture and workforce recruitment, coupled with strategic technology investments, represent the best way to address the great labor challenge.
While operational hurdles and economic uncertainty remain top issues for financial institutions in 2022, their biggest long-term challenges won’t be low interest rates or inflation. Rather, a transforming workforce and the long-term slowing in population growth are likely the greatest threats to many banking organizations.
While options exist to counter the threat presented by this great labor challenge, a lack of action today may create compounding negative effects in the future.
In the decade after the Great Recession, as the U.S. economy recovered and the unemployment rate dropped below 5%, people returned to the workforce at a fast pace. Since the pandemic-induced recession, however, things have shaken out differently, despite the unemployment rate again reaching low levels.
As RSM Chief Economist Joe Brusuelas wrote of this phenomenon in November, five factors will likely lead to a lasting transformation of the U.S. workforce:
1. Retirement of the baby boomers: The health of older Americans has been disproportionately affected by the pandemic. Combine that fact with the increasing demand for new technological skills—which can prove more difficult for older generations to develop than younger ones—and it’s no wonder baby boomers are leaving the labor force at an unprecedented rate. With such retirements, significant institutional knowledge also goes out the door.
2. Working women and child care: With each wave of the pandemic and the resulting impact on schools and day care, women of prime working age—ages 25 to 54—bear the brunt of caring for children at home, which in turn prevents many in this demographic from returning to work. While we expect this group of women to return to the workforce eventually, it is too early to assess this factor’s impact in the long run.
3. Ghosting of the labor force: More workers are simply walking away from their jobs without giving notice. Whether due to heightened competition for workers among employers, technology advancements creating challenges for older workers, or workers leaving to take care of their families, the overall workforce participation rate—most notably in the prime working-age demographic—has declined significantly since the onset of the pandemic. The consequences of this shift will arguably last well beyond the pandemic.
4. Intergenerational wealth transfers: A little-discussed impact of the more than 888,000 U.S. deaths caused by COVID-19 (as of Feb. 3) is the transfer of wealth to younger workers from relatives who have died. Such transfers are likely allowing some of these workers to walk away from employment.
5. “You only live once” mentality: The extended shock of the pandemic is starting to elicit behavior change among younger workers, who are reassessing their lives and career arcs. Many may ultimately decide that what they were doing pre-pandemic or during the pandemic is no longer suitable or does not align with their personal priorities.
On top of all these factors, data compiled by the U.S. Bureau of Labor Statistics shows a clear decline in the U.S. population growth rate. And while this rate has largely been declining since 1980, except for a short period in the 2000s, the BLS projects the growth rate over the next decade will be the slowest of any other 10-year period in the past 50 years.
With a declining trend in population growth rate, the prospects for a significantly growing workforce are clearly in doubt.
The time to act is now
These workforce and population shifts can have a long-lasting impact on financial institutions that do not act now.
While banking in the past was built entirely around having branches full of employees, the people now making up the largest percentage of the workforce are starting to expect a flexible or hybrid work environment.
While one solution to mitigate these trends may be to increase wages or salaries and improve benefits, focusing solely on compensatory solutions would be akin to only performing physical therapy for a hip ailment when a hip replacement would be far better in the long run.
To address these changes on a holistic level, your institution should consider these actions:
- Adopt a flexible or hybrid work environment: While banking in the past was built entirely around having branches full of employees, the people now making up the largest percentage of the workforce are starting to expect a flexible or hybrid work environment. Without such an environment, attracting and retaining a younger workforce will becoming increasingly difficult.
- Enhance corporate culture and benefits: While creating a flexible or hybrid work environment is one form of enhancing a work culture, actively engaging your workforce can help leadership teams understand how to continually improve not only the working environment but also employees’ work-life balance. Other enhancements could include better leave policies, providing more sick days or family sick days to care for a sick family member, or educational benefits such as student loan forgiveness.
- Hire diverse talent: BLS data shows that minorities lag the broader workforce in terms of labor participation. This creates an opportunity for financial institutions to access a greater pool of available labor, and to build and foster a more diverse working environment, which multiple studies have shown benefits the workplace itself as well as the organization’s bottom line.
- Invest in technology: It cannot be said enough that technology not only is the key to unlocking long-term profitability for banks, but also is the catalyst to empowering your workforce to do more. Harnessing the power of data, process automation and productivity-enhancing technologies will provide the biggest bang for every invested buck. Along with improving workforce efficiency, such investments can help foster a more dynamic, exciting company culture.
To be sure, enhancements to current working conditions, company culture and workforce recruitment, coupled with strategic technology investments, represent the best way to address the great labor challenge.