The biggest long-term challenges for banks won’t be low interest rates or inflation.
A transforming workforce and the long-term trend of slowed population growth are likely to pose the greatest threats to many financial organizations. Banks do have some ways to counter this great labor challenge, but a lack of action may create compounding negative effects in the future.
RSM Chief Economist Joe Brusuelas writes that five factors will likely lead to a lasting transformation of the U.S. workforce:
Baby Boomers Retiring: The pandemic disproportionately affected the health of older Americans. Combine that fact with increasing demand for new technological skills, 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.
Working Women: Women of prime working age — 25 to 54 — have borne the brunt of caring for children during each wave of the pandemic and the resulting impact on schools and day care. This has prevented many in this demographic from returning to work. While we expect this group of women to eventually return to the workforce, it is too early to assess this factor’s impact in the long run.
Ghosting The Labor Force: More workers are simply walking away from their jobs without giving notice. For a variety of reasons, 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.
Intergenerational Wealth Transfers: A little-discussed impact of the more than 888,000 U.S. deaths caused by coronavirus, as of early February, is the transfer of wealth to younger workers from relatives who have died. Such transfers may allow some workers to walk away from employment.
“You Only Live Once” Mentality: The extended shock of the pandemic is eliciting behavior change among younger workers, who are reassessing their lives and career arcs. Many may ultimately decide that what they were doing before 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 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.
These workforce and population shifts will have a long-lasting impact on financial institutions that do not act. While one solution to mitigate these trends may be to increase wages or salaries and improve benefits, focusing solely on compensation is 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 Flexible, Hybrid Work Arrangements: While banking in the past was built entirely around having branches full of employees, the people who comprise the largest percentage of the workforce are starting to expect a flexible or hybrid work environment. Attracting and retaining a younger workforce may become increasingly difficult without such an environment.
Enhance Corporate Culture, Benefits: Actively engaging the 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 racial 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 build and foster a more diverse working environment, which benefits the workplace itself as well as the organization’s bottom line.
Invest In Technology: Technology is not only the key to unlocking long-term profitability for banks; it is the catalyst to empowering the workforce to do more. Harnessing the power of data, process automation and productivity-enhancing technologies will provide the biggest return on every invested dollar. Along with improving workforce efficiency, such investments can help foster a more dynamic, exciting company culture.
To be sure, enhancing current working conditions, company culture and workforce recruitment, coupled with strategic technology investments, represent the best way for banks to address the great labor challenge.