February 2022
Something unusual is happening in the U.S. labor market, and while it’s not looking good domestically, it is driving greater interest in nearshore outsourcing.
The global pandemic sparked the deepest global economic recession since the end of World War II. Shutdowns and lockdowns were abundant, and with that, mass furloughs and lay-offs. But despite what economists call a quick, V-shaped recovery, at the start of 2022, there were over 10 million job openings in the U.S., a nearly 40% increase from pre-pandemic levels. And to compound that, attrition in the U.S. labor market, or what has been dubbed “the Great Resignation,” is also at an all-time high. This vicious cycle, while perplexing, also shows no sign of remedying itself, so it does beg the question, where did all the people go?
(Source: statista.com)
The answer is not that straightforward. In fact, since the 1980s, incomes among the lower and middle classes have failed to keep up with economic growth, and the perfect storm of a global health crisis that not only tanked the global economy but also caused an awakening of sorts as people reevaluate their lives is merely the over-arching theme. Here we take a look at some of the root causes of this labor void and why more U.S. companies are looking to nearshore outsourcing to fill the gap.
People Power
The balance of power has shifted from employers, and employees now have greater leverage than ever before with less willingness to accept working conditions. Better pay, benefits, flexible working hours, even work-from-home are now commonplace requirements for jobseekers, and desperate employers have little choice but to meet these wants. In fact, employers are increasingly having to incentivize new hires with sign-on, retention, and referral bonuses, and cash incentives are even being offered to prospective employees just to show up to interviews. All of this, of course, drives U.S. labor costs and shines a light on the quality, more cost-effective alternatives that the nearshore offers.
Increased Turnover
Over the past decade, the average time that young employees spend at each job has decreased substantially. Employees aged 18 to 19 spend 20% less time at each company than a decade ago. Employees aged 20 to 24, who used to spend 18 months at each job, now spend 15.5 months at each job, a decline of 15%. Additionally, workers aged 65 and older, who used to make up a decent proportion of call center jobs in the U.S., will no longer be returning to the office. This turnover is costly to employers who must invest greater resources into recruiting, training, and operations to backfill these employees. Studies have shown that the average cost to hire an employee is $4,129, or 6 weeks of pay for an entry-level job.
(Sources: qualityinfo.org – joinhomebase.com)
Flourishing Gig Economy
With work-life balance at the forefront of people’s minds, the gig economy, which is made up of temporary, flexible jobs filled by independent contractors and freelancers instead of full-time employees, has become increasingly attractive to workers and upended the traditional 9 to 5 career path model. With no particular loyalty to a single company and the ability to chop and change short-term “gigs,” young workers especially are being drawn to the option to work whatever hours or days they want and with little commitment. While some could argue that the gig economy could translate to on-demand customer service in the BPO sector, complex tasks and high-end accounts require constant training, and with retention and successful career-pathing being the mantra of a successful BPO, the emerging gig economy is more of an unwelcome distraction than welcome addition.
Benefits and Savings
Pandemic-era aid was a huge boost for American families with pandemic stimulus packages, expanded unemployment benefits, eviction bans, and other protections preventing the worst-case scenario for many Americans. This, coupled with the limited ability to spend frivolously due to lockdowns, means many Americans had actually generated a savings buffer by the time the economy recovered. While this is a diminishing resource, it is giving workers pause to rethink their options and career path, allowing them to be more selective about when and where they return to work.
Worker Health Concerns
With COVID-19 still a pressing issue, and as new variants manifest, one of the key concerns among reluctant workers, is naturally, their health. Even with the pivot to work-from-home for most contact center operations proving successful throughout the pandemic and a hybrid or blended approach becoming the new norm in the wake of vaccine developments, most operations still require populated brick-and-mortar operations for more sensitive transactions such as in the financial services sector. This hesitance is fueling a shortage in on-premises labor in the U.S., and companies are increasingly seeing greater viability and cost-effectiveness in the lesser impacted nearshore markets.
Rising Production Costs
A record number of U.S. companies are having to raise pay not just to attract new employees but to retain the staff they currently have. As a result, wages are up by nearly 12% over the past two years. Add record inflation, which is up 7.5% and rising at its highest rate since 1982 due to supply shortages and shipping constraints, and the threat to the recovering job market has never been greater. These pressures combined are driving up the cost of doing business onshore, and businesses are getting desperate. With cheaper, quality options a short flight away, the nearshore is becoming increasingly attractive.
(Sources: stlouisfed.org – statista.com)
Even as activity picks up from pandemic-related slowdowns, businesses are struggling to gain momentum. Companies like KM² Solutions have seen increased demand largely through its access to unsaturated markets of highly skilled workforces who can outperform domestic equivalents at approximately half the cost. Couple this with effective hiring practices and industry-leading retention programs, and it’s easy to understand why more and more U.S. companies are having to look to the nearshore to meet their outsourcing needs.
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About KM² Solutions
KM² Solutions ( KM2 Solutions ) operates contact centers throughout the Caribbean and Latin America, providing outsourced inbound and outbound customer service contact services for voice, chat, email, and mobile. KM² Solutions provides these services to clients in financial services, multi-unit healthcare, insurance services, travel & hospitality, eCommerce, technology & telecommunications, home services, and other sectors. The company provides clients with a host of solutions, including customer support and care, telesales & retention, claims management & processing, appointment setting & schedule management, loan origination & verifications, back-office processing, and technical support. KM² Solutions maintains PCI DSS compliance, completes a SOC 2 audit annually, and has a Compliance Management System that meets the FDIC standards.
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