Changes in the labor force will impact the customer experience (CX) as much, if not more, than emerging technologies over the next decade.
While next-generation CX technologies, like artificial intelligence (AI), augmented reality, and the metaverse are exciting, they disregard the most important part: the human touch.
Consumers want to interact with people today and tomorrow. According to PWC, despite the widespread adoption of AI tools, 82% of U.S. and 74% of non-U.S. consumers want human interaction in the future. These data show the importance of bringing people and technology together to deliver fast, convenient, and friendly service.
Every contact center recognizes the value of exceptional customer-facing employees. However, recruiting and keeping the right people is a longstanding challenge that will worsen exponentially over the next decade. It is a major concern for contact center operators, as described in TTEC’s 2022 Annual Report:
“If we cannot recruit and retain qualified employees to respond to client demands at the right price point, our business will be adversely affected” (p. iii)
The Changing Nature of the Labor Force
In Part 1 of this article, I discuss macro population and labor force trends, including government policies, that will ultimately shape the availability and cost of contact center employees. But one thing is clear: the nature of the labor force is changing rapidly.
...declining population growth, an aging populace, and lower workforce participation — underlie sluggish labor force growth.
The U.S. labor force growth is slowing at a startling pace. The Bureau of Labor Statistics (BLS) reported that, between 1972 and 1982, the labor force grew by 2.4%. However, by 2002-2012, the rate decelerated to 0.7% and will drop to 0.4% from 2022 to 2032, an 83% decline in 60 years. Consequently, the U.S. economy will only add 6.4 million workers to the labor force between 2022 and 2032.
Three factors — declining population growth, an aging populace, and lower workforce participation — underlie sluggish labor force growth.
1. A population on the decline
U.S. population growth has declined to historic levels over the last 30 years.Mark Mather, Population Reference Bureau, shows that the population grew an average of 1.3% per year during the 1990s. The growth rate slowed to nearly half (0.7%) between 2010 and 2020, the second slowest between-census growth on record. The COVID-19 pandemic further pushed the growth rate to a paltry 0.1% between 2020 and 2021. Although immigration improved the growth rate in 2022 (0.4%), it remained less than one-third of the 1990s average.
Fewer children, later in life
Population and labor force growth depend primarily on the fertility rate (number of children born to each woman). Yet not only are women having fewer children (1.94 children per woman, 1990-2021) than needed to sustain the population (i.e., 2.1 children per woman is the replacement rate), according to the BLS, (See Chart 1) but they also have them later in life.
A publication by Penn Wharton, Measuring Fertility in the United States, shows that the birth rate crested between ages 25-29 at 117 children per 1,000 women in 2006. By 2019, most births occurred with women ages 30-34 at a rate of 103 per 1,000. The age at the time of childbirth increased, and the number of children declined by 12% at the peak.
Historical fertility rate data give insight into the impact on various age groups (see Measuring Fertility in the United States). People born at the highest fertility rate (3.6 in 1957) will reach full retirement age (66 years) in 2023. Conversely, the fertility rate for those eligible to join the labor force in 2023 was 2.1 in 2008, slightly over half (58%) the number of children per woman.
Limited abortion access impacts
On June 24, 2022, the U.S. Supreme Court’s Dobbs v. Jackson Women’s Health Organization decision overturned Roe v. Wade, eliminating federal protections for abortion rights, which has resulted in many states severely restricting abortion access.
The ruling has impacted nearly a quarter (23%) of reproductive-age biological women primarily due to a 7.7x increase in travel time to the nearest abortion providers (Dench, Pineda-Torres, & Myers, 2023). The same researchers found that states with abortion bans had a 2.3% higher fertility rate than those without restrictions, resulting in 32,000 additional births.
Immigration will determine U.S. population growth or decline
The politics of illegal immigration and open borders notwithstanding, U.S. immigration policy will dramatically impact the nation’s population for decades.
Over the next 75 years, the Brookings Institute (November 29, 2023) projects that:
- Zero new immigration will cause a population decrease of 32%.
- Low immigration (i.e., later years of the Trump administration) will reduce the population by 3%.
- Main immigration (i.e., the most consistent in recent history) will generate an increase of 10%.
- High immigration (1.5 million new immigrants per year) will increase the population by 31% over current levels.
Immigration can help offset lower fertility rates and the aging population: a point we discuss next.
2. An Aging Populace
The reduced fertility rate explains the slowdown in population growth and, at least, some of the reduction in the labor force. Another factor impacting the labor force is the aging population.
The 2012 to 2022 decade saw the 65-74 age group grow the fastest (3.7% annually), more than 4.5x the population growth rate of 0.8% per year, according to the BLS. By 2032, these people will move into the 75 and older age group, generating a 3.9% annual increase.
The population’s shift towards older age groups will impact the labor force participation rate. The overall participation rate is a weighted average across all age groups (e.g., a group with 100 people will have twice the weight of a group with only 50 people).
Since only 8.2% of people 75 years and older participate in the labor force compared to 82.4% of the prime age group, the size of the 75 and older group will depress the labor force’s participation rate.
People’s tendency to work later in life will help alleviate some pressure on labor force participation. Here are the key factors contributing to the trend of working into retirement years.
- Adopting a more flexible, phased retirement (i.e., gradually reducing working hours) allows people to continue working in a lower capacity.
- Many people must continue working to support themselves financially, especially as life expectancies increase and retirement savings fail to sustain a comfortable lifestyle.
- Feared Social Security and pension system changes – Social Security benefits may be reduced from 2033 onward unless funding changes – may incentivize people to work longer to maximize retirement benefits.
- Some people may continue working because they enjoy their jobs and find them fulfilling, contributing to overall life satisfaction and well-being. Alternatively, individuals with physically demanding jobs may retire earlier due to the physical strain and risk of health issues.
- Providing financial support for their families or fulfilling caregiving responsibilities for grandchildren or aging parents can affect how long someone works. Balancing work and family commitments can be difficult, and people may continue working to meet these obligations.
The participation rate for people 55 and older has increased over the last few decades and will continue. During the 2022-2032 period, the BLS forecasts that the participation rates for the 55-64, 65-74, and 75 and older groups will increase to 68.4% (+3.2%), 29.9% (+3.3%), and 9.9% (+1.7%), respectively.
The population’s shift towards older age groups will impact the labor force participation rate.
The aging population will impact the labor force by reducing participation, especially as Baby Boomers move into the 75 and older age group. However, the trend toward working later in life will help offset some of the pressure.
3. Adult Labor Force Participation
A third factor impacting the labor force is the downward trend in participation among certain demographic groups.
Men’s labor force participation has been declining since the 1970s.
From 2022 to 2032, the downward trend will continue, with projections showing reductions of 2.5% (25-34), 1.7% (35-44), and 1.5% (45-54), according to the BLS.
Several factors contribute to the lower participation rate, including:
- Middle-skilled jobs are declining due to automation, globalization, and economic shifts.
- The criminal justice system can substantially impact young and disadvantaged men (and women), which can decrease employment opportunities.
- Alan Krueger (2017) suggests that about half of prime-age men not in the labor force may have serious health conditions.
- As women’s labor force participation increased, some men struggled to adapt to new expectations at home (Frisco & Williams, 2003), contributing to shifts in men’s labor force participation.
Men’s declining labor force participation rate reflects the cumulative impact of various factors. As noted earlier, beginning around 2015, women are increasingly more likely to work.
Women’s labor force participation depends on age.
The downward trend shifted upward for all age groups in 2015. Between 2022 and 2032, the BLS forecasts mixed participation rates. Women in the 25-34 and 45-54 groups will increase participation (+0.6% and +1.1%, respectively), while the 35-44 group will experience lower participation (-0.6%).
Women are more likely to participate in the labor force for these primary reasons.
- The reduced fertility rates help explain why the participation rate of women ages 25 to 34 showed the largest gain among prime-age women since 2015.
- Healthcare and education fields have grown dramatically and tend to be composed of more women than men.
- There has been a shift towards greater gender equality and recognition of women’s rights, increasing opportunities for women to participate in the labor force.
- Policies such as parental leave, flexible work arrangements, and childcare support have helped women balance work and family responsibilities (Goldin & Mitchell, 2017).
- The growth of service-based industries, remote work options, and the digital economy provide more flexible and accessible employment options for women.
Despite the gains in women’s labor force participation, they may face political headwinds if the U.S. government pursues additional restrictions on contraception and abortion.
Although the Democratic Party has generally presented a united front on access to contraception and abortion rights, the Republican Party has been more divided.
...if more women become pregnant, it will put additional downward pressure on contact center staffing...
In the 2022 election cycle, a widely expected “red wave” favoring Republicans failed to materialize in part because of concerns about abortion rights. In June 2023, one year after the Dobbs ruling, Gallup reported that 69% of Americans – an all-time high – believed abortion should be legal in the first three months of pregnancy.
Abortion rights are a political hot-button that many Republicans are struggling to manage effectively, especially as the 2024 election cycle begins.
At least 12 states allow some healthcare professionals to refuse contraception-related services (Guttmacher Institute, 2023). However, Democrats and some Republicans have introduced legislation to make contraception more accessible.
In the unlikely event that the more conservative wing of the Republican party achieves its goal of banning abortion and further restricting access to contraception, it could negatively impact women’s participation in the labor force. Both in the near - and long-term.
The BLS estimates that 80% of women in the workforce will become pregnant at some point in their careers. Of those who become pregnant, 18% will leave the workforce at least temporarily, according to the U.S. Census Bureau.
By reducing access to abortion or contraception, the number of pregnancies will increase, further reducing women’s participation in the near term. In the long term, as the number of childbirths rises, it may help offset some of the labor-force-related declines discussed earlier.
Of course, if more women become pregnant, it will put additional downward pressure on contact center staffing due to lower workforce participation and childcare-related expenses, which creates a difficult financial hurdle to overcome in relatively low-paying jobs.
Although men’s participation in labor has declined, their rate remains higher than prime-age women. Though the gap is closing, additional governmental regulation is a wild card that could have a deleterious impact.
Youth (20-24 age group) shows different labor force participation patterns by sex.
- Women in the 20-24 group increasingly participated in the workforce until 1999 (73.2%) and then declined steadily until 2012 (67.4%), according to the BLS. Between 2012 and 2022, the participation rate rose slightly.
- However, between 2022 and 2032, the BLS projects that women in the 20-24 age group will continue to reduce their participation rate from 68.7% in 2022 to 67.3% in 2032.
- The participation rate for 20-24 age men fell more sharply than for women. Nearly 83% (82.6%) of men in the 20-24 group participated in the workforce in 2000; the rate had fallen to 74.5% by 2010.
- Over the next 12 years, men’s participation rate dropped more slowly, reaching 73.2% in 2022. Projections suggest that 20-24 age men’s participation will continue to decline over the next decade, reaching 68.2% by 2032.
Although many of the same factors that impact participation for older age groups also affect the younger group, there is one notable difference. Higher education influences the 20-24 group more heavily, often delaying entry into the labor force.
The slow population growth, an aging populace, and fluctuating workforce participation rates will create significant downward pressure on the labor force over the next nine years.
Indeed, according to the BLS, the labor force will only add 6.4 million workers between 2022 and 2032. The result is that the Gross Domestic Product (GDP) will grow at a meager 1.9% annually, consistent with the GDP between 2002 and 2012.
(Next month, in Part 2, I will cover specific staffing-impacting customer service industry trends and how contact centers can plan and respond to them.)