State-by-state changes to minimum wage standards could play a major role in contact center location decisions.
Potential change is looming for labor-intensive businesses. State legislatures in California and New York recently passed new laws to increase their statewide minimum wage to $15 per hour in the coming years. The U.S. federal minimum wage, currently at $7.25 per hour, has not been raised since 2009. In the absence of federal action, some locations are taking matters into their own hands. Cities like Seattle, San Francisco and Los Angeles have enacted their own $15 minimum wage laws, and other cities and states are actively considering similar proposals.
As one of the sectors most significantly impacted by labor costs, how will these minimum wage increases affect the contact center industry? The question may be less about how—and more about when and where next.
If minimum wage increase proposals continue across other regions, as we’re seeing in the Western United States, the impact on the contact center industry could be significant.
A typical minimum wage increase is implemented in increments rather than in dramatic leaps, of course, to give businesses an opportunity to adjust. However, some adjustments will happen more quickly than others, and margin-sensitive industries will be impacted earlier than others. While no one can forecast exactly where, when and to what extent wages will change over the next decade, we can realistically expect major wage hikes to trigger some migration out of some states and into lower-cost locales that have otherwise similar labor characteristics.
Since a significant jump in the minimum wage amounts to an exponential leap in contact center operating costs, relocation from a high-wage to a lower-wage location is typically worth the costs of the move—even if the new location had higher non-labor-related operating costs. Given the tight margins for most contact centers, these location shifts may likely unfold very quickly in some areas.
However, the industry is unlikely to exit high-wage states altogether. In California, for example, some contact centers are already operating at the very high end of the wage scale. Contact centers serving customers requiring specialized technical services are probably already working with higher-value, tech-savvy talent. Furthermore, California is typical of most states which require contact centers with state contracts to be local, regardless of the new labor costs driving up the cost per call.
The good news is, contact center leaders can gain a competitive advantage through awareness and strategic planning.
5 Ways to Stay Ahead of the Minimum Wage Increase Curve
With minimum wage increases probable in numerous locations, what can contact center leaders do to make the most informed site selection decisions?
- Cost avoidance is best—and that means more than just real estate costs. In an industry in which talent represents the overwhelming majority of the operating budget, the best way to avoid dramatic labor cost fluctuations is to choose markets that best align the size, cost and skillset with the target labor pool. That sounds basic, but it is best to not judge any potential market solely by its present conditions. Instead, study long-term market trends as closely as possible to identify prior labor supply and demand changes and extrapolate future labor availability. This process creates a more robust site selection analysis and leads to improved long-term labor decisions.
- Leverage predictive analytics to analyze locations for thousands of elements. Use sophisticated systems to track factors including long-term labor availability, predicted labor cost increases, workforce skills, lifestyles and more. Advanced data-tracking systems and location analysis technology can provide meaningful insights into current labor pools, real estate trends and market competition. Armed with data-driven information and insights, you’ll be better equipped to uncover solutions, whether that means developing a facility or leasing a “plug-and-play” ready-to-occupy facility that requires minimal build time.
Predictive analytics tools are also helpful for creating a long-term contact center location strategy and comparing various models against long-term goals. These tools help generate highly nuanced site selection analyses, with comparisons of various metropolitan areas, benchmarks of current and future-state demographics, workforce alignment and the competitive environment. Data-informed analyses can help you combine labor and real estate costs to determine which locations make the most sense from financial and operating perspectives. Also important, more advanced data and insights platforms can incorporate quality-of-life factors such as access to public transit or neighborhood amenities—important talent recruitment factors for Millennial workers entering the workforce.
3. Monitor the legislative climate. Keep an eye on where wage trends are headed in your current locations and across nearby state lines. Is your state on the doorstep to raising minimum wage? States such as Tennessee, Texas and Utah are strong markets for contact centers today, but if neighboring states change their laws, market conditions can change very quickly. When you’re evaluating an existing or potential new site, it’s especially important to understand the legislative landscape early in the process. 4. Don’t overlook potential tax incentives. If a dramatic minimum wage increase is paired with a commensurate increase in tax incentives, staying put may be your best option. Retention incentives can sometimes mitigate increased wages and avoid disruption of an otherwise highly productive labor pool, especially in hard to identify labor segments such as tech-savvy or credentialed agents. 5. Engage the right partner in the site selection process. The ideal site selection partner will utilize scientific tools and a robust platform to identify cost-effective labor, navigate relevant legislative changes, negotiate tax incentives, minimize real estate occupancy costs, maximize flexibility and evaluate all relevant data necessary to make informed decisions and secure a competitive advantage.
Wages, tax incentives, availability of talent, quality of life factors—these are all part of the equation for contact center site selection. As market dynamics change, labor markets evolve. Now is the right time for contact center decision-makers to think about the long-term implications of wage hikes on operational costs and, consequently, on real estate strategy.