The supply and demand of labor in the banking sector and the effects of the coronavirus pandemic
Solution
The supply and demand of labour in the banking sector and the effects of the coronavirus pandemic
Abstract
According to Shalchi (2021), the financial sector contributed £132 billion to the United Kingdom (UK) economy 6.9% of total output. Moreover, banks do play an important role in an economy. They offer a platform for depositing, saving, investing, and performing other financial transactions. They also help in diversifying risks and growing the economy. The UK banking sector is mainly made up of private banks, international banks, and building societies where a few dominate the sector (Expatica, 2021). The labour market in the banking sector is made up of employees who are required to be in close contact with customers and provide the best customer experience, together with exceptional service and relationships that lead to royalty and repeat business. Besides managers, most banks employ bank tellers, investment representatives, relationship managers, mortgage consultants, loan processors, and credit analysts. The workforce is affected by supply and demand in one way or another. Currently, the Coronavirus pandemic also has an impact on the labour market in the UK but there is evidence showing that it has had little effect on the overall financial sector. In the banking sector, for example, people had to adapt to new ways of working but jobs were not lost as much as in other sectors.
The past studies on the topic are missing some information in the financial sector, especially the banking sector on how supply and demand varies and the effects or trends in the future after changes made in the labour market. like changes to the way, people have to work together with the problems or challenges being faced and recommendations suited for the banking sector.
The importance of studying the labour market is to apply models such as the supply and demand to help understand and forecast what jobs will be available in the banking sector together with the availability of people who can provide these jobs. According to the International Labour Office (2020), Supply and demand in the labour market are influenced by dynamics in the local and international market, which can be education levels, immigration, and age among other factors. In addition, unemployment, employment rates, participation rates, gross domestic product, total income, and productivity have to be measured.
1. Introduction
The British banking sector is said to be Oligopolistic because the market is dominated by a few large players namely HSBC, Barclays, Lloyds Banking Group, and NatWest Group (Parliament Publication, 2010) as shown below:
Ranks of Banks in the UK by Assets Dec 31, 2020 |
||
rank |
Bank |
Assets £b |
1 |
HSBC Holdings |
2,197.60 |
2 |
Barclays |
1,349.51 |
3 |
Lloyds Banking Group |
871.269 |
4 |
NatWest Group |
799.491 |
The latest figures show a rapid slowdown in the number of people being hired because of the effects of coronavirus. For instance, a report by Morgan Mckinley spring showed how job seekers in Britain’s financial industry decreased by a third together with the number of available vacancies also falling by 38% (Staff, 2020). But when the government eased the restrictions, the economy started to recover as more and more people went back to work, which was also reflected with a rise of 72% vacancies. The report also states that the need to restructure and use advanced technological innovations has resulted in huge demand from profitable banks to employ more skilled workers who can adapt to the new working conditions and use of technology to remain competitive. Although the huge demand for this kind of labour comes with additional costs of training, those who hire the right employees and Investment in the latest technology will eventually satisfy customer needs in the long term. The government has also intervened by opening up the economy, shifting the recommended minim wage, and providing healthcare assistance (like vaccination) so that people can go back to work.
The recovery of the financial sector is very essential to the UK economy because banks help individuals and other income-generating entities to save their financial resources safely, invest and perform other transactions, they boost all kinds of sectors by offering loans, diversifying risk, and other investment opportunities. Thus helping the growth of an economy.
Even with these contributions, the banking sector is facing challenges that have escalated during the coronavirus pandemic. There has been a need for investment in advanced Information technology (IT) systems to accommodate new working conditions and customer experience. This technology needs also brought concerns like competition rules, Cybersecurity breaches, fraud, and identity theft. Customer expectations have also risen due to a decline in bank equity prices and concerns of profitability by investors (United Nations Publications, 2019). Banks also face further regulation changes that affect investments.
When the impacts of the above finds are understood, proper strategies can be implemented for recruiting, training, organizing, and motivating the right workforce in the banking sector to perform better in building long-lasting relationships with customers and achieving aims and objectives.
The paper aims to review recent empirical contributions to research the behaviour of the banking sector labour market in response to incentives, government interventions, and the pandemic. The aim is to complement the recent UK and economic research on labour market issues with help of economic tools like the supply-demand framework.
The literature review is concerned with what can be thought of as ‘classic’ labour supply issues (Heckman, 1993): the response of financial labour to prices and income changes together with government interventions. Topics covered include the effect of changes in productivity of labour overtime and income on short-run responses to the supply of hours and effort, minimum wage increase, and banking sector restructuring, recruitment, training, and retention. Workers are the suppliers of labour, and the banks demand labour. When there is no government intervention, the wages adjust themselves to balance labour supply and labour demand. When the minimum wage is above the equilibrium level, the quantity of labour supplied exceeds the quantity demanded. The result is a surplus of labour or unemployment. When the minimum wage raises the incomes of those workers who have jobs, it will lower the incomes of would-be workers who now cannot find jobs in the sector.
The papers will be reviewed to understand the role of labour in the production function for the banking sector, how labour responds to a variety of incentives, and how it affects performance. For instance, customers in the banking sector expect personalized interactions, partnerships, availability, helpful advice, fast help, proactiveness, and multiple options. In addition to this, the pandemic created uncertainty and new entrants (in terms of alternatives) to the market.
The paper has the following:
The next section begins by providing some key descriptions of the current UK banking sector labour market. Section III, how supply and demand vary by area. Section IV, How the supply and demand affect the trend. Section V provides strategies for improving problem areas. The paper concludes by highlighting areas for further research.
II. Trends and issues in the UK banking labour market
The banking sector is a major contributor to the UK economy. Banks provide a platform to conduct financial transactions together with a role in funding businesses and helping the government. In 2021, Data in the UK showed a small decrease in the number of patrolled employees, and the largest monthly falls were at the start of the COVID-19. Inactivity increased because of coronavirus restrictions; causing a fall in the employment rate. The number of working hours also reduced and most people had no option but to start to work from home.
According to the Office of National Statistics (ONS): the UK overview of the labour market on April 2021 was as follow:
pay-rolled employment was reduced by 56,000 people in March 2021 compared with February 2021.
The employment rate was reduced by 1.4 % and estimated at 75.1%
The unemployment rate increased by 0.9 and was estimated at 4.9%
The economic inactivity rate increased by 0.7 and was estimated at 20.9 %
Another research by Reuters reported that 5 of Canada’s six biggest banks, for instance, had to slash the workforces by 4.4 % in 12 months through January 2021 to a combined total of 291,409 employees. Which is 5.2 % lower than the third-quarter 2019 peak before the pandemic (Saminather, 2021)
The research studies above show that in the short term the demand for labour decreased due to restrictions and regulations to reduce the spread and some jobs were lost and the supply of labour also dropped as more potential workers got infected and unable to work. The impact was less in the banking sector because banks had to continue functioning even in the pandemic. however, the workforce had to adopt new ways of working and banks had to incur more costs like investment in more technology. The government had to intervene by vaccinating people and easing up the restrictions to open up the economy. In the long run, These new ways of working and technology will result in a positive impact in the banking industry, as they increase both the demand and supply of labour in the banking sector. Improve the production (in terms of customer service, experience, and output) to achieve set aims and objectives. Although they are new entrants in the sector to increase the competition.
III. how supply and demand varies by areas
The labour market in the banking sector includes the supply of qualified workers in the labour market and the demand for workers by banks. Wages represent the price of labour, which provides an income to an individual and his household and it represents a cost to banks. In a hypothetical free market economy, wages are determined by the unregulated interaction of demand and supply. However, in the UK mixed economy, the government and trade unions influence wage levels. Nominal wages are wages paid to workers in a given period. Real wages are nominal wages, adjusted to take into account changes in the price level.
The wage rate
The higher the wage rate for the workforce, the lower the demand for labour by banks expect for top and technical positions. Hence, the demand for labour curve slopes downwards. the downward-sloping demand curve can be explained by reference to the income and substitution effects.
At higher wages, banks look to substitute capital for labour, or cheaper labour for the relatively expensive labour. In addition, when banks carry on using the same quantity of labour, their labour costs will rise and their income (profits) will fall. For both reasons, demand for labour will fall as wages rise.
Marginal productivity
The demand for labor in the banking sector, and other factors of production, is derived from the demand for the quality and quantity of service output. For example, when greater service has greater demand, then the demand for workers in the banking industry will increase, ceteris paribus.
The demand for labor in the banking sector will vary inversely with the wage rate due to the law of diminishing returns. Which states that if a firm employs more of a variable factor, such as labor, assuming one factor remains fixed, the additional return to extra workers will begin to diminish.
The demand for the quality service
Since the demand for labor is a derived demand, based on demand for the quality service that banking employees provide. When consumers want more of a particular service, more banks will want the workers that provide it.
Productivity of labor
Productivity means output per worker, and If workers in the banking sector are more productive, they will be in greater demand for them. This Productivity is influenced by skill levels, education and training, and use of technology.
Profitability of banks
Profitable banks can afford to employ more workers. In contrast, those making losses are likely to reduce the demand for labour.
Substitutes
When substitutes such as advanced technology and machinery become cheaper or more expensive, the demand curve for labor will shift to the left or right. For example, if the price of new technology that replaced some workers falls there may be a reduction in demand for their labor.
Shifts in the demand for labor in the financial sector
The demand curve for labor will shift when any change takes place in the determinant of demand, other than the wage rate for example changes in skill level, productivity, prices of banking services, demand for services, and prices for substitutes (like technology)
Employee skill survey
A case study by Woodward and colleagues on the UK banking, finance, and Insurance sector provided a detailed assessment of skills needed in the sector together with the extent and impact of skill deficiencies within the sector. The result was the identification of intensifying competition from new entrants and industrial changes due to technology which requires strong management skills, specialist IT skills, and hybrid technical/ business skills which have become critical. Change management skills are also required for those organizations seeking to be more responsive and flexible (Woodward et al 2000)
IV. How the supply and demand affect the trend
In reviewing the recent economic evidence, it can be seen that changes in the demand and supply of labor market in the banking sector can lead to a shortage of skills, especially when banks like any other sector struggled with a shortage of skilled labor before the pandemic. According to a 2019 Ceridian research study, 93% of financial services executives surveyed said their organizations were experiencing some degree of skills gap caused by the rate at which technology was changing the world and the skills needed to thrive in it.
The need for a decentralized workforce in the banking sector, caused social distancing measures and customers to shift to digital banking. This has also introduced advanced technology in the banking sector for working from home (WFH) with a hybrid model allowing an option to work remotely from home; banks that invest in these technologies also have to train and find ways of motivating their employees to maintain performance standards. And according to a McKinsey survey, 77 percent of employees in the finance industry have expressed the desire to continue working from home, and there have been rapidly changing needs and preferences of consumers seeking more convenient, accessible digital banking solutions.
V. strategies for improving problem areas
A report by PriceWaterhouseCoopers (PwC) advised banking leaders on the strategies to be implemented to release the full potential of the work force in the banking industry. This was in a form of suggestions like daily team engagement practices with good virtuals, exciting healthy habits, and other behavior models, adopting digital apps, focusing on results (instead of inputs), offering direction and support, facilitating problem-solving, and increasing how performance can be observed, among others. This is helpful in the banking sector when it comes to restructuring work (to accommodate remote working) and meeting productivity targets (Setting the Future of Digital and Social Media Marketing Research: Perspectives and Research Propositions, 2021).
Armour (2019) explained how Ceridian HCM in the US introduced a Human-Capital-Management solution that integrates several human resource management components as a single cloud application. A bank using this application employees maintain critical business operations as well as support their welfare, talent, and safety. This technology helps in addressing the hybrid working model – that allows people to work remotely – and to maintain high standards of working and achievement of goals. According to Mckinsey and the company the financial industry is exploring several options to train its employees so that, they can adapt to the new technology by micro-skilling, upskilling, reskilling, and hiring new talented individuals. The digital management of learning, development, health, and performance can help in aligning the worker’s interests to business goals and longer-term plans. This also preserves the bank’s culture and core values wherever the bank is operating, in places where work is being done remotely.
Conclusion
The evidence suggests that the UK banking sector did not suffer huge job losses compared to most sectors during the pandemic simple because they were plans for changing working conditions due to advanced technology but since the employees usually work closely with their customers (facing challenging financial situations), they were affected emotionally and had to change the way they carry out their duties. The demand for workers with skills necessary to operate remotely in banks is increasing and banks are investing their workforce, together with taking opportunities in the IT banking innovations to increase operational efficiency, increase customer and employee experience and remain competitive.
The limitations of this study paper are it was not possible to survey all the workforce in the banking sector, and the results of this study were limited to the small available research studies which were conducted both in the UK and relevant similar destinations. While the information used only provides a snapshot of the actual impact, conclusions are drawn regarding the future impact on the banking sector. More studies can be conducted regarding the economic impact of new entrants to the banking industry, changes in customer behavior, and perceptions towards the introduction of technology in the banking sector. The benefits of getting results to such studies finding solutions to the challenges the banking sector will face in the future regarding managing its workforce, keeping loyal customers, and achieving financial aims.
Reference
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