Now Hiring: How Trends in the Labor Market Impact Accounts Receivable Management

The labor market is a critical area of the economy in general, and the state of the labor market has a multifaceted impact on the accounts receivable management (ARM) industry. Employment levels not only influence how much consumer debt may be available for the industry to service, but also the difficulty ARM companies face in both hiring and retaining their workforce. ARM decision-makers must understand and plan around trends in the labor market if they wish to succeed in this highly competitive industry.

At a basic level, low unemployment is beneficial to ARM firms. When more people are employed, households are more likely to be able to support themselves and wages rise as businesses compete for the remaining unemployed. As a result, consumers’ demand for credit rises; since more people have more disposable income and a greater amount of savings, consumers as a whole are more comfortable taking on debt. As debt levels rise, business opportunities for ARM firms grow in tandem.

That said, high unemployment is not necessarily detrimental to certain segments of the ARM industry. A short-term spike in unemployment caused by a relatively mild recession, for example, could lead to an abundance of bad debt that translates into a greater number of business opportunities for ARM companies specializing in third-party collections. If unemployment persists for too long, however, those unemployed consumers may find their financial situation so tenuous that they are unable to pay back their debts even when placed with a collection agency. An unhealthy labor market benefits no one, not even ARM firms, if it does not recover in due time.

The COVID-19 pandemic offers a unique example of how labor market dynamics can impact the ARM market. The initial months of the pandemic saw the largest increase in the unemployment rate since the government began tracking the figure back in 1948, from 4.4% in March 2020 to 14.8% in April 2020.[1] Normally, such a drastic loss of jobs would send bad debt levels skyrocketing as vast swathes of consumers would struggle to stay current on their debts.

However, bad debt levels actually diminished in 2020 and 2021 for two main reasons.[2] Firstly, government stimulus benefits and forbearance measures for mortgages and student loans meant that consumers had an easier time handling and even paying down their debts. Secondly, businesses were able hire back the employees they’d let go at a relatively quick rate compared to what occurred during the Great Recession. This was largely thanks to support from the government’s Paycheck Protection Program, which provided low-interest, forgivable loans to small businesses to help fund payroll costs and other operational expenses. As a result, many consumers were able to weather the storm of unemployment without sliding into delinquency. This was balanced by consumers’ financial stability, however, which contributed to many ARM companies experiencing improved recovery rates in 2020 and 2021.

The Great Resignation

Going into 2022, the most impactful labor market trend related to ARM is what the media calls “the Great Resignation”. Figure 1 shows the total number of non-agricultural job openings nationally, as well as the total number of quits, adjusted for seasonal trends in the data. People are quitting their jobs at the highest rate on record. Total nonfarm quits totaled 4.5 million in November 2021, an 8.9% increase from the previous month and a 31.9% increase from the pre-pandemic high of 3.4 million in February 2020.

Figure 1. Total Nonfarm Quits and Job Openings, Seasonally Adjusted[3]

Meanwhile, jobs are more abundant than ever. Total nonfarm job openings amounted to a whopping 10.5 million in November, a 50.6% increase from the pre-pandemic high of 7.2 million job openings in February 2020. This illustrates how employers across the economy are struggling to hire workers. ARM companies are no different, with many reporting difficulties in keeping their office(s) fully staffed. For instance, one firm Kaulkin Ginsberg spoke to while compiling the Kaulkin Report 2022 Edition detailed that it is “experiencing employee losses in all offices” and that it has “seen more churn in administrative support than traditional debt recovery roles.”[4]

ARM companies have at their disposal a number of strategies to mitigate the impact of the Great Resignation. One strategy is to raise wages to attract more applicants and keep current employees satisfied, but this can get cost-prohibitive very quickly. Alternatively, ARM firms may leverage digital technologies such as artificial intelligence or self-pay systems to reduce the need for physical employees. While this strategy requires a potentially significant investment, it should reduce costs in the long run.

The labor market is an integral part of our society that impacts all facets of the economy. ARM decision-makers must keep abreast of its fluctuations, lest they be left behind by their highly adaptive peers.

Works Cited

[1] Data retrieved from the Bureau of Labor Statistics’ Current Employment Statistics program.

[2] Kaulkin Ginsberg aggregated data from various governmental and private data sources – including the American Hospital Association, the Census Bureau, the Federal Deposit Insurance Corporation, the New York Federal Reserve Bank, the Treasury Department, and IBISWorld – to measure the total amount of bad debt in the U.S. marketplace.

[3] Data retrieved from the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey.

[4] “The Kaulkin Report, 2022 Edition – Sub-Report: Economic Drivers of Accounts Receivable Management.” Kaulkin Ginsberg, 2021.

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