Minimum wage increases may buoy nearshore and offshore BPOs

by Michael Riek
Practice Leader at Charles Aris Inc.

The impacts of rising minimum wages in the United States are hard to predict and might be quite different for Business Process Outsourcing (BPO) firms and internal or “captive” contact centers.

As wages rise in pockets of the country, several things may occur. Organizations with internal contact centers will perhaps be more apt to reduce their workforce to maintain profits and rely more heavily on outsourcing as a means to provide the same level of service.

Most domestic contact centers (BPO and internal alike) are already paying well above the federal minimum wage of $7.25 for covered nonexempt employees, as do organizations in most other industries. Unfortunately, hourly wage growth in the United States has lagged inflation for decades. So today’s wages hold about the same spending power as they did 40 years ago.

As a result, numerous municipalities and states are taking the lead with significant increases in minimum wages, and there is a real national push to dramatically increase the federal minimum wage. In 2019, the U.S. House of Representatives controlled by Democrats voted to increase the federal minimum wage to $15 per hour. That bill was quickly squashed in the Republican controlled Senate despite the fact that there is a general consensus on both sides that a minimum wage hike is long overdue. As minimum wage legislation works its way through the overall economy and job market, contact centers in the United States will surely have to increase wages to attract and retain the best talent.

Domestic BPO contact centers will also be impacted by minimum wage increases. The most likely outcomes in the United States: increased rates to clients for onshore programs; reductions in the number of workers and BPO facilities; and an expansion of services offered nearshore and offshore.

Many clients prefer that their customers are serviced domestically. So if their organizations aren’t prepared to pay a higher rate to domestic contact centers, a culturally aligned and strong English-speaking outsourcing solution may make the most sense. This could mean significant growth in the Caribbean, Central and South America, and the Philippines.

It is hard to predict how large a federal minimum wage increase will be, when it will happen, or the overall impact on the contact center industry, but a logical outcome is that the overall contact center market will shift to lower-wage markets.

As always, I welcome your comments and insights at michael.riek@charlesaris.com.