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April 15, 1997

Federal Reserve Bank of Cleveland

Where Have All the Tellers Gone?
by Ben Craig

Even in the rapidly expanding U.S.
economy, the rising GDP tide has not
been able to lift all boats. Some industries continue to contract as aggregate
production bounds ahead. Other businesses are trimming their payrolls, but
their production levels are picking up.
The latter describes the banking industry, where employment has dropped
considerably in the last decade, yet the
industry as a whole has experienced
strong growth.
ls the loss of banking jobs a bad thing?
Like so many "normative" questions in
economics, the answer depends on how
we respond to an accompanying series
of"positive" questions. 1 Why did so
many banking jobs disappear? Which
occupations were most affected? And
what alternatives were available to those
who had to leave a potentially successful career?
This article describes the employment
picture in the banking industry over the
last decade and examines the nature ofand reasons for-the industry's shrinking payrolls. It also looks at the fate of
those who lost their jobs or decided to
leave. Did they remain unemployed? Did
they find work in other industries? Or did
they leave the labor force altogether? The
answers may help other workers caught
in an industrywide structural change
reduce their costs of adjustment.


ISSN 0428-1276

... Long Time Passing 2

For many years, banking was a haven
for those seeking safe employment. In
some economic textbooks, a bank teller's
job was the archetype of a position with
great security, although the prospects for
wage growth were dim. Banking employment in the post-World War II
period expanded steadily and was relatively insulated from the effects of eco-

nomic downturns. During the recessions
of the 1970s and 1980s, for example,
banks continued to add to their payrolls,
whereas employment in the steel industry
fell more than 25 percent. Banking's
enviable position was mirrored in the
unemployment numbers, with the industry posting rates nearly 40 percent below
the national average during the 1980- 82
recession (see figures 1 and 2).
The 1990 recession was a different story.
After decades of solid growth, banking
employment peaked at 1Yi million in
1989. While the U.S. employment rate
fell 1 percent between 1990 and 1991,
the decline in bankingjobs was much
greater in percentage terms. More important, banking positions continued to vanish, while employment nationwide grew
an average of2.5 percent per year
between 1992 and 1996. By 1996, banking employment had contracted more
than 6 percent from its peak year, and
some analysts are predicting another 20
percent cut by the end of the next decade.
Three reasons are usually given for an
industrywide drop in employment. First,
the demand for an industry's output may
fall, reducing the profitability of maintaining a large workforce. This causes
firms to cut their staff until their existing
labor force becomes more profitable.
The decline in the number of workers
employed in the West Virginia coal fields
in the middle of this century is an excellent example of such a response. Second,
the relative price of substitutes for labor
can decrease, making labor comparatively more expensive. A substitute can
become cheaper than labor because of
technological advances or the discovery
of new supplies. Labor can also become
more expensive (and thus its substitute
relatively less expensive) because of new
institutions, such as labor unions, or


Until recently, U.S. banks were considered a haven from the employment uncertainties that affected
other industries. Now, some analysts
are predicting that as many as
400,000 banking jobs will be lost over
the next decade. This article looks at
the reasons behind this trend and
examines the fate of the job losers.

because the demand for workers in the
rest of the economy picks up. 3 The third
reason for an industrywide drop in employment is a change in industry structure. For instance, when the airlines were
deregulated, they became more competitive and scaled back their workforces. In
addition, consolidation may have eliminated duplicate jobs within the industry.
In the next section, I examine the contribution of each of these factors to banking's dwindling payrolls.

Why Have All
the Tellers Gone?
The first explanation cited above-a
drop in the demand for an industry's
products-does not appear to explain
the layoffs in the banking co=unity.
Although an increasing number of services that were once provided solely by
banks are now offered by other financial
institutions, the demand for banking
services continues to grow. Bank assets
have risen steadily in the last decade,
from less than $2.4 trillion in 1988 to
more than $3 .5 trillion in 1995 (an increase of 15 percent in real terms).4
What's more, the enhanced competition
from outside the industry should induce
banks to boost their payrolls. For example, major corporate clients now seek
alternatives to large bank loans, including new equity or bond issues. Banks

have responded to this trend by making
more loans to smaller businesses. Thus,
the same value in total loans means that
more loans have been extended- and
these require more labor to service.
Clearly, then, banks have not reduced
their staffs because of a diminished
demand for their products.

studies indicate that this approach is
generally better at lowering the number
of bad loans than are the experience and
instinct of most loan officers, meaning
that the trend toward substituting less
expensive, low-skilled workers for
highly skilled professionals will probably continue.

By contrast, there have been numerous
changes in the use of substitutes for banking labor. The most dramatic example is
the explosive growth in automatic teller
machine (ATM) usage. In 1975, fewer
than IO million ATM transactions were
initiated for a total of$! billion. A decade
later, it had become clear that ATMs were
here to stay. In 1985, 3.5 billion transactions were completed for a total of more
than $200 billion. By 1995, those figures
had ballooned to 10 billion transactions
covering $650 billion.

lndustrywide structural changes have
also played a role in the disappearance
of banking jobs. Mergers and acquisitions have dramatically reduced the
number of banks, even as their total assets have skyrocketed. Between 1988
and 1995, total nominal assets (a common measure of bank size) held by
U.S . commercial banks swelled by 49
percent. 7 During the same period, the
number of banks plummeted more than

The result has been a sparsely staffed
modem bank branch that looks much
different from the institutions of20 years
ago. While some people bemoan the loss
of their weekly visits to a friendly teller
who greets them by name, most are
unwilling to pay for this service with
higher fees and a greater time commitment. 5 Instead, they opt for the convenience and cheapness of the ATM.
Although the substitution of automatic
tellers for human ones is the most visible
shift in the way banking is done, it is by
no means the onJy change. Some of the
new technologies have allowed machines
to perform the laborious, repetitive tasks
once done by low-skilled (and often _
low-paid) workers. Electronic scanners
can now quickly and accurately record a
binary check entry that previously had to
be logged in by hand. And improved
bookkeeping programs allow one person
to do the work of many individuals, both
skilled (as in the case of programmers at
the nation's larger banks) and unskilled
(operators of mechanical calculators at
smaller institutions).
New machinery is not the only way a
technological change can help a firm cut
its labor expenses. In the past, loan
applications were evaluated by highly
skilled loan officers using a combination
of data, personal knowledge, and instinct
to reduce the probability of making a
bad loan. Now, most mortgage banks
make "cookie cutter" loans based on the
same formula and bundled together for
resale to the financial markets. Many
banks are also experimenting with new
formulas for evaluating loans. 6 Recent




Millions of persons

Millions of persons



















Obviously, consolidation should have an
effect on employment. When duplicate
departments and offices are shut down,
duplicate tasks are eliminated. Some
mergers also involve the purging of
many middle-management positions. On
the other hand, consolidation could offer
new opportunities for employment. Two
small banks might not have the resources
to support a research department, whereas it may make sense for the merged
institution to do so.
The net effect of consolidation on employment can be seen in the experience
of some bank acquisitions that occurred
between 1984 and 1994. As shown in
table I, acquisitions are often associated
with employment gains. A positive number represents the average percentage increase over a bank's employment in the
quarter just prior to acquisition. Interestingly, employment in both types of
institutions-the acquirer and the target
bank-rose an average of 6 percent in
the three years following takeover.
This is not to suggest that acquisitions
necessarily boost employment. Typically,
both acquirers and targets are growing
banks. Wben all of the other variables are
held constant (bank size, loan composition, prices, and so forth), it appears that
acquisition reduces employment in both
types ofinstitutions.8 However, the
decline is minimal-on the order of 1 to
2 percent. These numbers tend to refute
the image of a bank takeover resulting in
massive layoffs.
The decline in banking employment can
thus be attributed to one factor-a substitution of capital equipment for labor,





SOURCE: U.S. Department of Labor, Bureau of Labor Statistics.

spurred by technological advances
(mostly by larger banks). The net effect of
this shrinkage has been to alter the skill
composition of the banking industry's
labor force. In 1975, professional occupations (those requiring post-secondary
education) made up less than IO percent
of banking's payrolls; by 1995, that figure had nearly doubled. Furthermore,
the educational level of bankers has
undergone a dramatic increase in the
last decade. 9


And Where Have They Gone?

A broader historical perspective may
help us assess the impact of tl1e decline in
banking jobs. Since 1900, many occupations have become less prominent in the
U.S. employment picture. Some, like
blacksmithing, have been forced into the
background because the demand for the
service has fallen off. Otllers, such as
farming, play less of a role because technological progress has made it possible
for tlle same output to be generated by
fewer workers. Still others, like comer
grocers, have been casualties of consolidation. As supermarkets have emerged



(Percent change from quarter
before acquisition)
Number of Quarters
after Acquisition



NOTE: Numbers in black are significant at the 15 percent
SOURCE: Author's calculations.

(Percent of total)

1988-96 1991

Currently employed
in banking
Currently employed outside
banking (total):
Nonbanking FIRE"
Misc. services
Other nonmanufacturing
Looking for work in banking 1.7
Looking for work outside
Out of labor force
a. Finance, insurance, and real estate.
NOTE: Sample size is 11 ,560.
SOURCE: Author's calculations.










and expanded, local grocery stores have
been forced to close their doors and lay
off their workers.
Few people would argue for a long-term
policy of maintaining employment in
these industries just to preserve the status quo. Ultimately, jobs represent a
resource use. In a dynamic economy, it
is always better to use scarce labor
where it gives the most value in the long
run. However, in the short term, a decline in employment imposes costs, particularly on those who are forced to look
elsewhere for work. The magnitude of
these costs can be seen by examining
where the unemployed end up.
While little is known about the general
fate of job losers, some evidence can be

gleaned from the Bureau of Labor Statistics ' March Current Population Survey
(CPS), which queries about 60,000
households on their labor market activities. 10 Our interest lies in the fate of
those persons who answered "banking"
when asked, "In what kind of business
or industry did you work the longest last
year?" If the respondent is no longer
working, or if be/she bas changed industries, we get some idea of the "gross
flows" oflabor out of banking.
Note that gross flows differ from other
possibly useful (but unavailable) numbers. Gross changes do not provide us
with the net movement oflabor out of
banking, since we do not know bow
many people who either were not working or w~re working in another industry
moved into banking. One further note of
caution regarding the gross flow concept:
The survey did not ask, "What kind of
business or industry were you working in
on March 15 of last year?" which might
have given the difference between "snapshots" taken one year apart. Instead, if a
banker became unemployed in May of
the previous year and then became a
lawyer in July, he would not show up
in our sample as having left the banking
industry (because he would not answer
"banking" as the area in which he worked
the .longest last year). Still, gross employment flows tell an interesting tale,
as evidenced in table 2.
First, between 1988 and 1996, the number of people moving out of banking in
a given year was huge-between a fifth
and a quarter of the entire workforce.
This is much larger than the roughly 1
percent annual jobs reduction experienced by the industry in the past decade.
Small net flows of employment out of
banking in a normal year mask the incredible ability of the American economy to accommodate industry changes
by large numbers of workers in the
same year.
Second, only a sixth of those represented
in the gross flows are currently unemployed. Of these individuals, more than
15 percent have been jobless for less
than a week, while more than half have
been without work for 26 weeks or
more. Clearly, few bankers join the
unemployed ranks. But if they do, they
are likely to stay unemployed for a long
time. Ifwe think of the decline in panking employment as imposing economywide adjustment costs, then a few workers are bearing large costs in the form of

long unemployment spells. Interestingly,
most of the displaced bankers are still
seeking work within the industry.
Third, far more bankers exited the labor
force than became unemployed. This
may represent an increase in discouraged workers- those who stopped looking for a job rather than face the frustration of not finding one. On the other
hand, 5 or 6 percent seems well within
the magnitude we might expect for
retirements plus temporary exits from
the workforce (to care for young children, aging parents, and so on).
Finally, most employees who left banking found work in a spectrum of other
industries. The largest employer of exbankers was "miscellaneous services,"
a catch-all for a wide variety of occupations ranging from house cleaning
to skilled financial accounting (fastfood jobs are not included). 11
The major difference between a recession year (1991) and an expansion year
(1996) in the placement of ex-bankers
was that they tended to find work in a
broader number of industries during the
recession. Not surprisingly, more former
bankers were also unemployed when the
economy headed down.
Although gross flows tell us something
about the cost of the decline in banking
employment, they do not reveal the
entire story. We do not know how much
bankers displaced by consolidation
earned in their next job, or whether their
new position was in banking or another
industry. Gross flows also leave us
guessing about bow many middle-aged
managers took early retirement from a
career that may have bad many productive years left.


When Will We Ever Learn?

What the available banking employment
numbers do tell us is something about
the competitive labor market's ability
to adapt to an extremely dynamic environment. This is of great relevance in
determining an appropriate employment
policy. The U.S. labor market has accommodated a period of tremendous
technological and structural changes in
the banking industry by enabling bankers to become more skilled and professional. The share of bankers who find
jobs outside the industry each year now
stands at about 15 percent of the entire
banking workforce.

The proper question, then, is not "How
do we keep from losing jobs in the banking industry," but "How is banking so
able to adapt to its changing environment?" The answer could help policymakers alleviate the adjustment costs
that fall unequally on individuals (in the
form of extended unemployment spells
or reduced earnings) without destroying
this extraordinary flexibility.



1. The answer to a normative question
implies a value judgment about whether one
situation is better than another. A positive
question can be answered with facts alone
because it does not require a value judgment.
2. With apologies to Pete Seeger.

4. See Board of Governors of the Federal
Reserve System, Federal Reserve Bulletin,
August 1997, table 1.26, p. A 15 . (Seasonally
adjusted bank credit for December, various
years .)

5. See Alan Ehrenholt, Th e Lost City, New
York: Basic Books, 1995.

6. See John Gruenstein, " Credit and Mortgage Scoring: Implications for Mortgage
Markets," PM! Mortgage Company,
Chicago, unpublished manuscript, 1997.

7. See Board of Governors of the Federal
Reserve System (footnote 4).

8. See Ben Craig, "The Long-Run Demand
for Labor in Banking," Federal Reserve
Bank of Cleveland, Economic Review, 1997

3. One example of a technological change
making labor relatively expensive is the spinning jenny, which reduced the cost ofusing
machinery instead oflabor to produce the
same output and ultimately resulted in fewer
spinners. An example of new supplies making
labor more expensive is the discovery of the
Arabian oil fields, which lessened the need for
coal shovelers on ships. lncreased union activity may help explain the growing use of laborsaving machinery in auto assembly plants.

Federal Reserve Bank of Cleveland
Research Department
P.O. Box 6387
Cleveland, OH 44101
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the above address.
Material may be reprinted provided that
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ofreprinted materials to the editor.

9. See Rebecca Demsitz, "The Evolving
Business of Banking: Banks' Changing Human Capital Needs," Federal Reserve Bank
of New York, unpublished manuscript, 1997.

10. I am grateful to Mark Schweitzer for providing me with these data. Further interesting
facts about gross employment flows are available in his article, "Workforce Composition
and Earnings lnequality," Federal Reserve

Bank of Cleveland, Economic Review, vol.
33, no. 2 (Quarter 2 1997), pp. 13 - 24.
11 . Some of those finding work in "miscellaneous services" may have been bankers who
were contracted to work for a bank in a nonbank firm. Thus, the data are not detailed
enough to distinguish a person doing the
same consulting job that before would have
been handled by an in-house banker.


Ben Craig is an economist at the Federal
Reserve Bank of Cleveland. The author
thanks Michael B1yan and Mark Schweitzer
for helpful comments and suggestions.
The views stated herein are those of the
author and not necessarily those of the Federal Reserve Bank of Cleveland or of the
Board a/Governors of the Federal Reserve
Economic Commentary is available elect1vnical/y through the Cleveland Fed's site on
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