Age Works What Corporate America Must Do to Survive the Graying of the Workforce
By Beverly Goldberg
Free Press Copyright © 2002 Beverly Goldberg
All right reserved. ISBN: 0743242610
America is facing a critical shortage of workers, especially skilled workers. In March 1999, unemployment in the United States fell to 4.2 percent. In Massachusetts, it was 3.3 percent; in Nebraska, 2.2 percent. It remained higher in states with very large cities -- areas with large immigrant populations, high welfare rates, and poorly performing school districts where many citizens of working age do not have the skills needed to do the jobs that are available -- and in some rural areas, such as Appalachia, where few industries are located.
Today, our economy can best be described as a knowledge economy, one in which education and skills matter more than ever before. This emphasis on skills is evident when the unemployment rate is broken down by educational level. In March 1999, unemployment among those without a high school diploma was 6.1 percent; high school graduates with no additional training had an unemployment rate of 3.4 percent; 2.8 percent of those with some college in addition to a high school diploma were unemployed; but only 1.9 percent of those with college degrees were unemployed.
The shortage of workers, particularly skilled workers, cannot be ignored. As long as the economy remains strong, the current worker drought will continue. Moreover, if the demand for America's goods and services were to increase, many companies would be hard-pressed to take advantage of the situation. On the other hand, if the economy weakens, the situation will ease -- but it will be only a temporary reprieve. The problem of finding enough workers to ensure corporate success and a strong economy will strike with unprecedented force in the second decade of this new millennium when the baby boomers, the seventy-six million people born between the close of World War II and 1964, begin to retire. The most problematic possibility is a continued strong economy that collides with the retirement of the baby boomers. That scenario would mean an economic catastrophe.
The generation that will replace the boomers, born between 1965 and 1983, is smaller, numbering only sixty-six million. What may make the problem even worse is that so many Americans are choosing not to wait until they reach sixty-five to retire: 60 percent of workers currently retire at sixty-two -- a pattern that shows little sign of changing.
The painful fact is that labor force participation by those over fifty-five will have to increase by about 25 percent to maintain a constant total employment-to-population ratio from 2005 onward. This means that corporations will have to do something to attract and retain millions of older workers if they are to survive this demographic shock wave.
The greatest obstacle facing corporate America when it comes to retaining workers is the anger and frustration that so many people feel toward the world of work today, especially toward large corporations. The road these corporations took to survive in a globalized, highly competitive, technologically advanced world is paved with the shattered hopes and dreams of those caught in the corporate restructurings that began in the late 1980s. Those who were "downsized" often took months if not years to find new jobs, frequently at lower pay, and they want to leave the workforce as soon as possible. So do those working ever-longer hours to do their jobs in lean organizations. And so do those who, simply to survive, took jobs that do not offer opportunities for advancement or demand anything in the way of initiative or creative input -- a far cry from their initial expectations.
Younger workers do not provide a solution to the problem, for they have taken to heart the lesson that there is no such thing as corporate loyalty in return for sacrifice. These younger workers do not find working for large corporations attractive. They much prefer working for smaller companies, or better yet, working independently. Even if the younger generation were attracted to large companies, there still would be too few of them to fill all the available positions. Thus, corporate America will be forced to create a work environment that will turn a graying, disillusioned workforce into eager workers.
This challenge is enormous. Between 1970 and 1990, workforce participation among those over fifty-five fell by nearly 20 percent, costing the American economy roughly 2.6 percent per year of the gross national product. If participation rates do not rise in the coming decades, the consequences could be even more severe. Averting that danger will require expenditures in the name of fairness, in essence the creation of a new social contract between employers and employees. Organizations that seek to survive and prosper will have to learn to think out-of-the-box to win the coming competition for workers.
The Day of Reckoning Is Approaching
Given the tight labor market as the twentieth century drew to a close, the talk around the water coolers in offices across America should have changed dramatically. Instead of the sad comments so common in the midst of the huge downsizings of the late 1980s and early 1990s about, for example, "Poor Joe from accounting -- three months and he hasn't even been called for an interview," the comments should have changed to "We can't find anyone to fill that job in accounting."
That is not the way it happened. Joe's old job simply disappeared. Business process reengineering and technology eliminated the need for most of the people with Joe's skills. Now, the talk around the water cooler is both "Poor Joe from purchasing -- three months and he hasn't even been called for an interview" and "How are we ever going to find someone with experience with that design application who can also manage a team?"
The economic growth and prosperity of the late 1990s resulted in the lowest unemployment rates in a quarter of a century, and when it came to literate, skilled employees, the numbers dropped even more. In Silicon Valley in 1999, finding skilled workers was so difficult that the major companies in the area appealed to Congress for the second year in a row to open America's doors to more foreigners with technology skills; they argued that it was the only way to make up a shortfall of more than 150,000 jobs requiring such advanced skills.
At the same time that unemployment was reaching these new lows, Joe and hundreds of thousands like him couldn't find jobs that matched their training and skills. They dropped out of the labor market or settled for less skilled work just to pay the rent. And while employers were complaining about how hard it was to find employees, corporations were continuing to announce ever more massive layoffs. In the first four months of 1998, planned layoffs hit a ten-year high of almost 188,000; for the first four months of 1999, 264,920 planned layoffs were announced -- and the trend shows no sign of abating.
This churning is not a reflection of capriciousness on the part of companies. They are engaged in a battle for a competitive edge in a difficult global environment. However, the more profitable a company is, the more its stockholders and CEO are the only big winners, the more the resentment grows. It does not matter that many of these layoffs are the result of companies reducing staff size as they combine various departments in the course of mergers and acquisitions (a revival of the mergers and acquisitions fever of the 1980s). Or that they are the result of companies turning to new, more efficient methods of production that require fewer people and people with different, usually new, skills. Or that new jobs are being created in smaller companies set up to handle the work these large organizations decide to outsource because doing so is less expensive.
The problem lies in the fact that the losers so often seem to be the loyal, caring employees who thought their lives were on a comfortable track. They believed there was an implicit social contract in place whereby the companies to which they had devoted their working lives would return that loyalty with employment. But Joe wasn't offered training for one of the new jobs that opened up a few months after he left.
Many downsized employees find work with start-ups, but these firms pay far less than large corporations and rarely provide benefits. Others find themselves back at their old companies as "independent contractors," earning less than before and with no benefits. Some, downsized for the second or third time, simply drop out of the labor market and attempt to make it through to retirement on savings or a spouse's earnings or try to set up a small business to tide themselves over until they can collect a pension.
The real reason that "poor Joe from accounting" -- or from purchasing or from a variety of other positions -- doesn't find a new job even though companies are desperate for workers is the constant adoption of ever-newer technologies. It is easier to find young people with the skills to use the new technologies that now produce the results Joe did than to retrain Joe; not only does this save retraining costs, but these new entry-level workers do not earn as much as workers who have acquired seniority.
These developments have had a costly result. Older workers are discouraged and disillusioned. Younger workers have heard the message that businesses, especially large corporations, do not care about workers. What will these organizations have to do to find and attract the workers they will so desperately need? Furthermore, how can they ensure that those workers will have the skills they need, when they need them?
The current economic boom offers companies an opportunity to come to terms with the problem of creating a workforce that will fill their needs as the enormous baby-boom generation retires. Doing so requires more than developing programs aimed at helping integrate older workers into the workforce. The far smaller generation that follows the boomers does not share the feelings about work that nourished the growth of large corporations in the 1950s. Unlike their predecessors, they will work hard and learn what they must to do the best job possible, but they do not feel that the company they work for is owed the kind of loyalty and sacrifice that is owed to family. They realize that employability is the key to survival, so they choose work that offers training and growth -- often with smaller companies -- knowing they will move to a number of different companies in the course of their careers.
The crux of the problem is the combination of the boomers' retirement from the workforce and the kinds of work life preferred by the generation that will replace them, as well as the smaller size of that generation. Will corporate America recognize the problem in time to build the kind of workplace -- one that provides employees with a work life that echoes the flexible organizational structures built by corporations over the past decade -- that will be necessary to attract and retain enough workers to survive and even take advantage of opportunities for growth in the next decades?
Some companies affected by worker shortages in the tight labor markets of the late 1990s have begun to move in this direction. Some have been instituting worksharing arrangements and developing phased retirement programs. Others have been seeking new ways to retain or even recruit retired or retiring employees. For example, Whirlpool Corp. and GTE Corp. have hired retired workers to fill short-term assignments abroad rather than relocate younger workers who are hard to replace and who would resist the disruptions to their families caused by such months-long moves. Florida-based Home Shopping Network fills positions for its peak periods with seniors recruited from nearby retirement communities. McDonald's has developed programs designed to recruit seniors -- and not just for jobs as hamburger flippers; it also has a managerial program aimed at seniors. The problem is that for every company finding new ways to recruit and retain the workers they need, there are far too many that have buried their heads in the sand.
Moreover, the major public and media focus on the baby boomers centers on what their aging means for the Social Security system, which provides most of the elderly with a good portion of their retirement incomes, rather than on the effects of the coming labor shortage on business. The problem in the context of Social Security is how the far smaller population of workers of the next several decades will be able to continue to support the Social Security system as the ratio of workers to retirees becomes ever smaller. The truth of the matter is that fixing the system is not a problem when the economy is strong. The problem is rather how to ensure that there will be enough workers to keep the economy strong when the boomers retire.
There are factors at work that may blunt the trend toward early retirement. First, there is the failure of Americans to save adequately for retirement, combined with their longer life spans. Estimates are that most boomers now in their forties and fifties have saved only a third of what they will need to supplement their Social Security in retirement. At the same time, the pensions that previous generations depended on for retirement have to a large extent disappeared, as has longtime service with a single company and union membership.
Add to this mixture the fact that older people are far healthier than those in comparable age groups a decade ago; today's sixty- to seventy-year-olds are as healthy as fifty-five- to sixty-five-year-olds were then. A growing number of seniors choose to retire to the snowbelt so they can ski in winter, and many seniors continue to volunteer long hours because they love what they do.
Older workers are also more employable than they used to be because three-quarters of the jobs in this nation today are in the service sector rather than manufacturing, a shift as profound as the switch from farming to manufacturing a century ago. Service-sector and knowledge-based jobs are less physically demanding; they are more like academic positions and the law, fields where people work well into their seventies and even eighties.
Now look at the corporation today -- an organization reshaped and restructured in response to technological advances, increased competition, and globalization of the economy. Corporations pride themselves on having become learning organizations, flexible and responsive to market demands. They change what they do and how they do it whenever such change will provide them with a competitive advantage. In fact, it is this ability to change that has caused so much unhappiness among workers. Yet, flexible as they are in terms of their structure, these organizations have not figured out how to make a flexible workforce an integral part of the way they work. They are still mired in the old model of work when it comes to employees.
Creating a New Path
Future success will depend on the ability of employers to attract the best and brightest from the many different groups that comprise the workforce. Among those groups are "older" workers, and if employers take the time to study older workers instead of thinking of them as a last resort, they will discover that older workers are not a homogeneous group; they differ from one another enormously when it comes to abilities, desires, and needs. Some older workers are at a senior level and could serve their former employers well as consultants. Some could pass along experience and knowledge to younger workers. Others have skills no longer in demand but knowledge of the institution and how it works that would make them valuable in other jobs. Older workers are trainable: the explosion in the number of older people attending our nation's colleges and universities is evidence of that.
Depending on their needs, both financial and personal, these older employees might want to work part-time, full-time, sporadically, or not at all. Some have far more stamina than others. Some want to retire to do something other than what they have spent their working lives doing; for example, many who retire with adequate resources are determined to do something in their later years that they see as "giving back" to the world, "making a difference." Others are just tired of what they have been doing and hope retirement will provide "something new."
Turning to older workers as a solution for tight labor markets is made more difficult by the misperceptions so many have about them. For example, older employees are often considered resistant when it comes to instituting changes, adopting new technologies, and sparking innovation and creativity. Generational differences in values and beliefs also create misunderstandings. In the end, getting the most out of older workers requires finding new ways of managing. But it can be done -- and done very successfully.
Over the next fifteen to twenty years, employers are going to have to deal with a workforce in which one out of five -- and then one out of four -- employees is going to be over fifty-five. Adding a group of still older workers to their numbers -- those who would otherwise choose to retire early -- will not make a major difference to the adjustments that will be needed simply because the population itself is aging. The size of the baby-boom generation and the media focus on it over the years has made that generation the face of America as it has moved through each stage of the life cycle -- and that shows no sign of changing.
The question really is, What will it take to make the transition to an older workforce as fruitful as possible for older workers, corporate America, and society?
First, corporate leaders will have to accept that there is a real problem. Human resource professionals are becoming increasingly aware that the difficulties they are having with recruitment and retention because of current tight labor markets may not disappear. The major associations of human resource professionals have begun, as part of their long-term examinations of issues such as retirement planning and benefit packages, to point to demographic projections as a warning that recruitment and retention will remain the largest problem facing the profession for decades to come.
Corporate leadership does not seem ready to face this issue for a number of reasons. First, many of these leaders are themselves a part of an older generation and plan to retire soon themselves. For somewhat younger leaders, since it is an issue that will not affect their organizations for more than a decade -- the official retirement age of the first of the boomers is 2011 -- they stand to gain more by focusing on more immediate problems, those that will affect profits in the short term. Others assume that the problem will be solved by technological advances, which will further increase productivity and efficiency, making possible ever-smaller workforces. After all, the lesson of the past decade has been that the work gets done and profits soar the more you downsize; someone picks up the slack, whether it is retained workers willing to put in ever-longer hours, outsourcers, contingent workers, or temps. Others just don't believe that older workers are valuable. Their prejudices are many -- older workers hurt the corporate image, are slow to accept change, don't have the stamina or strength of younger workers, aren't as productive.
Second, those thinking about retiring early must be brought to face the realities of retirement. In particular, they need to understand that if they retire as early as they indicate they want to, they may spend two decades in retirement, which will have adverse effects on their ability to pay for the kind of retirement they now envision for themselves. They also need to examine the differences between retirement from hard physical labor to leisure and retiring from stimulating, creative work. How do they really want to spend the last quarter of their lives?
The graying of America (and the rest of the world) seems statistically inevitable, and this reality will affect the economy and the workforce in numerous ways. The percentage of older people in the population is increasing dramatically and will continue to do so for decades as a result of the baby boom, increased life expectancy, and falling fertility rates. In 1790, the median age in America was 16; in 1890, it was 21; in 1990, it was 33; in 2040, it will be almost 39. These changes are reflected in the composition of the workforce. The median age of Americans in the workforce (which is higher than the median age of the overall population because of the number of nonworking youth) will reach 40 in 2005; in 1979, it was 34.7. Moreover, starting in 2011, when the first of the boomers start to retire, half of all prime-age workers will be over 45. The ways that business adjusts to this change will have an enormous impact on all our futures. The other important set of numbers involves retirement, including life expectancy rates, income expectations in retirement, and plans for retirement lifestyles.
Once the problem is clear, the solution becomes clear: Making changes that will convince older Americans to participate longer in the workforce. Doing that, however, will require developing a deep understanding of the forces that have been pushing people out of the workforce -- the disillusion created by downsizing and displacement, the push toward retirement as a way of life that began in the 1950s and peaked in the 1970s, and the attitudes toward older workers that discourage continued effort, and even participation. With that understanding, and a study of successful efforts already under way in some corporations, we can begin to shape a new social contract that will encourage people once again to consider large corporations good places to work.
The most important group of workers when it comes to the near future are the baby boomers. When and how they choose to retire from work will determine what retirement looks like in the first half of the twenty-first century, and that will determine the size of the available workforce. Indeed, the only certainty about the aging of the baby boomers is that it will shake the economy to its foundations if American businesses do not prepare for it. Predicting exactly what difference it will make is an uncertain art at best. Therefore, what firms need to do first is find ways to overcome the resentment they have created as they took action to increase their competitiveness in a globalized economy. Then they must put in place strategies and programs that can turn silver into gold.
Excerpted from Age Works by Beverly Goldberg Copyright © 2002 by Beverly Goldberg. Excerpted by permission.
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