As a demographic, the aging population rarely gets the attention it deserves. Instead, conventional wisdom sees younger generations as the sole focus of workforce development for achieving business objectives. But this is far from the truth.
Technological advancements are enabling humans today to live longer than ever. According to the World Health Organization, between 2000 and 2016, global average life expectancy increased by 5.5 years to 72. This phenomenal growth in longevity is having a telling impact on various aspects of the economy.
For example, in the U.S., today’s older population is more educated than that of 1965, with 25% holding a bachelor’s degree (as of 2014) compared with only 5% in 1965. Not surprisingly, a growing number of older people are choosing not to retire. This has several implications—not just for government institutions, but for businesses that view this population as employees and/or consumers. At a time when multiple generations of workers are competing for jobs, businesses must rethink how they build and manage their talent pools, particularly as automation and AI increasingly reset how work will be conducted over time.
Part one of this series looks at the impact of the aging workforce and the factors leading businesses to rethink their workforce mix.
Accommodating an aging workforce
Longevity has had its most noticeable impact on workforce participation. According to the Bureau of Labor Statistics, the number of workers aged 55 and above in the U.S. economy grew by 3.5 million from September 2009 to September 2012. By 2020, 25% of the labor force is expected to be 55 and older, up from 20% in 2010 and 12% in 1990.
In the U.S., older people are more likely to take on lower-skilled service jobs such as childcare, cab driving, and retail. But the story is not the same everywhere. In Japan, for example, aging is seen as a major demographic phenomenon with wide-ranging implications, including a labor shortage. In that country, people aged 65 and older climbed to 35.6 million, reaching 28.1% of the population as of 2018. Compounding the shortage is the fact that Japan’s annual birth rate has been in decline for the past few decades. The Japanese government has reacted to this by, among other things, encouraging employment opportunities for older citizens by requiring companies to let employees work until the age 65, if they choose to do so, and embracing robots across service industries such as hospitality and elder care.
Japan’s businesses are responding to this call in innovative ways. Mitsubishi, for example, has established a new company exclusively for employees who have reached retirement age. In their new roles, these employees handle various supporting activities, including building the next generation of the workforce by sharing critical knowledge and experiences.
While this is an early example of a mutually beneficial contract between employers and aging employees, there is a lot more that can be done to tackle the business and economic challenges that come with an aging population. When older employees leave an organization, they take their unique knowledge and experiences with them. Despite all the technological advances in IT, this challenge remains unanswered.
The other big challenge that an aging workforce creates for businesses relates to post-retirement financial planning for employees. In the U.S., for example, only 54% of private- and government-sector workers participate in a workplace retirement plan. Yet a 2018 survey by Willis Towers Watson found that while 83% of businesses had a significant number of employees nearing retirement age, only 53% had a good understanding of when employees would retire.
While Japan’s situation is unique given factors such as its strict immigration policies, the rest of the world is not too far behind. Recent trends of stricter immigration laws and falling birth rates across Europe and in the U.S. paint a similar picture for the developed economies of the future.
Not just old employees
Growth in longevity has meant that the traditional employee lifecycle that begins in workers’ 20s and ends with retirement in their 60s is being upended. In the U.S., employees nearing retirement now outnumber teenagers in the workforce. About a decade from now, millennials in the workforce will start turning 50. As a multi-generational workforce takes shape, it is imperative that businesses start addressing a potential labor shortfall.
However, despite having more than a decade to prepare, very few employers seem prepared to address the challenge of a shrinking talent pool. A 2015 survey by the Society for Human Resource Management, for example, found that only 36% of U.S. businesses were actually reviewing their policies and practices to address the matter, while just 4% had a strategy for retaining older workers.
More disturbingly, this ties into common biases against older workers, preventing them from remaining active in the workforce. These biases are rooted in misperceptions about the attributes of older workers (i.e., being untrainable, unfamiliar with the latest technology, etc.).
Not surprisingly, examples of age discrimination (or ageism) are becoming quite common. Ageist practices, apart from being discriminatory, have major cultural and business implications for the organization. For one, rejecting job applicants because of their limited experience in the modern workplace could potentially prevent an organization from recruiting the right candidate. At a broader level, persistent ageism would preclude younger workers from gaining critical insights and skills amassed by more mature employees, thereby making their learning curve steeper.
Apart from being more experienced, older workers who have been through the grind tend to be more well-rounded in their approach to work. A workforce mix that blends experience of the old with the energy of the young can create distinct benefits.
The future of the workforce is age-diverse
The idea of multi-generational teams working in harmony is not new. And yet, four generations — Baby Boomers, Gen X, Gen Y (millennials), and Gen Z — working as one is unprecedented. This new reality puts to an end the conventional wisdom that older workers should move on while the younger, more energetic generation carries the mantle forward. The multi-generational workforce is here to stay, making it imperative for businesses to start planning their strategies now.
Organizations should tackle the question of what value older employees bring to the business. The answer is likely manifold, and recent research and thinking sheds light on what businesses can expect.
A more engaged generation: A survey by AARP and Aon Hewitt found that 65% of employees aged 55-plus were considered “engaged,” topping younger generations. Improving workforce engagement has a direct link to improved employee retention, productivity and revenue.
Mitigating the skills gap: At a time when intelligent machines are taking over routine tasks, the reality of a skills gap has emerged as a challenge across industries. In this scenario, retraining older employees could prove to be a useful strategy in mitigating the skills shortfall.
Healthier work environment: A multi-generational workforce enables sharing of unique ideas that would be hard to achieve in a more homogeneous environment. A survey by AARP found that seven in ten workers like working with generations other than their own for the skills and knowledge, creativity, perspectives and improved productivity it provides.
Competitive advantage: The advantages an age-diverse workforce brings to a business will be greater than the sum of their parts. Workplace collaboration and generating a sense of belonging is crucial to the success of any business. Workplaces with an age-diverse workforce not only stand to gain from the exchange of ideas on a daily basis, but also to create a distinct advantage over competitors by retaining talent, thus absorbing knowledge that would otherwise be unavailable when older workers retire.
Part 2 will look at the challenges that come with employing an age-diverse workforce and how businesses can respond.