Managing the Aging Workforce

Table of Contents

I List of Abbreviations

II Table of Figures

1 Introduction
1.1 Intention and Structure of the Paper
1.2 Demographic Change and its Impact

2 Challenges Arising from an Aging Workforce
2.1 Competition in Hiring Qualified Personnel
2.2 Pressure for Innovation and Globalization
2.3 Increasing Costs

3 Changing Perspective on Older Workers
3.1 Prejudices and Discrimination of Older Employees
3.2 Appreciation of the Problem and New Vision

4. Activity Fields and Potential Problem Solutions
4.1 Recruitment and Hiring
4.1.1 Low Level of Employment of Older People
4.1.2 Recruitment Behavior of Organizations
4.1.3 Reorientation of the Recruitment Policies
4.2 Training and Development
4.2.1 Productivity and Learning Aptitude of Older Workers
4.2.2 Adequate Training Programs
4.2.3 Lifelong Learning and Employability
4.3 Motivation
4.3.1 Concepts of Motivation
4.3.2 Motivation of Older Employees
4.4 Work Environment and Health
4.4.1 Work Place Design
4.4.2 Work Schedule Design
4.4.3 Workplace Health Promotion

5. ING-DiBa: A Benchmark Example of Age Management

6. Conclusion

III Appendix

IV Bibliography

I List of Abbreviations

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II Table of Figures

Figure 1: Working Population abs. and Age Groups in % in Germany, 2006-2050

Figure 2: Population Pyramids of Germany, 1950, 2005 and 2050

Figure 3: Population Pyramid of Japan, 1950, 2006 and 2050

Figure 4: Comparison of the characteristics of younger and older employees

Figure 5: Activities of the enterprises in East and West Germany relating the employment of older workers

Figure 6: Employment / Population Ration by Age (selected countries, 2006)

Figure 7: Duration of Unemployment According Age Groups

Figure 8: Maslow’s Pyramid of Needs

1 Introduction

The first chapter provides the reader with an overview of the intention and structure of the paper and an insight into the demographic background of the topic.

1.1 Intention and Structure of the Paper

The aim of this paper is to attract attention towards the changing demographic circumstances in developed countries and the impact on the organizations due to the growing portion of elderly at work. It illustrates why companies need to adapt their business strategies to the aging workforce and how they can utilize this group better and longer. The main focus is on Germany as a representation for all other countries.

As a starting point the challenges that arise from the changing labor market situation are exposed. The necessary change of mind-set regarding older people in organizations resulting from the aging workforce trend is discussed in the next part of the paper. Afterwards four selected activity fields, that influence the success of managing the aging workforce immensely, are elaborated together with proposals how to handle the different issues in the fields. In the following part of the paper a benchmark example from a successfully realized activity that helps to manage the aging workforce supports the need for organizations to react to the current labor market trend and present ideas on the real life implementation. This example is followed by the conclusion.

1.2 Demographic Change and its Impact

The trends of decreasing birth rates as consequences of increasing number of working women, increasing life expectancy and the baby-boom generation with view offspring born between 1946 and 1964 have their origin in better medical treatment, higher quality of nourishments and the introduction of more and better contraceptives. This trends lead to a significant change in the age structure in most industrialized countries in the mid- to long-term.^[1] The age pyramid of Germany describes a clear picture: It transforms from a classical pyramid over a fir tree form to a fungal shape (compare appendix III.1). This means that the portion of elderly increases whereas at the same time the number of young people declines. The same trend can also be seen in many other industrialized countries, for example Japan (compare appendix III.2).

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Figure 1: Working Population abs. and Age Groups in % in Germany, 2006-2050^[2]

The demographic trend also implies changes in the labor force. Figure 1 shows the development of the working population in Germany until 2050. One can see that the overall amount on workforce will drop by 22 per cent from 50 million to 39.1 million people in 2050. At the same time the age groups shift in the upper direction. The rate of the older labor force between the age 50 and 65 will increase by 8 per cent points. Simultaneously the mid-age portion between 30 and 49 years will decrease by almost the same amount (7.5 per cent points). The percentage of young workers won’t change a lot but the absolute numbers will also decline significantly. This reflects a shortage of potential junior staff manager and a movement of the core staff to the group of workers aged 50 and above. The average age of the personnel will go up from 40.5 years in 2004 to 55 years in 2050 and the fraction of staff aged 60 and above will rise.^[3]

This trend is not exclusively true for Germany, it occurs in almost all industrialized countries. In Japan the number of people in the working age 55 to 64 will grow by 13 per cent by 2010, in Spain by 16 per cent, in U.K. by 22 per cent and in U.S. by a whopping 48 per cent.^[4]

According to this data and the outstanding retirement wave of the baby boomers the labor force structure will change significantly in the near future. Companies need to react to the important issue of the aging workforce to stay competitive and they have to change their strategies of juvenescence and early retirement.

2 Challenges Arising from an Aging Workforce

Due to the change in the working population many challenges will come up to companies and organizations. In this part of the paper the three most important and globally appearing challenges are presented.

2.1 Competition in Hiring Qualified Personnel

The demographic change will impact the number of new labor market entrants as well as the number of qualified personnel. According to the Organisation for Economic Co-Operation and Development (OECD) the number of labor market exits among workers aged 50 plus across the OECD member countries^[5] could raise from around 8.5 million per year during 2000 and 2005 to around 12 million per year during 2025 and 2030. In the same period of time the annual number of new labor market entrants aged younger than 30 will decline from around 12.9 million to 11.9 million. It is estimated that the number of people retiring will exceed the number of labor market entrants in Europe by the year 2015.^[6] Another significant reason for declining numbers of qualified people is the low labor participation rate of people aged 50 plus. In 2004 less than 60 per cent of this age cohort participated in the labor market in Germany. The same is true for France and Spain. In Italy the rate was less than 45 per cent.^[7]

This gap resulting from the aging society will increase the war for talents, especially for those with higher education and experience. The competition for knowledge workers will increase on country and industry level. Enterprises need to think forward and establish new practices to avoid experience and skill shortages. Recruitment strategies need to be changed and adapt to the different circumstances, retention policies must be focused, the work force composition need to be planned in the long-term and solutions for retirement must be innovated.^[8]

2.2 Pressure for Innovation and Globalization

Since the mid-1990s the main focus in the world shifted from an industrial economy towards an innovation economy with knowledge-networks and high education requirements. The speed of relaunching products, innovative developments, information exchange, and market-entry increases continuously and dramatically due to advanced communication technologies and global knowledge-networks. The increasing proportion of the older workforce generates a big challenge to maintain and expand innovation capacity in companies.^[9] Older people often have problems adapting to new situations. Their cognitive capabilities are based on practical or experience intelligence. Their ability to digest new information and think abstract is relatively low compared to younger workers. Therefore the acquisition of innovative products, operations, and qualifications is limited.^[10]

The changing mode of economy also implies a high pressure for globalization. The world is becoming one big market place and subsidies and customers of a company around the globe are becoming usual. Flexibility and the willingness to travel around are required nowadays for many employees or applicants on a job. But enterprises need to recognize that older employees with family are not willing to leave their relatives alone very often and that they also have obligations that limit them in their flexibility. Firms must find ways and strategies to overcome these problems to stay competitive and successful.

2.3 Increasing Costs

The retirement wave that is outstanding in the near future due to the baby boom generation in combination with the increasing costs of recruiting skilled and qualified personnel will lead to a big financial challenge for enterprises. The imbalance on the labor market will result in large adjustment costs for employers in terms of managing the huge number of retirements and the war for high-level, knowledgeable, and innovative labor forces at the same time.^[11]

Another cause of escalating costs is additional investment required by an aging workforce in different company facilities, workplace design, appropriate technical support, and financial efforts for retention. Furthermore health programs, further and adapted training and development programs and motivation incentives mean an immense financial burden for any company that plans the right types of strategies and operational tools to remain competitive and successful. It also requires a new mindset for companies.^[12]

Especially in Germany the compensation is often linked to the age of the employees. With an increasing proportion of elderly in the companies and the maintenance of antiquated forms of compensation the personnel costs will increase with an aging workforce. Managers need to react. The payroll system need to be reworked and the performance characteristics must be focused instead of the age of an employee.^[13]

3 Changing Perspective on Older Workers

There are many challenges resulting from the aging workforce. To manage these challenges tools and strategies are not enough. The mindset of employers and the company culture must be changed accordingly as the very first step.

3.1 Prejudices and Discrimination of Older Employees

“Older workers are more likely to have work-related injuries. Older adults avoid new approaches or new technologies. Older workers are less productive. Older workers relate poorly to customers. Older workers are inflexible. Most older adults have poor health. Older workers have less education.”^[14]

The list of myths about elderly could be continued infinitely. In almost all companies workers aged 50 plus have to face those outdated attitudes, stereotypes and prejudices. They are discriminated and victims of biases. Their age is a knockout criterion in many branches and enterprises. Older employees are often dismissed as problem group out of hand. This phenomenon can even be find as “ageism” in dictionaries. These biased opinions must be cleared out preparative to be able to manage the aging workforce successfully in the future and stay competitive in the times of demographic changes.^[15]

According a survey of the research institute Betriebliche Bildung in Nuremberg elderly are able to manage difficult situations through their routine and experience as well as younger people with an up to date knowledge and education. Thus the supposed deficit of older workers disappears and is not valid anymore.^[16] Furthermore an establishment panel of the Institut für Arbeitsmarkt- und Berufsforschung (IAB), Germany found out that characteristics like working morale, working discipline, quality consciousness and experience are very important for German enterprises. And those characteristics are especially ascribed to elderly (compare appendix III.3). Therefore the prejudices and discrimination of older workers lose their validity and authenticity.^[17]

3.2 Appreciation of the Problem and New Vision

But for all the statistic data for the future development in the demographic environment most organization are still not aware of the problem and challenges of the aging workforce. Out of all enterprises in the establishment panel of the IAB mentioned above, only three per cent on average in East Germany and four per cent in West Germany see excessive aging of the economically active population as a human resource problem in their organizations. It seems that at this point in time for many companies the aging workforce is not a relevant topic for their long-term strategic planning.^[18] Times are changing and if not in the next two to five years, it is safe to say that in the mid- to long-term all enterprises will face the problem of the aging workforce. There must be an alteration in the mindset and behavior of enterprises. It has to become clear that the required actions to manage an aging workforce are not the intentions of politicians but a meaningful long-term strategy for the health of the company. To implement those actions successfully in all scopes of a firm the commitment of the management is necessary foremost.^[19]

Companies need to keep hold of their older employees in the future. Policies and strategies of using elderly as reserve to react flexible on environmental changes and frame the staff reduction “socially acceptable” due to early retirement and non-replacement of older workers are antiquated and not sustainable.^[20] There must be a new vision on employees aged 50 plus. The workforce has to be seen as investment in the future rather than just costs. It is not enough to react on the problem when it occurs, strategies for age management must be worked out right now. A change in the paradigms according elderly must occur. The chances and benefits of older employees must be examined rather than ways to get rid of them. Organizations have to generate a climate of cooperation and empathy. Workers aged 50 plus must be actively integrated in the strategies of enterprises; their potentials must be used successfully. Absolutely new perspectives will arise from an adequate age management with great changes for organizations.^[21]

4. Activity Fields and Potential Problem Solutions

Though enabling a new managerial mindset is the very first and absolutely necessary step towards a successful age management, strategies, plans, and activities are just as important for the implementation of the required changes in an organization. According the establishment panel of the IAB only 18 per cent of the companies in East Germany and 20 per cent in West Germany performed actions relating the employment of mature employees in 2002. Semi-retirement was stated most as such an activity for older employees (compare appendix III.4)^[22], but semi-retirement is mostly used for advanced redundancy of elderly than for increasing the activity level of older employees in practice^[23].

Not only German companies missed to prepare activities regarding the management of an aging population. Also U.S. companies have done little to manage the outstanding aging of the work force. However, as the impact on each branch and business is very different, the labor force projections must not be seen too generalized. Companies need to analyze their own employee data to be able to take appropriate actions, rather than to under- or over-react.^[24] In the following part of the paper selected activity fields in the age management are described and possible solutions to manage those fields are provided.

4.1 Recruitment and Hiring

The first activity field describes the problems and chances in hiring mature employees. It also explains the particularities in recruiting older people and suggests several ideas for a successful recruitment strategy. A short outlook on the employment situation of older people will give an insight in this problem field. This provides an understanding of the problematic situation on the labor market at the moment and how the demographic change will worsen the situation in the future.

4.1.1 Low Level of Employment of Older People

According to a published essay from December 19th, 2007 only about 50 per cent of the total population of men aged 55 were employed in Germany in 2004. This number decreases continuously in older ages, especially with the age 63. The labor force participation rate of the 64 years old men in Germany amounted only five per cent in 2004. Comparing the standard retirement age of 65 years of the German statutory pension scheme, this figure is extremely low. The same trend is true for female employees. The proportion of women at work aged 59 to 60 was lower than 20 per cent. The infinitesimal proportion of female employees aged 64 was three per cent in West Germany and only one per cent in East Germany.^[25]

This problem of low labor force participation rate of mature employees is not exclusively true for Germany. In almost all industrialized countries the employment / population ratio in the age group 55 to 64 is only little higher than 50 per cent. Yet in Germany the rate is at lowest level and even below 50 per cent (compare appendix III.5).^[26]

[...]

^[1] cf. Bruch H. / Kunze F.: Management einer Aging Workforce, In: Zeitschrift Führung + Organisation, vol. 76, 2007, no. 2, p. 72-77

^[2] Source: German Statistic Office (Ed.): 11th coordinated Population Projection, Variant 1-W2, „Online on the web“, http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/DE/Presse/pk/2006/Bevoel kerungsentwicklung/Annahmen__und__Ergebnisse,property=file.pdf, query from November 28th, 2007

^[3] cf. Wagner, D.: Alter und Entgelt entkoppeln, In: PERSONAL, 2007, no. 3, p. 6-8

^[4] Source: U.S. Census Bureau (Ed.): IDB Data – IDB Aggregation – Table 094, “Online on the web”, http://www.census.gov/ipc/www/idb/tables.html, query from November 29th, 2007

^[5] The 30 member countries of the OECD are: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherland, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States. OECD: About OECD, “Online on the web”, http://www. oecd.org /pages/0,3417,en_36734052_36761800_1_1_1_1_1,00.html, query from December 11th, 2007

^[6] cf. OECD: Live Longer, Work Longer, OECD Publishing, Paris 2006, pp. 23ff.

^[7] cf. ibidem, p. 29, fig. 2.1.

^[8] cf. Leipold / Voelpel: Managing the Aging Workforce, Publicis Corporate Publishing and Wiley-VCH-Verlag, Erlangen 2007, pp. 24f.

^[9] cf. ibidem, p. 26

^[10] cf. Kanfer, R. / Ackermann, P.: Aging, adult development, and work motivation, In: Academy of Management Review, no. 29, 2004, p. 440-458

^[11] cf. OECD: Live Longer, Work Longer, 2006, p. 24

^[12] cf. Leipold / Voelpel: Managing the Aging Workforce, 2007, p. 26

^[13] cf. Wagner, D.: Alter und Entgelt entkoppeln, In: PERSONAL, no. 03, 2007, p. 6-8

^[14] Leipold M. / Voelpel S.: Managing the Aging Workforce, 2007, table on pp. 91 ff.

^[15] cf. Pett, J.: Auf der Jagd nach Erfahrung, In: personalmagazin, no. 11, 2006, p. 24-25

^[16] cf. Lindemann, M.: Beschäftigung neu denken. Die Zukunft meistern mit alternden Belegschaften, In: Loebe, H. / Severing, E. (Ed.): Wettbewerbsfähig mit alternden Belegschaften, W. Bertelsmann Verlag, Bielefeld 2005, p. 13-17

^[17] cf. SÖSTRA: IAB-Betriebspanel Ost – Ergebnisse der siebten Welle 2002 -, „Online on the web“, http://doku.iab.de/betriebspanel/2003/panel_ost_2002.pdf, query from December 22nd, 2007, p.62

^[18] cf. ibidem, p. 57

^[19] cf. Pett, J.: Auf der Jagd nach Erfahrung, In: personalmagazin, no. 11, 2006, p. 24-25

^[20] cf. Wächter, H. / Sallet, D.: Handlungsoptionen für die Personalpolitik angesichts des demographischen Wandels, In: Wächter, H. / Sallet, D. (Ed.): Personalpolitik bei alternder Belegschaft, Rainer Hampp Verlag, München and Mering 2006, p. 3-10

^[21] cf. Morschhäuser M. / et al.: Erfolgreich mit älteren Arbeitnehmern, Bertelsmann Stiftung, Gütersloh 2005, pp. 21f.

^[22] cf. SÖSTRA : IAB-Betriebspanel Ost – Ergebnisse der siebten Welle 2002 -, „Online on the web“, http://doku.iab.de/betriebspanel/2003/panel_ost_2002.pdf, query from December 22nd, 2007, p. 67

^[23] cf. Kistler, E.: Ein pfleglicher Umgang mit den Humanressourcen tut Not!, In: Loebe, H. / Severing, E. (Ed.): Wettbewerbsfähig mit alternden Belegschaften, W. Bertelsmann Verlag, Bielefeld 2005, p. 25-38

^[24] cf. The Conference Board: Press Release / News, Reinventing An Aging Workforce from a Negative to a Strategic Business Opportunity, “Online on the web”, http://www.conference-board.org/utilities/pressDetail. cfm?press_ID=3284 from December 13th, 2007, query from December 24th, 2007

^[25] cf. Hirschenauer, F.: Arbeiten bis 65 – längst noch nicht die Regel, In: IAB Kurzbericht, Edition Nr. 25 from December 19th, 2007, p. 3

^[26] Source: OECD: Directorate for Employment, Labour and Social Affairs, “Online on the web”, http://www.oecd.org/document/15/0,3343,en_2649_39023495_38938959_1_1_1_1,00.html, query from December 25th, 2007