Marion  Warmuth Managing the Aging Workforce  

Table of Contents

I  List of Abbreviations  II

II  Table of Figures.  II

1  Introduction  1

1.1  Intention and Structure of the Paper.  1

1.2  Demographic Change and its Impact  1

2  Challenges Arising from an Aging Workforce  3

2.1  Competition in Hiring Qualified Personnel  3

2.2  Pressure for Innovation and Globalization.  4

2.3  Increasing Costs  4

3  Changing Perspective on Older Workers  5

3.1  Prejudices and Discrimination of Older Employees  5

3.2  Appreciation of the Problem and New Vision.  6

4.  Activity Fields and Potential Problem Solutions.  7

4.1  Recruitment and Hiring  7

4.1.1  Low Level of Employment of Older People.  8

4.1.2  Recruitment Behavior of Organizations  8

4.1.3  Reorientation of the Recruitment Policies.  9

4.2  Training and Development.  11

4.2.1  Productivity and Learning Aptitude of Older Workers  11

4.2.2  Adequate Training Programs  13

4.2.3  Lifelong Learning and Employability  14

4.3  Motivation  15

4.3.1  Concepts of Motivation  15

4.3.2  Motivation of Older Employees  16

4.4  Work Environment and Health.  17

4.4.1  Work Place Design  17

4.4.2  Work Schedule Design  18

4.4.3  Workplace Health Promotion  19

5.  ING-DiBa: A Benchmark Example of Age Management  20

6.  Conclusion  21

III  Appendix.  III

IV  Bibliography.  VII

I

Marion Warmuth Managing the Aging Workforce

I List of Abbreviations

abs. absolute

IAB Institut für Arbeitsmarkt- und Berufsforschung

OECD Organisation for Economic Co-Operation and Development

SÖSTRA Sozialökonomische Strukturanalysen GmbH

II Table of Figures

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

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

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

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

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

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

Figure 7: Duration of Unemployment According Age Groups........................................ VI

Figure 8: Maslow’s Pyramid of Needs............................................................................ VI

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Marion Warmuth Managing the Aging Workforce

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 trans-forms 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).

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

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Marion Warmuth Managing the Aging Workforce

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 re-

^th coordinatedPopulation Projection, Variant 1-W2, „Online on ² Source: German Statistic Office (Ed.): 11

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 28 ^th , 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”, ^th , 2007 http://www.census.gov/ipc/www/idb/tables.html, query from November 29

Marion Warmuth Managing the Aging Workforce

act 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

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, Swit-zerland, Turkey, United Kingdom, United States. OECD: About OECD, “Online on the web”, http://www. ^th , 2007 oecd.org /pages/0,3417,en_36734052_36761800_1_1_1_1_1,00.html, query from December 11

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.

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Marion Warmuth Managing the Aging Workforce

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 work-force 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 fi-

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

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Marion Warmuth Managing the Aging Workforce

nancial 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 work-force. Managers need to react. The payroll system need to be reworked and the per-formance 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

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

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