Shades of Gray – Working Out the Business Impacts of the Aging Workforce

Up in the sky. It’s a bird. It’s a plane. It’s super hype – able to leap tall buildings of apathy and denial in a single bound. Indeed, lately the media has been saturated with stories about the coming skills shortages that are sure to result from the mass exodus of Baby Boomers from the workforce.

Many of these press accounts would lead one to believe that this trend and its impacts on businesses are black and white. But the reality is gray (pun intended). Population statistics leave little doubt that the workforce is aging and reports of skills shortages and the difficulties companies are having recruiting replacements for retiring workers are increasing. But not every industry or company is being affected equally. Nor is every organization moving at the same rate to identify and address how these trends will be impacting their businesses.

Things Are Graying All Over

It’s not your imagination - the number of “older” people is increasing. According to projections based on the US census, an average of 4.6 adults will turn 65 each minute this year. By 2025, an average of 8 adults will turn 65. The workplace is no different. According to research published in the Monthly Labor Review, the share of 55 and older age group will increase from 14.3% (2002) to 19.1% (2050) of the labor force and the percentage of workers 55-64 and over 65 will grow by 48% and 40% respectively between 2002 and 2012.

And it’s not just the US that is experiencing the graying workforce. Some countries in Europe are already feeling the effects. Recent media reports assert that a shortage of workers with technical skills is becoming acute. Germany’s Siemens for example, has been struggling to fill 2500 open positions and has begun bringing employees out of retirement to work on specific projects.

Even China, seen by many as an endless source of cheap (and young) labor is starting to feel the effects of an aging population. According to one account, the country is experiencing an aging workforce problem that is predicted to become acute in the near term. In Shanghai for example, twenty percent of the city's people are at least 60, the common retirement age for men in China, and retirees are the fastest growing segment of the population. According to a study by the Shanghai Academy of Social Sciences, 100,000 new seniors are being added to the rolls each year and from 2010 to 2020, the number of people 60 or older is projected to grow by 170,000 a year.

In aggregate, this data suggests that the aging of the workforce is only just beginning and will be with us for decades to come. Are companies aware of, and prepared for, this impending sea change in the makeup of their employee base? Apparently not enough, according to the findings of a couple of research studies issued by two leading think tanks.

A Delayed Reaction

Despite the aging trend and the increasing signs of its impact on different countries and industries, many organizations have been slow to respond. The just- released National Study of Business Strategy and Workforce Development, a survey of 578 organizations of varying industries in the United States conducted by the Boston College Center on Aging and Work, found that 56% of respondents had only analyzed their workforce demographics to a limited extent or not at all. It also found that a mere third of respondents had made projections about the retirement rates of their workers to a moderate or great extent.

Sixty-one percent of the 53 global employers participating in a soon-to-be released benchmarking study conducted by UK think tank Career Innovation said that the quality of the workforce planning data in their organizations provided to business managers was poor to fair. (In the interest of full disclosure I led this study). Furthermore, many respondents said they were anticipating a significant negative impact on their businesses – almost 65% indicated that the aging workforce would have a great or dramatic impact on their businesses or is already a problem.

What are employers doing to identify and mitigate these impacts on their businesses? According to these two studies not a lot, at least yet. The BC study found that only about ¼ of respondents had established formal programs and policies to hire back retirees and only about 1/3 had adopted strategies to encourage late career employees to continue to work past retirement age. The Career Innovation benchmarking study showed that the aging workforce is not yet high on the executive agenda. It found that less than 15% of senior managers and less than 25% of HR managers were making large investments in time and resources to address this issue.

This finding is particularly troubling since replacing people with extensive know how, rich organizational knowledge and critical skills can’t be accomplished over night. That’s why companies getting a head start on identifying the specific skills areas in which they will be impacted most will have an advantage over others competing for scarce replacement talent. Many organizations are racing to do this, but for some it may already be too late.

Why Workforce Planning Matters

Until recently, few organizations seem to have had the foresight to look ahead at the impending risks they face as a result of the aging workforce. One such forward-looking company was Valero Energy Corporation, a Fortune 500 company based in San Antonio, Texas. Valero operates in the capital- intensive oil refining business, an industry in which convincing corporate leadership to pay attention to recruiting and people issues is extremely difficult. Yet, trends in its workforce, particularly the impending retirement of significant numbers of talent with critical skills, portended a potentially huge negative impact on its future growth and financial performance.

Employing a mix of workforce planning capabilities to gather and analyze data, Valero’s HR group conducted a predictive “needs” analysis that mapped yearly labor needs by location, department, position, and skill set, projected out up to seven years forward. Trend line analysis was used to help the operating officers of refineries and other business units identify the potential impact of upcoming high-volume retirements. This allowed managers to identify future vacancies for both replacement purposes and knowledge capture before retirement.

According to the company’s head of staffing, Dan Hilbert, “We have lived through 1% to 5% rates of retirement, but we're now looking at 20% for an entire industry. When our executives saw the impact, they were stunned”. So much so, they immediately approved the necessary programs and improvements to start retaining key talent and training replacements ahead of when they would be needed.

Doing Something Before Time Runs Out

Big employers don’t have much time to gauge and start responding to the potential consequences of the aging workforce on their businesses. First, relevant workforce planning data will need to be collected and then productive conversations started with business leaders about when and how their operations will be affected. Areas of the operation and job groups that are at risk of losing key staff due to retirements will need to be identified and their impacts assessed as specifically as possible. Actions will then have to be quickly agreed and started.

A mix of two basic strategies – replacement and retention – will likely be needed. Replacing large numbers of skilled workers will neither be quick nor easy. Recruiting and training programs will have to be focused at key skills groups most at risk. This is why the second strategy of retention will need to be carried out in parallel. Employers will have to work hard to understand what kinds of ‘employment deals’ that older workers need and want to stay working full time or on a part-time or contingent basis. Many companies will likely be forced to make substantial changes to their workplace and HR policies to accommodate older workers.

In a future article, we will discuss more research findings on how the aging work force will impact businesses and what actions employers can take mitigate the risks and negative effects on their organizations.