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Shades of gray: Business impacts of an 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 U.S. census, an average of 4.6 adults will turn 65 each minute this year. By 2025, that average will rise to eight per minute. The workplace is no different. According to research published in the Monthly Labor Review, the share of the labor force of the 55 and older age group will increase from 14.3 percent (2002) to 19.1 percent (2050) and the percentage of workers 55 to 64 and over 65 will grow by 48 percent and 40 percent, respectively, between 2002 and 2012.

And it's not just the U.S. 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 2,500 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, 20 percent of the city's people 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. 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. How aware of and prepared are companies for this impending sea change in their employee base? Perhaps not enough, according to the findings of research studies just released 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 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 percent 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 percent 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 a quarter of respondents had established formal programs and policies to hire back retirees and only about a third 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 percent of senior managers and less than 25 percent 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 is Valero Energy Corp., 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 one percent to five percent rates of retirement, but we're now looking at 20 percent 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.

Do 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 most at risk of losing key staff due to retirements will need to be identified and their impacts assessed as specifically as possible. Responsive 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 to mitigate the risks and negative effects on their organizations.

Do you work in an organization that's already, or expects to soon be, impacted by the aging workforce? What are the potential effects in your view and what is your employer doing about them? Please e-mail Tony DiRomualdo at to share your experiences and perspectives.

Recent articles by Tony DiRomualdo

Tony DiRomualdo: How Best Buy said bye to burnout, hello to results

Tony DiRomualdo: CEOs Gone Wild? Risks and rewards in the executive suite

Tony DiRomualdo: Can a talent market work inside organizations?

Tony DiRomualdo: Workplace flexibility: Give and take or tug of war?

Tony DiRomualdo: Geezers, grungers, gen-Xers and geeks - a look at workplace generational conflict

Tony DiRomualdo is a researcher, author, consultant and founder of Next Generation Workplace. His work focuses on how changes in workforce trends and demographics, global business dynamics, talent management practices, and information technology-enabled tools and capabilities are transforming the workplace. He helps individual leaders and teams to create Next Generation Workplaces.

The opinions expressed herein or statements made in the above column are solely those of the author and do not necessarily reflect the views of The Wisconsin Technology Network, LLC.

WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.


Historian for Tony responded 8 years ago: #1

Tony brings up a very valuable point, and maybe some other people should be talking/writing about it, too.
Back in the early 1990s, someone made a comment about the world coming to an end in 2000 because of Y2K problems with computers. Not much was really done about it at that time. Then others started to write about it and and corporations started to look into their systems to see if it did effect them. Boy did they get an eye full. These companies started to hire people and contract programmers so much, that some contracting places were pulling people off the street, giving them 2 weeks training in programming and calling them programmers to send out for hire. Y2K came and went, everyone wanted to know what the big fuss was about since there were no really major problems. Everyone got their bills, paychecks, etc. Well, if those companies would not have made changes to their programs or bought new software packages when they did, Y2k may have been a major mess. All because someone questioned it early. Maybe more people should start to question the aging employees, what the colleges and technical schools are doing to handle the situation, and how is this going to impact their work force.

Jane Wilson responded 7 years ago: #2

As an over 50 female working in the technology industry, I look around every day and wonder where my contemporaries are. Tony took a jump for the boat, but missed it - employers don't worry about losing the knowledge and experience that older workers bring to the workforce. They are too busy trying to figure out how to get rid of us so they can bring in younger, and often foreign, workers at a lower rate.

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