What does the aging of the workforce mean for workers and for business?

Introduction

As in virtually all developed countries, the U. S. population is aging, and the country is beginning to experience a radical workforce transformation. The older population now represents one-eighth (12.4 percent) of the total population (Greenberg, 2005). Further, this share is projected to increase to 14.2 percent in 2014, to 18.2 percent in 2025, and to over one-fifth (20.7 percent) in 2050 (U.S. Census Bureau, 2004). The aging of society, largely due to higher life expectancy and improved health, means that many older persons will choose or need to remain in the workforce. As dramatic changes in both employment and retirement patterns are developing for older Americans, it is increasingly important to consider what these critical demographic trends imply for the macroeconomic labor force, for workers, and for business. This article examines the aging of the workforce and its implications for workers and for business in the U.S. and Tennessee.

Older Workers in the U.S. and Tennessee

In the U.S., labor force participation of men aged 65 and over declined dramatically from 1900 to 1985. It decreased steadily from two-thirds in 1900 to 15.8 percent in 1956, fell to only 7.3 percent in 1985, and has been around 8.0 percent-10.0 percent since 1988 (Greenberg, 2005).

Table 1 shows the population, labor force, employed, and unemployed for the U.S. In 2005, the labor force contained 19.0 million (63.0 percent) Americans aged 55 to 65 and over 5.25 million (15.1 percent) aged 65 and over. Labor force participants aged 65 and over, including 3.0 million men and 2.3 million women, constituted 3.5 percent of the total labor force. Only 3.5 percent of these were unemployed, compared to 5.1 percent of the total labor force. Of those aged 65 and over in the labor force, 15.1 percent were white and 13.6 percent were black. Chart 1 illustrates the 2004 labor force participation rates for men and women by age, revealing an interesting leveling off at older ages for women compared to men.

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Projections of the U.S. civilian labor force indicate that by 2010 over half (51.7 percent) of the U.S. workforce is expected to be aged 40 or older, representing a 33.0 percent increase in 25 years. The number of workers aged 55 and older will grow from 13.0 percent of the labor force in 2000 to 20.0 percent in 2020 ("Shifting Workplace," 2006). For the year 2014, 32.0 percent of the labor force is projected to be aged 50 or older, and 5.4 percent is projected to be 65 or older.

While the U.S. population aged 65 and over increased 9.3 percent in the last decade, this age group grew 13.0 percent in Tennessee. Thus, Tennesseans aged 65 and over now represent a slightly higher share of the state population than the share of older persons for the U.S. (Greenberg, 2005). Table 2 shows the Tennessee population, labor force, employed, and unemployed. In 2004, over 87,000 (13.6 percent) Tennesseans aged 65 and over were in the labor force. Only 2.3 percent of these were unemployed, which was 1.2 percent lower than the unemployment rate for older workers in the U.S. as a whole.

The Retirement Decision for Older Workers

For the U.S. and for Tennessee, labor force participation of older persons is primarily driven by the retirement decision. For nearly 50 years, older workers have been exiting the labor force in their early to mid-sixties. Chart 2 shows the contrasting trends in the declining average retirement age for men, which appears to have stabilized in the past two decades, and for women, which has continued to increase over time. The current average retirement age for men is 63 and for women is 62, and these early retirees can ' expect to spend some 20 years in retirement (Munnell et al., 2006).

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The combination of earlier retirement and longer lifespan means an extended period of retirement support is required. Currently, almost a fourth (23.0 percent) of those aged 65 and over report that earnings are a major source of income (Greenberg, 2005). The main reason for continued labor force participation of older workers is financial resources, because one of the most viable solutions to the dilemma of retirement income security is to work longer. More of today's older workers are likely to continue to work than did their counterparts of the last several decades, and almost 80.0 percent of baby boomers indicate that they anticipate working beyond the "normal retirement age" (Pitt-Catsouphes & Smyer, 2005a).

Several factors are now contributing to the tendency toward later retirement and, thus, increasing the average age of workers (Dohm, 2000). These derive from both public and private retirement policies. In terms of public policies, changes in Social Security are incrementally raising the minimum age for collecting full retirement benefits to age 67 by 2022 and have also reduced the pension amounts available for early retirement at age 62. These eligibility statutes have proven to be key drivers in decision making regarding retirement. Additionally, the former putative earnings limit for Social Security beneficiaries between the ages of 65 and 69 has been rescinded.

In the private sector, the continuing shift from defined benefit retirement plans to defined contribution plans is likely to motivate increased work years, despite the fact that nearly half of all workers are not eligible for any type of employee pension plan (Pitt-Catsouphes 8: Smyer, 2005a). While defined benefit plans maximize returns from earlier retirement, defined contribution plans may induce later retirement. Thus, the responsibility and risk for funding what may well be longer retirement is shifting from both government and business to workers (Magnusson, 2006).

There are numerous additional reasons why people are motivated to continue working until later ages. Not only is the older population healthier, but many older workers perceive that continued work in some form is beneficial (Dohm, 2000), or they plan to continue work because it is enjoyable and a source of pride. The stock market decline of the last recession reduced the retirement savings of many workers, mandating the need to restore diminished savings. Many older workers have responsibility for dependent family members, including parents, spouses, and children. Studies have indicated that older workers with responsibility for dependents (aging parents and/or children) are less likely to leave the labor force (Pitt-Catsouphes & Smyer, 2006). In addition, many workers indicate that employee health insurance is an important reason for continuing employment ("Shifting Workplace," 2006), with 43.0 percent of employees who plan to work longer indicating they will do so in order to maintain health insurance or other benefits (Pitt-Catsouphes & Stayer, 2005a).

The Work Environment for Older Workers

As the workforce ages, an increased share of older decision-makers and more organizations with an older workforce are expected. These factors are expected to promote a more receptive environment for older workers (Munnell et al., 2006).

The decline of the manufacturing sector in the U.S., coupled with increasing computerization of many jobs, enables a large segment of the older population to continue employment. And as the workforce ages, business is increasingly aware of the importance of accessible and assistive technologies, as well as the need for training or retraining of workers.

With technological development, the work requirements of many jobs have changed so that fewer jobs are as physically challenging as in the past. More jobs are seen as having increased in non-physical job demands, particularly jobs held by college graduates (Johnson, 2004). Further, an increasing share of older persons will continue to be healthier and more active than was seen in earlier generations. Thus, many workers are likely to choose some type of step-wise transition between full-time employment and retirement, with some kind of part-time job, or a so-called 'bridge job."

The Center on Aging & Work (2006) has compiled some interesting expectations of older workers: 79.0 percent of baby boomers expect to work in their later years, 52.0 percent plan to work part-time, and only 10.0 percent anticipate a "traditional" retirement. Further, numerous workplaces have not yet adapted to older workers: 80.0 percent of businesses have not established options for older workers, 60.0 percent of CEOs have not considered the aging of the workforce in their strategic planning, and only 8.0 percent of firms have formal policies for phased retirement (Center on Aging & Work, 2006). Thus, it appears that businesses would benefit from more serious consideration of and planning for the impacts of the aging of the workforce.

Implications for Business

Employers will increasingly confront age-related issues, as large numbers of the baby-boomer generation continue to participate in the labor force. For businesses, retention of experienced workers makes good business sense to avoid talent shortages, retain intellectual capacity, and maintain productivity. In particular, costly turnover rates are considerably lower among older workers compared with younger workers (Pitt-Catsouphes & Smyer, 2005b). Business survey data reveal that while older workers are seen as costing more, they are also viewed as more productive than younger workers. Over 80.0 percent of employers indicate that older workers are "as attractive" or "more attractive" than a younger employee; however, older white-collar workers are viewed as more attractive than older rank-and-file workers (Munnell et al., 2006).