Global Aging Issues
Hiring Older Workers: A Solid and Sound Investment Proposition
Opinion
February 2006
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By Deborah Russell
Director of Economic Security and Work
AARP
As the baby-boom generation nears retirement age, the prospect of workers leaving the workforce has the potential to dramatically exacerbate trending workforce shortages. These trends are global as cited in a recent Economist article Older workers - How to manage an ageing workforce - Governments, employers and workers all need to change to keep baby-boomers on the job. According to the article, “Japan expects its workforce to shrink by 16% (some 10m people) over the next 25 years. Europe will see the number of workers nearing retirement grow by a quarter.”
In the United States as baby boomers age, wide spread retirements portend serious questions. Could a nursing shortage have a major impact on our healthcare system? The issue is not just about developing recruitment strategies for increasing the number of nurses, but finding staff to teach nursing curriculum in the classroom.
On average, today’s engineers are in their fifties. How many times will companies have to reinvent the wheel because a large number of their workers have exited the workforce with their knowledge and experience in tow?
A 2005 AARP survey of HR managers shows that 58% indicate is it more difficult today than it was five years ago to find qualified job applicants. More than half of the HR managers believe that their companies are likely to face a shortage of qualified workers within the next five years.
Are 50+ workers a possible solution to these challenges? An AARP study of employers’ perceptions of this demographic shows continued misperceptions about their capabilities. Mature workers are inflexible, not up-to-speed with today’s technology and most importantly, they’re too expensive. But are they really?
The Business Case for Workers Age 50+: Planning for Tomorrow’s Talent Needs in Today’s Competitive Environment attempts to address the specific issue of cost. The study highlights the need for employers to consider costs with a broader lens and demonstrates that hiring 50+ workers is a solid and sound investment proposition.
The report shows that while there is a general perception that 50+ workers cost more than younger workers, any additional costs are minimal, at most. In the case of retention, the offsetting costs are related to turnover – replacing veteran employees with deep institutional knowledge and job-related know-how with new employees and the time and money it takes to train them. In the case of hiring, age-based compensation cost differences are negligible. Ninety-seven percent of average total compensation costs in large U.S. employers involve four components including cash compensation, health care benefits, retirement benefits and paid time off.
With respect to cash compensation, since companies typically calibrate pay levels to the market median for each position, the costs depend more on ability and experience rather than age. Defined benefit plan costs are typically higher for older workers however with the shift away from defined benefit plans replaced by defined contribution plans, the cost are more related to pay versus age. Time-off costs are not directly related to age. A newly hired worker will get equal vacation time regardless of age. On health care costs, Towers Perrin’s analysis found that employees age 50-65 use on average from 1.4 to 2.2 times as much health care as workers in their 30s and 40s. However, focusing on specific health risks such as smoking or obesity has shifted the way employers are addressing the costs related to health care. In many instances, employers are adopting programs that promote healthy behaviors in an effort to mitigate the high cost of health care premiums.
In today’s competitive global market, can employers afford to ignore this demographic as a viable solution to labor force needs? Sixty nine percent of boomers surveyed in a recent AARP study indicated their plans to remain in the workforce past traditional retirement age – perhaps into their 70s or 80s. The modern work environment has transformed requiring more “brain” power than “brawn” power. This makes remaining in the workforce longer a more realistic proposition and good news for employers who will need to keep them. Given the many productive advantages of 50+ workers, they are more cost-effective than many employers suspect and a viable solution.
Deborah Russell is Director of the Economic Security and Work section of AARP, which is the primary resource on mid-life and older worker issues, including creating environments that offer opportunities that are fair, flexible, and that capitalize on the wealth of knowledge and expertise mid-career and older workers bring into the workplace.
As Director, Ms. Russell leads a team developing information, programs, and resources that focus on issues affecting mid-life and older workers. In addition, she developed the Best Employers for Workers Over 50 program, which identifies companies with exemplary policies and practices for older workers. The Best Employers program is featured annually in AARP The Magazine.
Ms. Russell has issue expertise in the areas of age discrimination and employment as it relates to midcareer and older workers. She has appeared on CNN, Good Morning America, and CBS Evening News and is frequently quoted in national and local newspapers.
In addition, Ms. Russell sits on the Board of Directors for the American Society on Aging.
Prior to joining AARP, Ms. Russell worked with People for the American Way, a first amendment rights organization.
Ms. Russell graduated with a Bachelor of Science degree in Political Science from the University of Maryland.