Employment
Seizing the Human Capital in Older Workers
Speech
November 2004
William Novelli
Chief Executive Officer
AARP
Maximizing
Your Workforce: Employees Over 50 in Today's Global
Economy
Philadelphia, PA, USA
Good morning. It is a great pleasure for AARP to be conducting this symposium with the Wharton School, and Dean Harker and Professor Peter Cappelli and also Professor Mitchell. Within Wharton, the Center for Human Resources and the Boettner Center for Pensions and Retirement Research are our partners for this event.
As for me, I’m very happy to be back at Penn. Penn’s 20 straight Ivy League football wins is a great record that we expect to extend this Saturday against Harvard. But I’m probably the only person in this room who cares about it, so I’m not even going to mention it.
There’s a folk song I remember hearing some years ago that had a chilling refrain: "You worked so hard that you died standing up." That sad chorus reflected facts of life and work that some of us can still remember - and certainly our parents and grandparents can.
In those days, it was fairly common for a young man, having just finished whatever schooling he was going to get, to begin working alongside his father in the wheat fields or at the factory or in construction and to stay at that job forever, like the generation before him. In those days most work was physical - and physically taxing. If you didn’t die standing up, i.e., while still employed, you were glad to retire - if you could afford to. The idea of the "older worker" in those days meant workers who were old before their time.
I come from a family of steel workers in Pittsburgh, and when that generation retired, they really retired. I remember my Uncle Andy coming home one day, putting down his lunch bucket, and saying, "That’s it, I’m retired." And he was.
Those days are not these days. The proportion of the workforce involved in physical labor has dropped. Today, less than two percent of American workers are in agriculture, and manufacturing employs only about 13 percent of American workers. Moreover, mechanization and automation have made many of those jobs that were physically draining much less so. Most factory workers and machinists are more highly skilled than their fathers, and their jobs involve controlling computers and robots, not lifting or wielding heavy hammers.
Farm equipment has become so sophisticated and powerful that one person can do the work of many and never leave the seat of the tractor - producing possibly for the first time in history farmers who are overweight. Brains and learned skills have dominated, if not completely replaced, brawn and endurance. More and more, knowledge workers predominate.
Since work has changed, our ideas about workers must change accordingly. But change has been rather slow in coming. There are both employers and employees who still believe that some magic number - say, 65 - signifies an age at which one should no longer work. The slow raising of the age for full Social Security benefits to 67 doesn’t necessarily undo the stereotype. But more and more, America will come to believe that there is no fixed age for retirement, that work is important to individuals and to organizations, and that age itself should not disqualify anyone from being hired nor discourage anyone from seeking work.
There are promising signs that the biases - held by employers and employees alike - are weakening. For example, the Census Bureau reported that just between 1998 and 2000 the number of workers between 65 and 74 increased by one-seventh, to just under 4 million. Another example: in 2002, the total workforce increased by 720,000 - and men and women 55 and older accounted for virtually all of that increase.
The Bureau of Labor Statistics projects that by the end of this decade, 20 percent of the workforce will be made up of workers 55 or older. Even so, the United States may be facing a critical shortage of trained, ready, and qualified workers. At about the same time, according to estimates by the Employment Policy Foundation, available jobs could outnumber workers by 4.3 million, and that gap could grow very substantially in the decades beyond.
Peter Cappelli has written that projections of an across the board labor shortage, in all sectors, may be mistaken. But I think we all agree that a number of industries will see a shortage. This problem is not confined to the United States. Europe is graying even faster than North America. The fertility rates in most of the countries of the European Union are lower than ours - and many are lower than the replacement rate of 2.1 children per woman. I was in Spain last summer, and saw a headline in a Madrid newspaper that said, "Good news: the fertility rate has ticked up to 1.3!"
The United States is just slightly above the replacement rate, and immigration is the primary reason that our population is growing. In the EU, immigration policies are more stringent, and there are fewer older workers and fewer women in the workforce.
High unemployment levels can mask this problem--for example in Germany, which is still struggling with unification and job growth.
At AARP, we are working to be a catalyst for change with regard to older workers. It is a priority for us. In our ten year social impact plan, we have a goal that older workers will be able to remain in the workforce, as desired. This requires that unfair and/or discriminatory treatment of older workers is reduced; that employers adopt policies and practices that afford older workers more and better workplace options; and that underserved populations obtain employment.
An example of how we are going about this is our partnership with The Home Depot, where we are utilizing a Department of Labor grant for our Senior Community Service Employment Program to recruit and train older workers for employment in Home Depot stores.
Policies and prejudices concerning older workers are changing in the U.S. But we can accelerate the pace. Policy makers, corporations, academic thinkers and others can facilitate change.
First, we should help get rid of the notion that there is a "retirement" age. Granted, government-run pensions, like Social Security here and public pensions in Europe, promote that idea: reach a certain age and you can claim your benefits. All well and good.
But we can promote the idea that getting a pension is not the same as retiring. We can promote the idea - and back it up with our own hiring practices - that a certain age, whatever it may be, is a time for reflection and perhaps transition, but not necessarily being idle. Transition, can mean many things: a new job, a new career, an entrepreneurial endeavor. It could be the same job or it could be the same job with, perhaps, fewer hours or more scheduling flexibility or, where possible and appropriate, telecommuting. These are not the only possibilities. The point is that being adaptable can work for employers and employees.
Older workers represent a huge amount of human capital - some extremely rare and valuable, some more commonplace. And we need it all. As John Gardiner said, "A society that celebrates its philosophers merely because they are philosophers and disparages its plumbers merely because they are plumbers will find that neither its ideas nor its pipes will hold water." Wasting talent is as foolish - and as self-defeating - as burning money.
People who are able to work, but do not find some kind of occupation, tend to be less healthy, more depressed, and yes, greater pests to their spouses than those who stay engaged with work. And by work, I don’t always mean work for pay. Many people who do not need the dollars find fulfillment and challenge in volunteer service.
At AARP we have many thousands of volunteers doing very important work. Our board of directors is our prime example. They are all volunteers, most no longer employed for pay, but hardly retired.
I read recently that the FBI requires its field agents to retire comparatively young - at 58, I believe. Not only is this an exception to the laws about mandatory retirement based on age, but quite possibly a real waste of talent. In many businesses, people in their late fifties are considered at the top of their game, ripe for the best assignments, ready for the corner office. Of course, there are other professions where mandatory retirement is allowed, but I seriously wonder about the value of involuntary retirement in any field, except perhaps those that require strenuous physical performance.
Remaining in the workforce past an appropriate "retirement age" should be voluntary. There are people who do not want to work or can’t. But given the desire to work and the ability to do a good job, consider the value older workers add to their employers, to themselves and their families, and to society.
They can improve the status of Social Security by delaying benefits, i.e., not taking early retirement. They can also improve the stability of Social Security even if they are already collecting benefits because, as they continue to work, they are paying their FICA taxes every pay period - just like the rest of us. You could say they help fund their own "retirement" and Medicare as well.
As I’ve already said, voluntary employment can help ward off the labor shortages that have been predicted, starting with the retirement of the oldest baby boomers.
Continued work can help make older people more secure as they age. We used to say that retirement - however defined - rested on the three-legged stool of pensions, personal savings, and Social Security. Now that is out of date. At AARP we look at four pillars: pensions and savings combined, Social Security, health insurance - without which no one can be secure these days - and income from work.
Many people who are near retirement age have not saved. Some have been profligate, some had low-paying jobs, some saw their pensions destroyed by corporate disasters of one kind or another, and nearly half of American workers never had a pension from their employment.
The Pension Benefit Guaranty Corporation only covers defined-benefit pensions, not 401(k)s and other similar plans and, second, does not have nearly enough money to cover the pension plans that have failed or may well fail in the years to come. And it was not designed to help those who never had a pension in the first place.
So for various reasons, work will be a necessity, not an option, for many people in their 60’s and 70’s, and others yet to reach that age.
Many corporations view the recruitment and retention of older workers as a competitive advantage. For the past four years, we have selected and honored organizations that have the best policies and practices and environment for older workers. Each year, the number of applicants has risen. This year, we selected 35 companies and non-profits from a variety of sectors, including technology, health care and financial services.
But, as I suggested earlier, there are still problems with the attitudes of both employers and employees. Many employers just don’t believe that a 60 something or a 70-year-old worker can deliver the goods. As you know, the Age Discrimination in Employment Act outlawed age discrimination in employment in most jobs. And, I want to point out that the ADEA affects workers beginning at age 40, not 65 or 70. Since its passage in 1967, it has been modified to be even more inclusive. Nevertheless, age discrimination and the perception of it, persists. The Equal Employment Opportunity Commission reports that age discrimination complaints are rising.
The outlook in Europe, appears less promising than our own. EU countries, and those outside the Union in western and eastern Europe, have mandatory retirement ages - usually around 60, though they vary. Moreover, they do not have anti-discrimination laws regarding older workers. The EU has said that it will have such laws in place by 2006, but many observers doubt the laws will be in place on time and are skeptical about their effect and enforcement. Each country involved may take a different approach.
Many European workers seem to see an early retirement as a birthright and have resisted attempts to raise the age. Of course, many of our fellow countrymen here in the United States share this outlook. These employees have the attitude that they are done at a certain age - even though the evidence of their own brains and bodies may contradict this outlook - and they feel they are entitled to remove themselves from the labor market.
There are also other reasons for the European resistance to doing away with mandatory retirement. Unemployment among the young is higher in many EU countries than it is here, so forcing older workers to retire is supposed to make room for younger workers.
Some argue that this is flawed reasoning - and that the higher unemployment rates in Europe are the results of other economic policies, particularly high interest rates and some wage-and-hour policies that discourage employment and expansion, irrespective of the worker’s age. But the cultural idea of early retirement is very powerful in Europe.
The advantages we have in America are prohibitions on mandatory retirement and other anti-discrimination laws. The only industrialized country with similar laws is Australia. We should be applying these laws as effectively as possible, including getting more and better enforcement out of the EEOC. And we should be letting our older workers know that these laws exist, and how they work.
As our workforce ages and as more workers continue into their later years, we should promote the idea to employers that turning away older workers is a waste of human capital. We will gain ground as employers realize that discrimination is wrong, not just for legal or moral reasons, but for business reasons.
And we need to let workers know that they have a responsibility to keep themselves employable. Workers need to learn new technologies and old skills that may be new to them. Older workers can learn new things, although it appears that they do not learn them via the same training approaches as are applied to younger employees.
They are also learning that work after retirement can new, more interesting, or less stressful forms. These ideas, I think, will be taken up by other countries. It will take time, but the industrialized countries are seriously looking at older worker policies and strategies, despite the hurdles I mentioned earlier.
The developing and emerging economies are another matter. The "comparative advantage" that the economist David Ricardo described nearly 200 years ago exists in developing countries in the form of lower labor costs. This, as we know, has resulted in the outsourcing of American jobs, including those of mature workers.
Beyond the value of older workers to employers and to the workers themselves, there is the social good. Earlier I mentioned that older workers can take some pressure off the costs of Social Security and Medicare. When people who want to work into their so-called retirement years continue to do so - when they stay active and engaged and independent - society benefits.
With more people living longer and in better health, and with current or anticipated labor strategies in many sectors, strategies for engaging older workers can benefit us all. It’s an important source of human capital. Let’s put it to work.