Demographic Trends and the Older Workforce

Demographic Trends and the Older Workforce November 10, 2004 Linda Barrington, Ph.D. The Conference Board www.conference-board.org

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THE CONFERENCE BOARD Finding solutions together Help businesses strengthen performance and better serve society What business needs to know about society and its societal impact What policy makers need to know about business concerns and operating framework

Research inspired by retirement shock, again 25 years of Maturing Workforce Research Valuing Experience: How to Motivate and Retain Mature Workers (2003) Voices of Experience: Mature Worker in the Future Workforce (2002) Employing Older Workers: Opportunities and Constraints (1988) Managing Older Workers: Company Policies and Attitudes (1984) Older Workers and Retirement (1978)

New Retirement Shock Aging workforce will thin current pipeline 65 & older 30 55 to 64 52 45 to 54 35 to 44 25 to 34-10 8 21 35-44 year old cohort to shrink 10% 16 to 24 15 Total, All Groups 12 Source: Occupational Outlook Quarterly, Winter 2001-2002, Bureau of Labor Statistics

of Global Proportions Ratio of Retirement-Age to Working-Age Male Population Netherlands Denmark 20 U.S. 2030 forecast 2000 U.K. Spain Japan France Australia 21 24 23 26 30 30 34 37 41 44 43 45 54 57 63 For every 100 men of working age, the number of retirement age men will nearly double in 30 years in many countries

Labor Force Growth is Huge in Low Income World Past two decades-- on average, global labor force grew by 473.8 million (1980-2000 avg) Low Income +214.1 million Middle Income +213.1 million High Income +46.6 million This decade-- forecast global labor force will grow by 393.3 million (2000-2010) Low Income +229.1 million Middle Income +148.1 million High Income +16.1 million

Workforce Demographics of Emerging Markets-- Education Levels Rising in Emerging World % of Age Group Enrolled in Post-Secondary Education 1980 2000 Country % of Males % of Females % of Males % of Females U.S. 53 58 63 83 Poland 16 21 46 66 Ireland 21 15 42 53 Philippines 23 26 30 33 India 7 3 13 8 China 3 1 7 4

Implication Workforce in Emerging Markets Can Supply Much Labor to Fill in Gap immigration cross-border sourcing

Foreign Born Population Share Again Back in Double-Digits 15 % 14.4% 14.8% 14.7% Pre WWII Levels 11.6% 11.1% 10 % 6.9% 7.9% 5% 4.7% 0% 1870 1890 1910 1930 1950 1970 1990 2000 Source: The Conference Board. Data source: U.S. Census Bureau, Population Census data

Origins of Current Foreign-Born Workforce Other 8% Europe 14% Latin America 52% Asia 26% Source: The Conference Board. Data source: U.S. Census Bureau, March 2000 CPS

Implication Remittances will likely continue rising as Latin American population ages 140 120 100 80 60 40 20 0 Population Projection-- Latin America 80+ 65-79 4 23 Population in millions 12 54 34 102 2000 2025 2050 Chart Source: CELADE, Boletin demografico 69 (2002): Table 11.

Ever-Changing Face of America U.S. Census Population 1940 Hispanic 1.4% Black/African American Asian/Pacific 9.8% Islander 0.2% Other 0.0% White (non- Hispanic) 88.6% Source: The Conference Board. Data source: U.S. Census Bureau

Ever-Changing Face of America U.S. Census Population 1970 Hispanic 4% Black/African American 11% Asian/Pacific Islander 0.7% White (non- Hispanic) 84% Other 0% Source: The Conference Board. Data source: U.S. Census Bureau

Ever-Changing Face of America U.S. Census Population 2000 White (non- Hispanic) 69.2% Hispanic 12.5% Black/African American 12.1% Asian/Pacific Islander 3.6% Other 2.6% Source: The Conference Board. Data source: U.S. Census Bureau

Ever-Changing Face of America U.S. Census Population 2050 forecast White (non- Hispanic) 50.1% Hispanic 24.4% Black/African American 14.6% Asian/Pacific Islander 8.0% Other 2.9% Source: The Conference Board. Data source: U.S. Census Bureau

Perception vs. Reality Immigration and Workforce Diversity Only 5% of HR Executives surveyed expect immigration to offset their needs from departing Baby Boomers Foreign Born already accounting for majority of U.S. labor force growth

Implication Post-Baby Boom workers more diverse than HR Executives are planning on

Average Age of Head of Household Increasing 2002 Under 35 35 to 49 50 to 64 Over 65 Baby Boom Aging Millions of Households 109 M 2015 124 M 0% 20% 40% 60% 80% 100% Percent Distribution Source: The Conference Board Consumer Research Center

White Households Notably Older 2015 forecast White Under 35 35 to 49 50 to 64 Over 65 Under 35 35 to 49 50 to 64 Over 65 Millions of Households 86 M Hispanic 16 M African American Asian 15 M 6 M 0 20% 40% 60% 80% 100% Source: The Conference Board Consumer Research Center

But Less Likely to have Children Present 2015 forecast Married Single Single with & without Children Parent No Children Other White Percent with Children 31% Hispanic 57% African American Asian 43% 41% 0 20% 40% 60% 80% 100% Source: The Conference Board Consumer Research Center

Educational Attainment U.S. Full-Time Year Round Workforce Educational profile of U.S. Full-Time Workers (%). 100% 80% 60% 40% 20% Level of Educational Attainment Rising Among U.S. Full-Time Workforce College Graduate Some College High School Degree 0% 72 82 87 92 2001 Less Than High School Data Source: The Conference Board.; U.S. Census Bureau, custom tabulations

Educational Attainment of High School Class of 92 8 years after commencing Post-Secondary Institution Race/Ethnic differences in today s 30 year olds 100% 80% 60% 50% 51% 31% 24% 17% Bachelor's or higher Associate or Certificate No degree 40% 59% 63% 77% 20% 37% 37% 0% White Asian Black Hispanic American Indian Source: The Conference Board. Data Source: U.S. Dept of Education, National Center for Educational Statistics, 2002

Percent of Public School 4th-graders with Writing Achievement Below Basic or At/Above Proficient Race/Ethnic differences across today s 4th graders 40% 30% 20% 10% 10% 32% 7% 40% 23% 24% 14% 17% Below Basic At or above Proficient 0% White Asian Black Hispanic Source: The Conference Board. Data Source: U.S. Dept of Education, National Center for Educational Statistics, 2002

Income Distribution Differs 2015 forecast White Under $25 K $25 to $49 K $50 K + Millions of Households 86 M Hispanic 16 M African American 15 M Asian 6 M 0 20% 40% 60% 80% 100% Source: The Conference Board Consumer Research Center

Implication Household characteristics correlate with race Older,wealthier white households without kids Younger, poorer households of color with kids Self-interested social agenda correlates with race Older,wealthier white households without kids government spending on social security and medicare Younger, poorer households of color with kids government spending on education and healthcare other than medicare

Implication Self-interested workplace agenda correlates too Older,wealthier white employees without kids healthcare and pension benefits, phasing retirement deals Younger, poorer households of color with kids healthcare benefits, higher low-end wages, job security

Job Satisfaction of U.S. Workers Annual, nationally representative sample Most to least satisfied Age categories: under 25 25-34 45-55 55-64 65 & over

Recent Conference Board Research Employee Survey--Voices of Experience Retirement intentions and perspectives of employees 50 years of age or older 1600 employees at 8 Fortune 500 companies HR Executive Survey--Valuing Experience Practices and perspectives of employers on aging workforce issues 145 targeted HR executives (78% U.S. & 22% Europe and Canada)

Voices of Experience 48% (783) retire next 5 years. Reasons why 57% Pursue dream 28% Volunteer or contribute to society 25% Don t feel respected at my company 23% No longer want to work 21% Spouse/colleague retiring 20% Retirement package available 17% Met my financial goals

Voices of Experience Other reasons for planning to retire 12% To make a career change 10% Health reasons 10% To relocate 7% Want to start a business 8% Expect to lose my job 4% Physical tasks too demanding 3% To care for a dependent

Voices of Experience Those planning to retire Incentive keep me from retiring higher salary 46% flexible hours 46% promotion 33% telecommuting, less pressure 25% sabbatical, better benefits 13%

Voices of Experience 52% (861) not retiring in next 5 years. Reasons 69% Don t have the financial resources 64% Want to build up extra income 62% Find my job interesting 54% Work keeps me active 52% Need the medical benefits 33% My contribution to my company is appreciated 29% Company provides me with flexibility I need 29% Value the social network 12% Strong likelihood of promotion

Implication Can retain older workers wanting to retire, but at a cost

HR Executives concerns include benefits provided by and costs arising from older workers 71% HR executives responded aging workforce very or fairly important. Reasons why... 95% Talent shortage (benefit) 38% Rising health care costs (cost) 21% Need to preserve customer relations (benefit) 12% Losing senior executives to competitors (benefit) 12% Legal concerns (cost) 7% Limited pension funds (cost)

Contrasting Views Employee Perspective Survey respondent, Voices of Experience The company will be in for a real eye-opening as the older workforce is released. No one is teaching the intangibles of the job. You can teach an employee what a pump is and how it works-- but not what it sounds like when it is going bad. Employer Perspective Off the record meetings Don t respond until you feel the pain cost of loss We re not replacing those pumps benefit of loss

Implication Costs are the elephant in the room Not PC to discuss cost concerns, so many companies don t discuss at all Tough Issues have to be acknowledged to make progress on fuller integration of older workers into workforce Difficult to separate myth from reality e.g., research getting increasingly harder to conduct because of fear of law suits

Age Discrimination Charges Received by EEOC (Receipts) On Par with Decade Ago Age Discrimination Charges (Receipts) as % of All EEOC Charges (Receipts) 30.0% 25.0% 20.0% 19,573 Counts = Number of Age Discrimination Charges (Receipts) 19,809 19,921 19,618 17,416 15,719 15,785 16,008 17,405 19,124 15,191 14,141 15.0% 10.0% 5.0% 0.0% FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 Receipts include all charges filed under the ADEA as well as those filed concurrently under Title VII, ADA, and/or EPA.

Business Best Practice Solutions Rehiring Retirees on Contract lower fixed costs--something every CEO covets, even at price of higher hourly flexibility for individual need clear understanding of legal constraints potential morale issues

Business Best Practice Solutions Phased Retirement What s the definition of Phased Retirement? - Leaving and returning as a consultant -Flex/Part Time - Mentorships/Coaching - Non-profit Leaves Phasing into Retirement Only want the right employees take it What are the legal issues & ERISA guidelines

Implication Individual deals because of Concerns about legality of policy Desire to select right employees

Net Labor Force of Older Workers Higher female labor force participation with each succeeding generation Earlier retirement with rising living standards Healthcare possible countering drag in U.S.

Generational changes still impacting women s labor force participation % of Women in U.S. Labor Force 70 68.5 70 60 60 50 43.8 50 40 40 30 30 20 20 10 9.2 10 0 0 1940 1970 2003 45-64 years old % of Men and Women in U.S. Labor Force, by age 67.9 65.5 68.7 56.6 48.9 Men Women 8.6 8.3 3.5 4.1 1985 1994 2003 1994 2003 55-64 years old 75+ years old

Global Trend Labor Force Participation of Women aged 15-64 years old Country 1970 1990 2000 United States 48.9 68.5 71.7 Canada 43.2 67.6 70.4 France 48.5 57.8 62.0 Japan 54.9 60.3 64.2 Source: OECD, Historical Statistics, 2001

Long-run Trend Toward Earlier Retirement as Living Standards Rise Average age of exiting labor force 68 66 64 62 60 Average Age of Retirement Falling 1965 1975 1985 1995 Japan Male Japan Female U.S. Male U.S. Female Germany Male Germany Female

Opportunity costs of early retirement rising in Europe as older population grows 20% 15% 10% 5% Percent of Potential GDP Foregone Rising in Europe as Workforce Ages and Retires Early 11.2% 10.5% 15.9% 9.5% 13.2% 12.6% 2.9% 9.3% 8.9% 9.1% 6.7% 6.9% 6.8% 7.1% 6.7% 0% Netherlands Germany Switzerland Ireland OECD avg. 1990 2000 2010 Source: Herbersson & Orzag, IZA Discussion Paper No. 816

Implication Retirement age falling, participation rising Net effect increasing numbers of older workers growing macro opportunity cost

THE CONFERENCE BOARD Finding solutions together What business needs to know Managing a three generation, ethnically diverse, global workforce will be more complicated than expected Important trends will be missed due to riskaversion to older-worker related research Society will be split on age-related issues and will look to employers to resolve

THE CONFERENCE BOARD Finding solutions together What policy makers need to know Business is worried about Lawsuits Being able to dismiss those not making the grade, with dignity Healthcare costs Business will continue to expand non-native U.S. employment (immigration, offshoring) for cost savings (wages and benefits)