article notes

65

and the global economy over the next decades, none is more certain and predictable than population aging. Whereas today the global population aged 60 or over numbers nearly 750 million (more than 10 per cent of the overall population), by 2050 it is expected to soar to more than two billion — exceeding 20 per cent of the overall population. But despite the hard facts, many business leaders and policymakers don’t have a good grasp of the realities of population aging.

In our conversations with leaders in both government and business, we frequently encounter misconceptions about the topic. Some are the product of erroneous conventional wisdom, some are rooted in outdated assumptions and perceptions, and

others overlook the extent to which policies and actions can ad- dress the aging trend.

In this article we will examine seven of these misconcep- tions and try to set the record straight. Our objective is to illus- trate how companies and governments can spur growth and capture economic opportunities by crafting the right response to population aging.

Myth 1: Emerging economies will balance out the ‘silver tsu- nami’ of developed economies. It is widely recognized that the populations of developed econo- mies are aging. In Japan, more than 30 per cent of the population

From Asia to the A mericas, populations are getting older, and so far, business and policy leaders have done little to prepare for it. by Julika Erfurt, Athena Peppes and Mark Purdy Illustration by Dan Page

AND DESTINY:

POPULATION AGING

VALUE

ROT202 D

o N

ot C

op y

or P

os t

This document is authorized for educator review use only by Matt Fisher, San Francisco State University until May 2021. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

66 / Rotman Magazine Spring 2013

is already aged 60 or over, a proportion that is steadily rising. The United Kingdom now has more people aged 60 or over than aged 16 or under. Business leaders and policymakers understand that this trend stems from declining birth rates and a dramatic increase in life expectancy. However, many mistakenly believe that the populations of emerging economies are immune to this trend, and that their large, younger populations will be the sal- vation of the global economy. For instance, Goldman Sachs stresses that “young populations and rapidly expanding domes- tic markets” will turn the BRIC countries into four of the six larg- est economies by 2030.

In reality, however, the populations of emerging economies, such as China, Brazil and Mexico are also getting older at a com- parable pace. In 2010, those aged 60 and over represented 12 per cent of the population in China, 10 per cent in Brazil, and 9 per cent in Mexico; but by 2050, these figures are expected to increase to 31 per cent, 29 per cent and 28 per cent, respectively.

Even countries with relatively youthful populations appear to be unable to avoid a similar fate. For example, Iran is expe- riencing the world’s most rapid decline in birth rates — from a high of nearly two million births per year between 1985 and 1990 to a current level of around 1.2 million births and a projection of 700,000 births by 2050. South Korea currently has one the youngest populations among OECD countries, but will become the second oldest by 2050.

Of course, there are some countries whose populations will remain relatively young. For example, in India and South Af- rica, nearly half the population today is under 25 years old. But even in those cases, considerable investment will be needed to convert raw numbers of young people into an employable and productive workforce that can be mobilized for future economic advantage.

Business leaders and policymakers in the developed econo- mies should not expect that relatively younger populations in emerging economies will provide an automatic customer base or workforce to replace their aging counterparts in developed economies. And leaders in emerging economies must also find ways to sustain the employability and productivity of their aging populations.

The Reality: Population aging is a global trend that affects many emerging economies.

The populations of emerging economies such as China , Bra zil and Mexico are also getting older.

Myth 2: Countries with aging populations face decades of low growth. Commentators have been sounding alarms about the dire con- sequences of an aging population for a long time. According to them, population aging will inevitably result in economic stag- nation at best, and decline at worst.

The scenario is indeed an alarming one. Aging populations increase the financial burden on governments, creating a pen- sion time bomb and increasing demands on health-care and elder-care systems. As more people enter retirement, a vicious cycle of lower growth and higher taxes will arise. With fewer people in the workforce, disposable incomes will fall, reducing consumer spending.

In reality, this outcome is not inevitable. Leaders in both the public and private sectors can help their economies avoid this fate by taking steps to harness the productive potential of people who are living healthier lives, not just longer ones. In practice, this means addressing the incentives and systems that prevent older people from staying in the workforce, such as early retirement provisions, or pensions and tax systems that penalize people who work later in life. In 2006, the UK government introduced tough age discrimination laws, and in 2011 went one step further to completely abolish the default retirement age of 65. The UK’s employment relations minister, Ed Davey, explained in support of the move that “retirement should be a matter of choice not compulsion.”

We see significant opportunities to increase the time that people spend in productive employment. The OECD average for estimated years in retirement is 21 to 28 years for women and 14 to 24 years for men. A UK government study released in 2011 found that increasing time in the workforce by just one year per person would boost the level of real GDP by approximately 1 per cent.

Our own research, in collaboration with Oxford Econom- ics, shows that by increasing the number of older people in the workforce and making productivity-enhancing investments in human capital, governments and businesses could boost eco- nomic growth and job creation. We estimate that the United States could increase its GDP by $442 billion and lift employ- ment levels by five million by 2020. In Germany, similarly, measures to harness the “silver economy” have the potential to boost GDP by €61 billion and lift employment levels by D

o N

ot C

op y

or P

os t

This document is authorized for educator review use only by Matt Fisher, San Francisco State University until May 2021. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

Rotman Magazine Spring 2013 / 67

A recent Swedish study examined productivity in nearly 9,000 manufacturing plants. Controlling for plant-level effects, the researchers found that plants with a high proportion of older adults were more likely to have higher productivity than were plants with a high proportion of young people.

By adopting new work models, organizations can engage people who aren’t able or interested to work full time. Small ad- justments in the physical environment can address changes in employees’ physical strength and stamina, which tend to decline with age.

BMW, for example, implemented 70 changes to a produc- tion line where the (older) employee profile reflected the com- pany’s expected overall workforce profile in 2017. The changes covered health care management and skills enhancement, as well as improvements to the workplace environment, such as ortho- pedic footwear and adjustable work tables. The production line’s productivity improved by seven per cent in one year, bringing it to the same level as lines staffed by younger workers.

Also, the deployment of technology and new work models en-

FIGURE ONE: EMERGING MARKETS THAT ARE ALSO AGING

Brazil

China

Mexico

under 15 over 60

35

Source: United Nations Population Division.

3525 2515 155 5

1.5 million by 2020. The research uncovered a similar story in the UK and Spain.

The Reality: By taking steps to increase the employment of older workers, countries can avert economic stagnation.

Myth 3: Employment is a zero-sum game, so retaining older workers will only worsen the crisis of youth unemployment. Unemployment is reaching record levels, particularly among the young. In December 2011, the UK crossed the threshold of one million unemployed young people, while in Spain approximately 52 per cent of 15- to 24-year-olds are unemployed. With so many young people struggling to gain a foothold, many observers be- lieve that retaining older workers will simply worsen the crisis. This view, dubbed ‘the lump of labour fallacy’ by economists, as- sumes that the number of jobs in an economy is fixed, which in turn results in a misguided focus on protecting existing jobs.

The U.S. National Bureau of Economic Research has found little evidence that older workers take jobs away from younger ones in the United States. In some cases, such as in France and Canada, the researchers also found that greater workforce partici- pation among older people was associated with greater participa- tion among young people, because of the increase in the overall economic pie. Civic Venture’s Encore program is a powerful ex- ample of offering second careers to older HP and Intel executives in the non-profit sector.

To spur overall economic growth, business leaders and poli- cymakers should devise incentives and training programs that will enable older workers to stay in the workforce, rather than push them out to make room for younger workers.

The Reality: Retaining older workers is likely to increase overall employment growth.

Myth 4: Older workers tend to be less productive. The myth is contained in this scenario: An organization primarily employs people aged 50 and over, having long tenure. While they are competent and knowledgeable, many are reluctant to em- brace new ideas, are uncomfortable with making changes, aren’t well motivated, and find early retirement increasingly enticing. Consequently, productivity is lower than in a workplace domi- nated by younger workers.

In reality, “productivity rises with age all the way up to retire- ment,” according to a study of German production line workers in a Mercedes-Benz truck factory. The authors concluded that although deteriorating physical ability meant older employees made more minor mistakes, these were “outweighed by the posi- tive effects, such as the ability to cope when things go wrong.”

E m

p lo

ym e

n t

(m ill

io n

)

FIGURE TWO: MORE OLDER WORKERS = HIGHER GDP

2010 14 135

15 140

16 145

17 150

18

155

G D

P (

U S

$ t

ri lli

o n

) 19

16020

16521

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

GDP, increment in alternative trajectory, constant 2010 prices (left scare)

GDP, current trajectory, constant 2010 process (left scare)

Employment, alternative trajectory (right scale)

Employment, current trajectory (right scale)

Source: Accenture, 2011.

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by Matt Fisher, San Francisco State University until May 2021. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

68 / Rotman Magazine Spring 2013

able flexible and remote work arrangements that might be more appealing to older workers. MITRE Corporation, a U.S. research and development enterprise, was concerned about losing its exper- tise in fields such as radar. It launched the “Reserves at the Ready” program to bring back retirees on a part-time, on-call basis.

The Reality: Organizations can sustain older workers’ productiv- ity by adapting the workplace to their needs.

Myth 5: The entrepreneurial spirit tends to decline with age. Setting up a new business is normally considered the preserve of the young. Witness the wave of young technology-company founders consistently featured on magazine covers. Governments tend to focus their entrepreneurship policies and objectives on the young. New funds are set up to help young entrepreneurs, such as the “20 Under 20” Thiel Fellowship announced in 2011. There have even been claims that for some sectors, like technology, the peak age for entrepreneurship is similar to that for top athletes, at 25 years old.

But recent research has found that age is not the pre-eminent factor influencing entrepreneurship, and that factors such as edu- cational background and professional networks are more likely to play a role. In fact, many people decide to set up a business in later life. In the UK, entrepreneurs aged 50 to 65 created 27 per cent of successful start-up companies between 2001 and 2005, equiva- lent to 93,500 companies. During that period, this age group ac- counted for 18 per cent of the UK population.

A recent survey in Finland of 839 small firms established in the country between 2000 and 2006, found that 16 per cent were set up by those aged 50 to 64. And in the U.S. between 2005 and 2010, entrepreneurial activity among those aged 45 and above in- creased during the recession, while it declined among the 18 to 44 year olds.

Older people are also more likely to succeed in their new business ventures, with surveys finding that ventures started by those aged 50 and over had the lowest failure rates. Entrepre- neurship among older people could potentially be even higher if age-related barriers were removed. For instance, access to seed capital and funding is crucial in setting up a new business. Yet many older people confront age limits for financial products and higher interest rates for loans, or are excluded from insur- ance products.

The Reality: Older people are more likely to set up a new busi- ness, and they’re less likely to fail.

Myth 6: Older consumers are an unattractive demographic for marketers. Many marketers don’t get excited about targeting products to older consumers. They aren’t big spenders, the argument goes, because they have less disposable income and often prefer to keep money in the bank rather than spend it. What’s more, they’re less mobile and have established brand preferences, so it’s harder to convince them to try new products, the skeptics believe.

Research reveals that these skeptics hold sway. A recent sur- vey found that only 37 per cent of companies find it fairly impor- tant to take into account the needs and preferences of older con- sumers when developing products for them. Most companies take great care in distinguishing between 20 or 40 year olds, but lump 50 and 70 year olds into the same category. This skepticism is also reflected in marketing practices, as research shows that only about 30 per cent of TV advertisements include someone over 50. Not surprisingly, 70 per cent of people over 55 believe that adver- tising does not speak to their needs.

In reality, what the skeptics fail to understand is that older consumers have vast purchasing power. In the U.S., consumers aged 50 and above outspent younger adults by approximately $1 trillion in 2010. In the same year, Baby Boomers were reportedly the dominant spenders in 1,023 out of 1,083 consumer packaged goods categories. In the UK, Baby Boomers hold around 80 per cent of all financial assets; and in Europe, the over-65 age group is estimated to be worth more than €300 billion.

Clearly, companies have not invested sufficient time, money and resources in understanding the untapped opportunity of- fered by older consumers. Companies should start by adopting more inclusive product development strategies and marketing approaches that include consumers of all ages. Some companies have already expanded their product range to cater to older con- sumers. For example, Harley Davidson — recognizing that the average age of its customer has increased from 38 to 46 years old in the last two decades — is designing new motorcycles to appeal to consumers in their sixties and beyond.

Marketing for ‘silver consumers’ however has to fit hand in glove with brand perception. A good example is Unilever’s Dove soap campaign that featured women from everyday life and

Ventures star ted by those aged 50 and over have the lowest failure rates .

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by Matt Fisher, San Francisco State University until May 2021. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

Rotman Magazine Spring 2013 / 69

captions like “Why aren’t women glad to be gray?” The campaign helped the company substantially boost sales around the world — no mean feat for the static soap category.

The Reality: Older consumers have vast purchasing power, mak- ing them an untapped opportunity for marketers.

Myth 7: Older consumers are less likely to adopt new technology. There is a common misperception that older people are slow to engage with new technologies. Older people can’t keep up with the latest technological developments, and aren’t early adopters or trend-setters. You can’t teach an old dog new tricks, these scep- tics believe.

Research shows that although this might have been true in the past, the story is now changing. It’s true that there is a digi- tal divide between the old and the young in many countries. In Germany, for instance, only 31 per cent of those aged 65 and over used the Internet in 2010, compared with an average of more than 75 per cent for the overall population. But this is due to lack of experience rather than age — it reflects a generational differ- ence rather than an inherent relationship between age and tech- nology adoption. Many of the younger Baby Boomers were in the workforce during the evolution of computers, email and the Internet, and were the first to understand the value of technology.

In Germany, 75 per cent of those aged 45 to 64 in 2010 regular- ly used the Internet, in line with figures for the overall population. Nearly 80 per cent of U.S. Baby Boomers use the Internet for social media, downloading music and movies, financial transactions and gaming. The tech-savvy middle-aged of today will comprise an equally tech-savvy cohort of seniors in the coming decades.

One product that has managed to transcend age barriers is Apple’s iPad: from design to marketing, the product is age-in- clusive, contributing to its wide appeal. For example, the power- ful zoom, intelligent keyboard and voice functions such as Auto- text mean that it’s very easy to use and accessible. Likewise, the advertising campaign shows people of all ages engaging with the product.

The Reality: The digital divide isn’t inherently age-based, and it will close over time.

Discarding Myths, Realizing Opportunities Both business leaders and policymakers must recognize that now is the time to address population aging. As a starting point, busi- ness leaders can assess their company’s preparedness on key di- mensions, by asking the following questions:

Julika Erfurt (julika.erfurt@ accenture.com) is a manager in Accenture’s strategy practice. Athena Peppes (athena.pep- [email protected]) is a senior

research specialist with the Accenture Institute for High Performance. Mark Purdy ([email protected] ) is a senior executive research fellow at the Accenture Institute for High Performance. All three are based in London.

tion aging?

changing needs of older workers?

exchange of knowledge between generations?

ligence on consumers aged 55 and over?

and preferences of older consumers?

Policymakers can make a start by focusing on the following questions:

ting lifetime skill formation?

people to stay in the workforce?

aging population?

searchers, business leaders and policymakers on the issues arising from an aging population?

or regulation — that frequently stymie the entrepreneurial potential of the older population?

In closing “Demography is destiny,” the sociologist Auguste Comte stated almost 200 years ago. This may well be true, but that destiny is not immutable. Just as aging individuals must adjust their life- styles to maintain personal vitality, societies with aging popula- tions must adjust business practices and policies to boost their economic vigor.

D o

N ot

C op

y or

P os

t

This document is authorized for educator review use only by Matt Fisher, San Francisco State University until May 2021. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860