(Essay 91) Economics

August 7, 2012, 8:10 PM GMT+10

It’s time to see older workers as an asset

Why not keep older workers on the job?

Chris Farrell

https://www.bloomberg.com/news/articles/2012-08-07/its-time-to-see-older-workers-as-an-

asset

The footprints of an aging America are everywhere. Every day it seems another blue chip

report is issued worrying about the surging ranks of the elderly. All boomers will be 65 and

older by 2030. (The Rolling Stones’ memorable line “What a drag it is getting old” hurts,

doesn’t it?) Put somewhat differently, 19.3 percent of the population will be at least 65 in

2030, up from 13 percent in 2010, according to U.S. Census Bureau projections. The litany of

fears that goes along with an aging population ranges from a rising tide of entitlement

spending starving the public purse of money for productive investments, to Corporate

America’s innovative energies being depleted along with graying hair and aching joints of an

older workforce.

Demographics, however, aren’t destiny. Instead, an aging America is an underappreciated

and unexploited economic resource in a highly competitive global economy. Take Europe vs.

the U.S. In many parts of Europe there isn’t the kind of part-time, flexible work that’s

available in the U.S., where federal laws have outlawed employment discrimination against

age since the 1960s. Most European countries have only recently instituted such legislation.

And Europe is still struggling to convince workers to stay on the job longer. The U.S. labor

force participation rate of older male workers began climbing by the end of the 20th century.

Older women are remaining employed longer, too. “Yes, America has an aging population,”

says Nicole Maestas, economist at the Rand Corp., the Santa Monica (Calif.)-based think

tank. “The upside of that is a whole generation of people who are interested in anything but

retirement.”

The shift in sentiment is propitious, since the impact of working longer trumps demographic

gloom. The economic dependency ratio—the number of nonworkers 16 and older compared

with the number of workers 16 and older—was 50 to 100 in 1990. The Bureau of Labor

Statistics predicts the ratio will leap to 62 adult nonworkers per 100 workers in 2030, with

most of the increase coming after 2010. Government statisticians assume in their forecast that

labor force participation rates will increase though 2020 and then level off. But if this rate

doesn’t decelerate, the economic dependency ratio in 2030 would be 53, a negligible

difference over 4 decades. In other words, the concern isn’t aging: It’s working.

Of course, it’s difficult to be optimistic about jobs with the unemployment rate at 8.3 percent

38 months after the National Bureau of Economic Research officially declared the Great

Recession over. Nevertheless, the business cycle will eventually gather momentum. Plenty of

jobs will be created from now until 2030, and the odds are good that many of the positions

will be taken by older Americans. The trend toward staying in the labor force later in life took

hold about two decades ago, and the transition toward retirement is increasingly complex as

people forge different work paths in their older years, including downshifting to part-time

work. Rand economist Maestas has found that 26 percent of retirees reversed their decision

and returned to work, either full time or part time.

The “work longer” mindset reflects a number of fundamental factors that aren’t about to

dissipate. Perhaps most important are the high education levels achieved by boomers, the

shift toward more intellectually creative and less physically demanding work in many sectors

of the economy, and the huge wave of women entering the workforce. The rewards to earning

a paycheck longer rose starting in the early 1980s, when the gains of waiting to file for Social

Security benefits increased from 3 percent annually to 8 percent (stopping at age 70), along

with the decline of the defined benefit pension plan (in the private sector, at least). Money

plays a role, too, with two bear markets and two recessions in less than a decade savaging

savings. The median 401(k) and IRA balance for households approaching retirement is

$120,000, roughly the same number as in 2007, according to the Federal Reserve’s recently

released 2010 Survey of Consumer Finances.

An aging population may be inevitable. A decline in worker productivity with an aging labor

force isn’t. That’s a lesson from an intriguing experiment by BMW at its plant in Dingolfing,

Germany. Management expected the average age of workers to increase from 39 years in

2007 to 47 years in 2017. To better understand the productivity implications, the luxury

automaker modified an assembly line and staffed it with a mix of workers typical for 2017.

The “pensioner’s assembly lines” productivity gained after BMW introduced 70 small—

mostly ergonomic—changes, such as adding barbershop chairs so workers can perform tasks

sitting down or standing up and orthopedic shoes for comfort. The total investment: $50,000.

“But the 70 changes increased productivity by 7 percent in one year, bringing the line on a

par with lines in which workers were, on average, younger,” according to a 2010 Harvard

Business Review article, “How BMW Is Defusing the Demographic Time Bomb.” The article

added: “Current performance stands at zero defects.”

Productivity matters more than demographics. For example, a half-century ago there were

about five workers for every retiree, a figure that has shrunk to less than 3 to 1. Yet over the

same time period, American living standards have risen smartly, thanks largely to

productivity growth. If productivity continues to run at its current nearly 2.5 percent annual

rate, the average worker will produce more than twice as much in an hour of work 30 years

from now compared with today, points out Dean Baker, co-director of the Center for

Economic and Policy Research in Washington.

Taken altogether, an aging workforce is a competitive advantage. Instead of bemoaning

America’s older population, policymakers and corporate chieftains should concentrate on

keeping them productively on the job longer. In international comparisons, the U.S. has long

garnered admiration for its productive workforce, innovative companies, superb universities,

and dynamic labor market. It’s time to add older workers to that list.