Aging Workforce Culture and the Uncertainty of Market Solutions James F. Follwell Economist

FLMM Labour Market Information Forum 2007


Aging Workforce Culture and Market Solutions

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Aging Workforce Culture and the Uncertainty

of

Market SolutionsJames F. Follwell

EconomistPEI Dept. Development & TechnologyLabour Market Development Division




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The views expressed in this presentation are those of its author and do not necessarily reflect the policies or views of the Government of Prince Edward Island




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Components of Presentation

• Review of demographic and labour characteristics of older workers and an aging work force

• Some scenarios emerging from the evolution of an aging population

• Thinking about nature of policies in response to an aging work force – efficient adjustment




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Questions

• Is there a rationale for developing pro-active policies and programs to adjust to an aging workforce? (Or leave to the market?)

• Can we foster an efficient transition?

• Is there a special role for Labour Market information?




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Aging Workforce and Older Workers

• Of course, when we talk about an aging workforce we mean one in which the average age of is advancing, or the larger age classes are getting older

• Older workers are a feature of any workforce, whether it is aging or not

• While subsuming the relative growth of the older age classes in our population and workforce, older workers are a subject of interest for workforce development in any case




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The Now Familiar Demographic Projections

• The outlook, based on the base population, parameters for life expectancy, health trends, fertility, immigration, and some other factors, is portrayed by the familiar progression dominated by the ascent of the baby boom cohort

• A relatively older population would seem to include a relatively older workforce




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Canada Population and Projections

Source: Statistics Canada, Population Projections for Canada, Provinces and Territories 2005-2031 Cat. #91-520-XIE;Scenario 3 (medium)

Canada Population 2005

1,500 1,000 500 0 500 1,000 1,500

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-89

90+

Persons x 1,000Female Male

Canada Population Projected 2011

1,500 1,000 500 0 500 1,000 1,500

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-89

90+



1,500 1,000 500 0 500 1,000 1,500

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-89

90+





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Early Intermediate Term


1,500 1,000 500 0 500 1,000 1,500

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-89

90+





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PEI Population and Projections

PEI Population 2011 Projected

6 4 2 0 2 4 6

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-89

90+


PEI Population 2005

6 4 2 0 2 4 6

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-89

90+


Source: Statistics Canada, Population Projections for Canada, Provinces and Territories 2005-2031 Cat. #91-520-XIE;Scenario 3 (medium)


6 4 2 0 2 4 6

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-89

90+





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Early Intermediate Term


6 4 2 0 2 4 6

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-89

90+





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PEI and Canada Age Class Distribution


-10.0% -5.0% 0.0% 5.0% 10.0%

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-89

90+

Percent of TotalFemale Male


-10% -5% 0% 5% 10%

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-8485-89

90+

Percent of TotalFemale Male

PEI population will have a somewhat higher proportion of pre-retirement age folks, but as well, relatively more workforce entering age




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Are These Demographic Trends Inevitable?

• Sure looks like it!• Fertility rates are not rising significantly

and if they were, it wouldn’t matter for the planning horizon

• Immigration into Canada is managed and is unlikely to be ramped up very much

• Are there any unknown factors which could make a difference in the demographic trend?




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The PEI Labour Force – Older Workers Profile

• Age classes 55 to 64 during the period 1996 to 2005

• The proportion of the population (15+) rose from 11.0% to nearly 15%

• Proportion of labour force increased from about 8% to over 13%

• Proportion employed increased from 8% to over 13%

• Proportion of unemployed increased from about 9% to 14.5%

• Unemployment rate among 55 to 59 declined but among 60 to 64 varied and ended unchanged (15%)

Source: Statcan LFHR




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PEI Labour Force– Perspective on EI Beneficiaries

• Analysis of EI data on beneficiaries suggests that older workers are almost twice as likely to receive EI benefits as they are represented in the labour force

• At about 16% of the annual average number of beneficiaries, this level is similar in both urban and rural areas of PEI

• We do not have a time series sufficient to show a trend




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Older Workers – Do we really Know Them?

Views about older workers include, they…• bring valuable experience, knowledge and know-how to the

workplace• have diminishing productivity• lean more slowly• learn more efficiently• have diminished productivity because of declining health• are more reliable• are loyal• perform dependably• can pass along experience and act as mentors for younger and

core age workers• should retire so that core age and younger workers can move

up the organizational ladder• are less innovative and creative• bring practical ideas to the workplace …




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Aging Workforce Culture

• An amalgam of attitudes from all age classes• Reflects dominant groups’ attitudes created in post WWII era

• Expectations for continuing economic growth• Older workers lived through the “great inflation”• Have experienced periods of transition, such as

unemployment, downsizing, globalization• Likelihood of good pensions, assets, or at least a social

safety net pension • Possibility of early retirement

• Increasingly risk averse• Relatively less mobile – want to stay settled or move to

retirement destination, often breaking ties with community in which employed

• Increasing awareness of need for skills and education demanded in tech/globally competitive economy (attitudes of younger and early core age groups)




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Selected Scenarios of the Potential Effects of Workforce Aging

• Demographics is useful because of its deterministic nature, but the economic outcomes of demographic trends and factors may be emergent properties or events, and thus less amenable to forecasting

• So, let us look at some “scenarios” for macro effects of an aging population and workforce, which may determine the macro and micro characteristics of our workforce and how those characteristics play out in the economy in the next 5 to 15 years.




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Scenario 1: Inflationary Environment

• Critical factors:More slowly growing workforce The workforce is aging and by 2012 the baby boom

cohorts will be well into retirement mode (assuming no significant changes in attitudes, expectations, labour practices…)

The economy is now and will continue to be increasingly based in technology and knowledge sectors, such that labour market will be tight for sought after, qualified, productivity-capable workers

Immigration will grow as it has been, highly managedLabour productivity will grow only a bit faster than is

has in the past decade




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Scenario 1: Implications

• These conditions set up inflationary expectations or inflation, as the demand for workers is chronically ahead of the supply of skilled, knowledge workers; workers (all of us) have pricing power, offset by price effects and/or decline in real output

• Globalization only partly offsets the upward pressure on wages and salaries

• Central Bank reacts by increasing interest rates but cannot ex post do anything meaningful about the age class structure and “worker capability”

• Inflationary and higher interest rates reduce value of real estate and securities assets – i.e. pensions




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• Workers of all age classes seek higher wages, but this may include through productivity, by acquiring skills and knowledge, if workers internalize this option and there is adequate training and educational capacity

• Older workers, especially baby boomers who remember the inflationary 1970’s and 80’s, react quickly to incipient inflation by becoming more risk averse and a significant number may:

•Return to the active workforce if retired, or• If not already retired, continue working

indefinitely

Scenario 1: How workers (esp. Older Workers) react




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Scenario 2: Constrained Economy

• The same critical factors apply as in Scenario 1

• But the potential or actual outcome is one of a constrained or, WCS, prolonged slowed growth, even recession

• The rate of economic growth is constrained because there are chronic shortages of skilled and knowledge workers! (Sound familiar already) needed even for (or because of) a highly technological, service economy; capital can only go so far as a substitute




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• These conditions set up recessionary expectations, as firms hold off on expansion investments because they can’t get enough capable workers

• Globalization makes it worse because Canadians have vacated the “low wage” industries, that production having long gone to other nations

• Central Bank reacts by lowering interest rates but cannot ex post do anything meaningful about the age class structure and “worker capability”

• Slow or no growth reduces value of real estate and securities assets – i.e. pensions

Scenario 2: Implications




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• Workers of all age classes have moderate wage demands but those in the know – mostly younger workers, compete aggressively for training and education to gain advantage, (again assuming workers internalize this option – role for LMI)

• Workers without the sought-after skills and knowledge form a new cohort of chronically unemployed

• Older workers, especially baby boomers who have no experience with prolonged slow and no growth (the GD) react slowly; they would like to:

• Return to the active workforce if retired, or• If not already retired, continue working

indefinitely• But many don’t have the appropriate skills and education• They also don’t know how to adjust to lower expectations

Scenario 2: How workers (esp. Older Workers) react




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Labour Productivity Canada and Provinces

Labour Productivity (Real $1997)

Re

al

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97

$s

GD

P /

Ho

ur

Wo

rke

d

1996 1997 1997 1999 2000 2001

Source: Centre for Studies in Living Standards

2002 2003 2004 2005




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Scenario “X” - Synthesis

• Is there an intermediate path of economic response to the aging workforce? Would such a path occur spontaneously?

• Well, many of us, as individuals and as a society generally like to think we have some degree of control over our future and people who attend meetings like the LMI Forum would seem to be “positists” – we work to find ways to solve problems or guide development

• So, Scenario “X” is the synthetic process, to which we make inputs of public policy and private endeavors

• Are there some workforce development management priorities to achieve the synthetic outcomes?




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Managing the Workforce for Economic Growth, Price Stability, and Productivity

• Nyce and Schieber, in their book The Economic Implications of Aging Societies (2005), discuss the challenges for developed economies of not having enough workers to satisfy consumer demand for goods and services over the next couple of decades. They say that there are two solutions (with which we are well familiar):Rising productivityHigher participation rates of workers, including

older workers• Others have also suggested increased “work

intensity” (a reversal of a long term trend to shorter work weeks)




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Education, Education, Education – and Other Stuff

• We accept that education and skills translate into productivity and higher incomes over time

• A more productive Canadian workforce needs education at many levels, from literacy to trades skills to management techniques to post Doc research

• An aging workforce in the context of an increasingly technological economy is likely to be more needful of education, broadly defined




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The Potential of Older Workers

• Attitudes about older workers, including those held by some older workers and some older people, are shaped by socio-economic beliefs and experiences; these attitudes concern:

• Performance ability in the workplace (intellectual, physical (incl. health), and socio-economic)

• The “normal” life cycle of work toward retirement

• Expectations for retirement income

• Attitudes can create self-fulfilling outcomes




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Older Workers:They’re Getting More Important

Older Worker Age Classes in Labour Market Population CanadaX 1,000

Projections

Age Classes 2005 2011 2021

Total 15-64 22,367.3 23,604.9 24,181.1

Older 55-64 3,526.2 4,355.3 5,220.6

Older % of Total 15.8% 18.5% 21.6%

Total 15-69 23,560.8 25,118.0 26,365.8

Older 55-69 4,719.7 5,868.4 7,405.3

Older % of Total 20.5% 23.4% 28.1%




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The Potential of Older Workers

• Older workers can be one solution to our workforce development challenges, if society, our economy, and of course older workers themselves want to make it so

• There are a number of approaches to enticing older workers to remain in the workforce or return to the workforce, but the conditions which would bring this about are likely to include a change in attitudes

• That change in attitudes includes engendering a more widely held belief that workers including older people can efficiently upgrade their knowledge and education, and transition to a longer work life or more intensive work life.




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Challenge : Achieving Worker Capability Levels in an Efficient Way for the Economy

• A challenge for governments, firms and individuals is to achieve workforce development efficiently

• This might be measured in terms of achieving “worker capability”, a mix of skills, education, and socio-economic characteristics

• Efficiency criteria may include: • Minimizing the externalities of inadequate worker

capability• Equalizing the marginal cost of achieving worker

capability across age classes and within age classes• Enabling workers to participate at their optimum

productivity - such as by facilitating skills and knowledge acquisition

• In the case of older workers, finding ways for employers and employees to reach accommodations reflecting the characteristics and preferences of older workers




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Central Role for Labour Market Information

• Throughout my talk I have alluded to the role of LMI:

• LMI is essential to the efficient operation of markets – perfect knowledge of market participants often assumed – but in reality there are costs, so we must allocate

• LMI can function to increase awareness of the nature of the aging workforce – the implications for workers in all age classes, and for the evolution of the economy

• LMI has a central role in building worker capability, particularly among older workers




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Revisiting Questions

• Is there a rationale for developing pro-active policies and programs to adjust to an aging workforce? (Or leave to the market?)

• Can we foster an efficient transition?

• Is there a special role for Labour Market information?




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Aging Workforce Culture and the Uncertainty of Market Solutions James F. Follwell Economist

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