Where Do Older Workers Go?

By Donald M. Atwater, PhD, and Daniella Pop

Managers know all too well that older employees are important assets-and liabilities. In today's competitive markets, managers are being challenged to assess the contributions and value of older workers-experienced, proven but declining skills, and expensive-compared to younger workers, who bring new skills, energy, and creativity, and are less expensive.
Employment options for older workers continue to evolve and public opinions of older workers and their employment options vary substantially by country, as this article shows. These differences reflect a range of choices that businesses can learn from and, if appropriate, use to realign their value and cost relationships for older workers.

 

Factors Affecting Employment Options for Older Workers

Older workers can be defined in many ways. In this article, we distinguish between pre-retirees (ages 50 to 60), active retirees (ages 60 to 75), and seniors (age 75 and older.) Individuals in the active retirees group are generally defined as older workers; they are over the mandatory retirement age for full-time employment in their country, but can work if they so desire.
The chart below (Figure 1) displays the percentages of individuals over age 65 from 1998 to 2007 for the five countries discussed in this article: Australia, Japan, the Netherlands, Romania, and the United States. These countries were selected for their diversity of economic conditions, societal values, and employment options.

Photo: Imad Birkholz
Figure 1 shows that the percentage of workers 65 years of age and older has increased substantially over the last decade, but at varying rates in the five countries of interest-The number of workers over 65 in Japan, for example, has already exceeded the 20 percent level. The growth rate of 65+ workers is also increasing for the other countries, though at a slower pace.

Figure 1: Workers Over Age 65[1]

Many factors, including societal cultures, affect the value and costs of older workers in different countries. In 2004, Robert House from the GLOBE Project examined 62 societal cultures and identified nine units of measurement for cultural dimensions.[1] In this article, five economic factors that affect the size and mix of employment opportunities for older workers were tracked across the five countries.

• Skills: Can older workers update their skill sets or are they obsolete?
• Compensation Choices: Can older workers who voluntarily or involuntarily retire find jobs that pay similar wages or are minimum wage jobs the only available options?
• Labor Shortages: In the national labor market, are there more jobs than qualified workers now or in the future?
• Worker Mobility: Are older workers willing to move to find jobs?
• Role of the Government: Is the government taking an active role in the development of better employment opportunities for older workers?

As shown in Figure 2 below, which summarizes the key findings, significant differences exist across the countries examined. These differences are discussed in detail in the country assessments that follow.

The results are also summarized below:

• United States: Labor shortages for skilled workers vary by occupation (e.g., skilled craft workers versus software developers). Value and cost comparisons consider both younger workers and outsourced or offshore workers less expensive alternatives to older workers.
• Netherlands: Workers of all ages highly regard their leisure time. As such, older workers strike a balance between salary levels and leisure time. Key companies are asking more older workers to voluntarily retire so that younger workers can replace them. The government is actively involved with unions and businesses to ensure that societal values are maintained.
• Japan: Worker mobility is low and compensation decreases are expected when workers cross the mandatory retirement age of 60. The government's role can best be described as "passive observer." The standard day-after-mandatory-retirement job opportunity for older workers is a low or minimum wage job. The number of older workers in Japan, as shown in Figure 1, is well ahead of other countries.
• Romania: Older workers fall into two groups. Those living in Romania and working for state-owned businesses are offered retraining options to shore up their skills. However, job opportunities for those who invest in new training are currently difficult to find. Other older workers with proven skills have found work at private companies outside Romania. Given pending labor shortages, older workers' return to Romanian jobs is important.
• Australia: Older workers are mobile and have a range of compensation choices. There are at least three reasons for this: 1) Jobs offered are for a fixed period-usually about six months; 2) Compensation is below full-time levels but above minimum wage; and 3) Workers have the option of selecting destinations they want to visit as well as work in. Since continued economic expansion depends on keeping older workers engaged, more choices are provided here than in the other countries studied.

Figure 2: Scorecard

Graziadio Business Report,  2008, Vol. 11, Issue 3
This article is copyrighted and has been reprinted with permission from Pepperdine University.

By Donald M. Atwater, PhD, and Daniella Pop

Employment Opportunities in the United States

The United States is aging at a slower pace than countries like England, France, and Japan. Here, older workers tend to be 60 and above and are generally eligible for retirement. Overall, employment opportunities for older workers can be characterized as minimal, except in selected local job markets. Businesses that value new technologies and work with new business models, such as Web 2.0 technologies and Internet-based advertising, tend to employ fewer older workers. Self-employment options, however, appear stronger than in other countries.

The U.S. government is projected to face serious fiscal burdens as the number of older workers increases and as more retire. Higher mandatory retirement age limits are being supported by the government and by businesses in selected industries.
In a July 2007 interview on CBS News, U.S. Comptroller General David Walker commented that Americans suffer from a fiscal cancer in the form of massive entitlement programs that the government can no longer afford and that are already 15 to 20 trillion dollars under-funded.[2]

Encouraging people to put off retirement could potentially improve the trend. However, the key issue is the comparatively high costs of older workers relative to other groups. For example, the average wage compensation for a software engineer in India is currently $14,100 (USD), while the average salary in the United States is $89,424.[3] Across all jobs, individuals age 45 and older in the United States earn almost one and a half times more than persons age 25 to 44.[4]

Additionally, job market flexibility is limited for older workers. Companies do not generally allow workers to keep their post-retirement positions but ramp down their working schedules. For many older workers, retiring often means leaving a full-time job and not being able to find another full-time job option. According to the U.S. Census Bureau and the Labor Dynamics Program, older workers are finding part-time jobs in school bus transportation, real estate sales and leasing, retail stores, health care, and accounting and tax preparation services.[5] Businesses offering such flexible work schedules and pay packages above minimum wage, but below off-shore compensation levels, are expected to find growing numbers of interested and available older workers. This is because many older workers are expressing concerns about the monetary burdens of being out of work for extended periods during retirement.

Employment Opportunities in Romania

When Romania joined the European Union (EU) on January 1, 2007, it was hailed as just the beginning of an economic success story. Inflation had decreased from 35 percent in 2001 to less than seven percent. Economic growth increased from negative rates during the 1990 to 1996 transition from a control economy to a market-based economy to reach 7.7 percent.<[6] Real Gross Domestic Product (GDP) growth was positive and gaining. However, in spite of the country's success, there is an unusually large older work force (in this case, over the age of 45) who worked in government companies but do not have the skills required to qualify for jobs in the newly opened private sector.

Romania's older work force decreased dramatically between 1990 and 1995 as socialist companies shut down and private sector businesses began to replace them. An estimated three million workers emigrated from Romania during the recovery process and still remain outside Romania today.[7] Emigrant salaries remain above Romanian salary levels so few incentives exist for such workers to return.

Taking into account the current level of economic growth, Romania will have 15 percent fewer workers than it needs across all sectors over the next ten years.[8] This shortfall could be even higher in sectors such as production, construction, retail, and financial services. A large pool of older workers could represent at least a partial solution to reducing the shortage. However, businesses appear uncertain about the usefulness of older workers who previously held government jobs.

The government assumes that a significant number of older workers want to re-enter the work force but do not have the skills for the available private sector jobs. As such, EU-sponsored Lifelong Learning funds are available to improve the skills of older workers.[9] However, a recent survey of employers found that while many older workers have more experience and even more job loyalty than younger workers, they were less creative, less willing to take initiative, less willing to learn new skills, less productive, and more expensive than younger workers.[10] In addition, older workers are skeptical that investments in new skills will be rewarded with private sector jobs.
Life expectancy for men in Romania was recently found to be 67 years of age, while the mandatory retirement age is 65.[11] In addition, pension system payments in Romania comprise 45 percent of the average wage in the year of retirement.[12] Consequently, the Romanian government has far fewer concerns with right-to-work extensions or financial pension fund solvency than other countries, such as the United States.

In Romania, the government remains focused on preparing for the pending labor shortage by: 1) Getting emigrants to return, and 2) Encouraging older workers to invest in new skills. So far, however, businesses have found an ample supply of active younger workers with lower compensation demands, so the employment opportunities for many older workers are limited. That could change if shortages materialize and dampen growth.

Employment Opportunities in Japan

As shown in Figure 1, the population is aging quickly in Japan and has been for some time. At the 2008 World Demographics Congress on Aging, the following simple but harsh representation of older worker employment opportunities in Japan was provided: A typical worker in Japan at the mandatory retirement age of 60 who wants to remain active will receive 30 percent of his or her current income, lose his or her job title, and report to all persons who reported to him or her.

With limited options, retired Japanese workers are taking low-skilled, part-time jobs. It is ironic that over the past decade, the Japanese have criticized the U.S. for creating and employing younger persons in "hamburger flipping jobs." Now older workers seeking work are finding "hamburger flipping" jobs their primary work option in Japan.

The Japanese government has yet to act. Unlike in EU countries, lifelong learning programs are not in place. And even if such programs were established, older Japanese workers would likely be skeptical that investing in new skills would lead to full-time or nearly full-time jobs with decent compensation.

Japan presents a national situation that will continue to be monitored since its population has aged more quickly than other countries and its businesses have taken such a strong stand by offering limited employment opportunities to older workers.

Employment Opportunities in the Netherlands

In the Netherlands, people live longer and healthier lives and work longer than in the United States. Based on the most recent World Health Organization's calculations, the healthy life expectancy of men and women in the Netherlands in years is 70 to 73[13] versus 67 to 71 in the United States.[14] Older workers (60+) do not often retire early and continue to add value to the economy and to society. However, some groups in the Netherlands worry that more needs to be done to offset the snowballing effects of its aging population.

Photo: Yuri Arcurs
The Netherlands' work week is shorter than that of the United States and other countries because workers have a high preference for leisure time.[15] Extending working hours and/or working lives will not be easy. The government is considering a tax benefits program that offers incentives to businesses that retain older workers. How well such a program will work remains to be seen.

Once workers reach age 65, the official retirement age, they receive both a state pension and an occupational private pension. The target income for pensioners from the combined public/private pension systems is 70 percent of their wages at retirement. That means an older worker would have to find a job where he would make more than 70 percent of his pre-retirement income to seriously consider continuing to work. If wages were paid in excess of the 70 percent threshold, rational workers would consider such alternatives.

Raising the mandatory retirement age remains a priority of the government. A number of reforms have already been established to strengthen older workers' incentives to remain active longer. These include the progressive abolition of early retirement schemes, the reform of disability insurance schemes, and the reinstatement of job search requirements for older, unemployed individuals. In the Netherlands, the strong and transparent relationships between business, government, and collective bargaining groups increase the potential that older workers will have desirable employment opportunities.

Employment Opportunities in Australia

In Australia, older workers are finding valuable roles to play in businesses and society. However, unlike the Netherlands, solutions are not being driven by the government; new ways to combine leisure and work are being implemented by older workers and businesses.
In the Australian labor market, business expansion has traditionally been limited by the size of the work force. The government has aggressively sought to expand the size of the labor market by setting high annual immigration targets. Immigrants often have specific work skills, such as technical programming, management, and other professional skills. Older workers who leave their jobs are free to move back and forth between work and leisure choices and they often take advantage of these options.

The high percentage of older workers employed in retail stores and resorts in the Hayman Islands, Daintree, and other high volume tourist destinations illustrates the mobility and flexibility of this group. Individuals who have retired from their full-time jobs can re-enter the work force by taking a three- to six-month contract in a geograp