The U.S. Bureau of Labor Statistics projects that by 2024 a quarter of the U.S. workforce will be over the age of 55, with one-third of that group aged 65 or older. Meanwhile, the U.N. projects the world’s population will grow by over 25 percent to an estimated 9.8 billion by 2050 – and more than 2 billion people will be 60 or older.
As the world’s population ages, businesses are forced to confront many challenges within the modern workforce – including the prospect of having five generations working for a company at any one time.
Aon’s 2019 Global Risk Management Survey, a biennial survey of organizations’ top risks, shows that the risks involved in an aging workforce – and the related health issues – climbed from number 37 in 2017 to number 20 in 2019. What’s more, over half of the 33 industries represented in this year’s survey expect aging workforces to be a top 10 risk in 2022. North American respondents to the survey projected the risk to be in the top five by 2020.
For organizations, tackling this risk and its accompanying health, retirement and on-the-job repercussions has become mission-critical.
An aging workforce presents several different challenges to countries and their economies. First, overall productivity is affected as an employee gets older. As workers age out of the workforce, there are fewer people contributing to the economy. The International Monetary Fund has warned that Europe and Japan face productivity challenges intensified by increasing longevity.
Second, as the workforce ages, employers must rethink their retirement and employee health programs. Aon’s The Real Deal: 2018 Retirement Income Adequacy Study shows that only one-third of U.S. workers will have saved enough to comfortably retire by age 67. Exacerbating the issue are health care costs, which are increasing faster than inflation.
Finally, an aging workforce can also have an impact on workplace injuries and employers’ workers compensation programs. An analysis based on findings from Aon’s proprietary Spectrum Analytics tool, which analyzes more than $7 billion in casualty-related claims, suggests that workers’ compensation claims for those aged 45 years and older were 73 percent costlier than claims for younger workers. Injuries for this demographic tend to be more severe and lead to greater time away from work, as evidenced by employers losing an average of 13 days more per claim for older workers compared with their younger counterparts.
Yet even as employers realize increased claims costs driven by the aging workforce, they must also contend with a growing talent gap as certain workers move toward retirement.
As The Workforce Ages, Talent Shortages Emerge
Beyond worker health costs and absenteeism, aging populations can aggravate talent shortages for many businesses. As workers age and move into retirement, they leave talent deficits behind.
Aon’s survey found that the manufacturing industry saw both workforce shortage and an aging workforce as key risk areas. According to research from Korn Ferry Institute, half of workers in the manufacturing industry today are aged 45 or older, and the industry is expected to face a 2 million worker global talent shortage by 2020 – a deficit that could grow to 7.9 million workers lost by 2030.
The potential shortages aren’t unique to manufacturing. Financial and business services companies, for example, could face a global talent deficit of 3 million workers by 2020 and 10.7 million workers by 2030.
Across industries, the global talent shortage could reach 85.2 million workers by 2030, with an accompanying significant economic impact.
From Ergonomics To Retirement Challenges: Addressing The Issues
A recent study from Dublin City University argues that employers should not just address the risks accompanying an aging workforce – they should also recognize the potential benefits.
The study offered the example of an automaker that had seen a decline in productivity as its workforce aged. By taking steps to adapt – such as introducing strength and stretching exercises for workers, chairs and tables that adjusted to each worker’s height and magnifying lenses to reduce eye strain – the company realized a 7 percent increase in productivity and a decrease in absenteeism.
Beyond ergonomic adjustments to accommodate older workers, companies must address the impact of the aging workforce on other aspects of their organizations, such as retirement programs.
One consideration is the difference in savings needs between the older workers heading into retirement and the younger workers replacing them. Aon’s The Real Deal: 2018 Retirement Income Adequacy Study notes that today’s retirement savings outlook is more challenging for younger workers than those nearing the end of their careers. In fact, unlike older workers, who can retire in their late 60s, millennials won’t be prepared to retire until at least age 70.
As the workforce becomes strained, the traditional retirement age of 65 is becoming more myth than reality. Further complicating the retirement-savings equation for younger workers is the fact that, according to Aon’s Real Deal study, medical inflation is expected to outpace salary increases over the course of their careers. Grace Lattyak, associate partner, Retirement Solutions at Aon, suggests that employers consider responding by “targeting communications to their employees based on age, as no single plan will be one-size-fits-all for each generation in the workforce.”
Working To Address The Aging Workforce Across The Organization
A comprehensive approach is necessary to successfully address issues surrounding an aging workforce, yet such an approach is missing in many organizations.
“Various groups can come together to build programs that factor in unique on-the-job-needs including health and retirement programs for those approaching a certain age,” says Joe Galusha, U.S. leader, Global Risk Consulting at Aon.
Vicki Missar, associate director, Global Risk Consulting at Aon agrees: to meet the challenges of an aging workforce, certain areas of the organization should collaborate to adjust retirement plan offerings as necessary, improve workforce wellness and address injury and disability management.
Aging workforce issues should indeed be a C-suite priority, as understanding the full spectrum of potential costs and savings across functional groups is essential.
Data are critical to aiding this effort. For example, biometric data collected during benefit enrollment could be matched with cost drivers such as short-term disability, long-term disability, Family and Medical Leave Act (FMLA), workers’ compensation costs, OSHA injury rates and performance criteria, according to Galusha.
And the importance of connecting data points – including associated costs – is echoed by Julie Norville, senior vice president and practice leader, U.S. Absence Management at Aon:
“Leaders that oversee benefits understand how their costs are associated with short- and long-term disability. Those within risk management understand the costs of worker’s compensation. However, most organizations lack a comprehensive view of the total cost of absence (including worker replacement costs and lost margins) to their organization. Even bigger picture, there is opportunity to better understand cost impacts throughout an organization.”
An Aging Workforce: A Challenge To Be Addressed, Not Ignored
The aging population is projected to become more critical. Businesses must manage the different needs of older workers while developing inclusive strategies that link the impacts of aging employees to the design of organizations’ facilities, operations and health and benefits programs.
Organizations that are able to incorporate relevant data into new and existing programs will have the best chance to overcome the complexities of an aging workforce and remain competitive in the face of demographic change.
“Bringing data together can paint a better picture of what can be done to best address an older workforce, including savings throughout an organization,” says Galusha. “There’s still considerable work to be done, however, to bring together the data from these disparate streams, but the opportunity could be great across workers, their employers and society as whole.”
The post When Demographics Shift: Managing The Dynamics Of An Aging Workforce appeared first on The One Brief.