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Retiring Myths: Age-driven Employment Attrition

Edward Vitalos, IBM Business Consulting

Before we turn to the myths – and there are a number we need to dispel – let’s lay out some indisputable facts about the maturing workforce. The first is that the workforce is indeed getting older. Workers over age 45 now constitute the largest segment of the industrialized world’s workforce, and the number of workers age 55 or older is predicted to double in the next decade.

The second indisputable fact is that the pool of qualified workers is shrinking – while demand is increasing. Birthrates are low and declining throughout the industrialized world. Universities in the U.S., Japan, and Germany, among other places, aren’t producing enough graduates in “high skill” areas such as computer science, engineering, and the “medical” arts to meet demand.

The third troubling fact is that as a result of these trends, employers in every industry face the loss of qualified, experienced employees at all levels. Meanwhile, many of these employers have insufficient numbers of internal candidates to replace these workers, and insufficient time to train them appropriately. So the prospect of a critical and perhaps crippling labor shortage is very real – and growing.

These are the facts. At least as crippling are the myths surrounding this emerging generation of retirees, known as the Baby Boomers, the first of whom will turn 60 this New Year’s day. It’s important to debunk these myths – six big ones in all -- because failure to do so will mean, invariably, the wrong response on the part of employers to the onset of the maturing workforce.

Myth #1: Future retirement patterns will mirror past ones. The good news for many employers is that plenty of Baby Boomers plan to work past retirement age. The bad news – potentially – is that research shows they want to significantly alter their work schedules and settings. According to a recent Merrill Lynch survey, 42% would like to “Cycle between work and leisure,” 17% “Never work for pay again,” 16% “Work part time,” and 13% “Start own business.” Notably, only 6% want to “Work full time.” Are employees who want to retain these workers, in part or in whole, prepared to accommodate these preferences? Are they even aware of them?

Myth #2: Adequate replacements exist for retirees. You’d think this myth would be dead and buried by now, but inexplicably, it’s alive and well. By 2010, the U.S. alone, due in large part to the educational failings mentioned above, will be short at least 10 million qualified workers. Other factors include increasing global demand and availability (thanks to technologies like the Internet), declining birthrates, decreased on-the-job training, and more. Even the (relatively) extensive immigration here won’t be able to make up for it. The danger is that these multiple trends, if left ignored or unchecked, will converge to create a severe and perhaps irremediable shortage of workers. The first victim will be individual institutions and industries. The second victim will be the country itself.

Myth #3: Organizations are prepared to address Baby Boomer retirements. Though in a recent survey of HR professionals, 70% said that the loss of talent is a real problem – actual or potential – only 11% have instituted policies or programs to address it. The vast majority has done nothing at all, and remarkably, nearly 40% said they’re just becoming aware of the problem. It’s doubly remarkable since the demographic trends have been so clear for so long.

Myth #4: Organizations have plenty of time to develop replacements. It might depend on what you call plenty of time, but it takes four years to qualify an electrical lineman, five years to qualify an air traffic controller, and an average of eight years to qualify a doctor. For many crucial positions, the qualification time is unknown or undefined. On-the-job training, the prevalent mode in many professions, is fine when the workforce is stable and predictable, but presently, it’s anything but that. Unfortunately, the time needed to decide and institute fundamental change – including new policies, processes, and supporting technologies – will also be measured in years.

Myth #5: Immigration and outsourcing are the answers. Here the verdict is yes and no. In the short run, these steps do tend to alleviate the most pressing aspects of the worker shortage, but in the long run, they amount to the abandonment of the strategic development of a company’s or country’s workforce. Besides, immigration policies are notoriously subject to change – usually for political reasons – and the increasing global demand for certain skills makes outsourcing risky too. Though outsourcing works for many “support” functions – like call centers or IT helpdesks – it’s often ill-suited to the organizationally contextualized, “subject matter expert” positions that comprise a significant portion of today’s impending retirees.

Myth #6: Organizations that ignore the problem will somehow be okay. This isn’t a problem that, even if far off for some companies, can be slighted, circumvented, or just wished away. It’s real, it’s inevitable, and to handle it successfully, what companies need to start doing right now is breaking through the barrier of myth and even misinformation and start asking themselves some tough, pointed questions:

• Who ’s likely to leave my company? What’s my projected attrition, what’s the probable impact, and how ready am I for it?
• What’s the likely danger from extensive retirement? What’s my crucial talent, now and in the future?
• When are retirements likely to hit, and how much time do I have to respond?
• How exactly will I respond? What’s the right strategy, and what are the specific steps I need to take – starting now?

The fact is that if you can’t answer these questions, you don’t even begin to know what you don’t know. Your organization could be in real trouble.

Yet the heartening truth about the maturing workforce is that if it’s recognized and responded to early enough, it’s a chance not only to avert acatastrophe, but to take your business in new and better directions. There’s no avoiding replacement costs for retiring workers, including recruiting and training, but there’s an opportunity – in fact an obligation – to ponder change in what the workforce will do, and how it’ll do it. Companies ought to seize this chance, because it might not return for another generation.

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Edward Vitalos is Partner, Human Capital Management, Aging Workforce Practice, IBM Business Consulting Services. He can be reached at evitalos@us.ibm.com.