The world of work you’ve known for decades is about to get a lot different. That’s because an important milestone in demographics is about to take place — at least for the wealthiest nations. According to the Wall Street Journal, 2016 marks a significant shift in the working-age population of the world’s most advanced economies. This year, that population will decrease for the first time since 1950.
What does this mean for you? In the near future, not much will be different, but as public policy makers and businesses begin to experience the aftershocks, expect some dramatic changes in the way societies and economies work. As Baby Boomers begin leaving the workforce in large numbers, tough questions will take center stage:
- What will be the retirement age of the future and how will a change affect quality of life post-retirement?
- What kind of financial safety net can retirees expect from government if they haven’t saved enough?
- Facing a diminishing workforce, how will employers entice older workers to postpone retirement?
- Does lengthening life spans require seniors to work more years to offset the growing cost of healthcare?
Changes accelerate in workforce trends
As large numbers of workers around the world begin stepping down from their jobs, employers are bracing themselves for a significant loss of experience and talent. Across North America, Europe and Asia, countries all face the same challenges. At the same time, the burden on workers will grow as they begin to support a proportionally larger base of retirees.
An often-cited indicator, the Potential Support Ratio (PSR) is the proportion of working-age people (15 to 64) to retirees. According to Yale University, in 1950, the global number was 12. Today, that figure has dropped to eight and will further decline to four by 2050. The U.S. ratio today is around four, but for many older industrialized nations, the figure is much lower. Japan has a PSR of around 2, the lowest in the world. By 2050, countries such as Germany, Japan and South Korea will see their numbers fall to 1.5. while the U.S. ratio is expected to fall to around 2.5.
This decline in industrialized nations means relatively fewer workers will pay taxes and participate in the global workforce, a troubling development as the ranks of retirees swell and the burden of pensions and health care rises. Alarmed, some countries have implemented reforms such as raising the retirement age and are considering scaling back public benefits for retirees. However, policies remain unchanged in many continental European countries, which will have a detrimental impact on public spending and taxes in the future.
Some of these concerns revolve around public health care spending, which is rising more quickly than pension costs in most countries. In the U.S., government spending on health care per capita is the highest in the world at nearly $6,000, according to a study published in the American Journal of Public Health. The three big programs — Medicare, Medicaid and Veterans Administration — will see costs outpace inflation. However, the U.S. is not alone as many European countries have also experienced a rapid rise in health care costs.
Pensions under fire
Pension plans around the world also stack the cards in favor of workers retiring early. Those who postpone retirement by a year or two rarely see a corresponding increase in payouts later on, which means there is an incentive for workers to retire on-time or even early. Around the world, many authorities are already cutting back benefits in anticipation of huge retirement obligations coming due.
What does this mean for policy makers and companies operating in these markets? For one, talent is about to get more difficult to find and retain. This trend will continue for many years as retirements occur in large numbers, outpacing the number of younger workers entering the workforce. Efforts to provide more youth training are on the rise, but that may not be enough. Hiking the retirement age is a recurring talking point among policy makers, but few have enacted such a radical proposal. However, as the demographics become reality, world leaders may not have a choice. According to a Yale University report, by 2050 the global retirement age will have to increase to 73 in order to maintain the current PSR.
So, how will this impact your place in the workforce? Expect more companies to encourage workers to extend their careers. By offering part-time positions and flexible work schedules, as well as many other benefits, businesses hope to attract and retain more older workers. In the Netherlands, Randstad recently started the +Power Initiative, which is aimed at workers 50 and older. By emphasizing their best attributes such as their energy, balance, willpower, involvement and experience, the initiative is a way to connect employers with some of the most seasoned workers in the talent pool.
Retirement is an event many of us look forward to, but with the demographics pointing to significant future challenges for many societies, reconsidering when you do it may be a wise move. Not only will your skills and experience be more cherished in the years ahead, but your contributions will lead to a more active lifestyle while having a positive impact for the public good.
About the author
Jacques van den Broek is the CEO and Chairman of the Executive Board of Randstad Holding NV. He is responsible for operations in Germany, the UK, Australia, New Zealand, China, Hong Kong, Singapore and Malaysia, as well as for Business Concept Development, Global Client Solutions, HR, Marketing & Communications, Public Affairs and the Inhouse concept. Mr. van den Broek graduated with a degree in law from Tilburg University and briefly held a management position at Vendex International before joining Randstad as a branch manager in 1988. Over the years he has held various management positions at Randstad, including Regional Director in the Netherlands and Marketing Director Europe. In 2001 he became CEO of newmonday.com and in 2002 he was appointed Managing Director of Capac Inhouse Services (now called Randstad Inhouse Services). At the time he was also responsible for Randstad Denmark and Switzerland. Mr. van den Broek joined the Executive Board in January 2004.