Population aging has a significant impact not only on society but also on economic growth. Two of its consequences:

This article uses examples from the Netherlands and other countries in Europe to:

The European Commission predicts that there will be a shortage of 20.8 million employees (6.8 %)¹  in the European Union by 2030. The health care sector in particular is expected to face a major shortage of qualified personnel. In the Netherlands alone, to guarantee the same level of care as is offered at present, the number of health care workers would have to increase from 13 % of the working population in 2009 to 22 % in 2020.

On the one hand, European countries are confronted with the increasing cost of health care and pension payments, and on the other, they face a falling number of people in active employment. In addition, the average life expectancy across Europe has increased. The total amount paid in pension benefits and health expenditures will therefore increase sharply in the coming decades.

From a macroeconomic perspective, the active working population will have to finance the largest part of this expenditure. In a publicly funded system, this occurs through income tax. Most European countries are currently reforming their health, social insurance and pension systems to reduce costs and introduce greater efficiency through competition. Despite these measures, elderly employees will have to work longer to ensure that sufficient funds are available in these systems. European governments are therefore making an effort to ensure that employees work longer.

Due to the reduction in the number of active employees and a greater demand for health care workers, the shortage in the labor market will increase and employers will be compelled to retain older employees.

In the current economic crisis and the accompanying rise in unemployment, the considerable tension in the labor market has shifted to the background. But the dire need for qualified employees in the health care sector has not gone away. As the economy recovers, these shortages will once again emerge in full force. And if the present financial crisis results in the writing down of pension investments and entitlements, employees will have to work longer just to enjoy sufficient pension benefits.

It is becoming apparent that all stakeholders – governments, employers and employees – are being forced to deal with the realities of the aging population and older workforces retiring later than expected.

In 2006, a study published by Nidi² showed that the attitudes of European employers toward elderly employees differ from country to country. In Greece  and Spain, for example, population aging is far lower a priority on the discussion agenda than in the Netherlands and the UK. (Dutch employers tend to expect higher labor costs and lower productivity, while British employers are concerned that they are dependent on older employees.)

Some employers in Europe fear that a greater reliance on older employees will harm their businesses directly, but most are not addressing this issue. Only 11 % of employers have developed a strategy for recruiting elderly employees, and only 13 % have addressed the problem of retaining them, even after the date of retirement³ . With such cautious attitudes, employers run the risk of missing the opportunities offered by their older workers.

Moreover, many employers do not have sufficient experience in dealing with aging workforce issues or with the accompanying financial risks, capacity problems and struggles to align with collective labor agreements. This may have undesirable consequences on labor productivity in the long term – as in the scheme adopted by Dutch hospitals, in which employees over 55 are not required to do irregular shifts. The likely scenario for the future is that problems with capacity and scheduling will arise as the average employee age increases. Additional leave for elderly employees and early retirement options will also have a negative effect on personnel capacity and labor productivity in the long term.

The Nidi research highlighted that Dutch employers often regard older employees as less flexible, insufficiently educated, too expensive and less healthy. The figures do in fact show that with age, the probability of disability and absenteeism increases. 

Yet the probability of disability appears to fall for the oldest age group. This is because employees aged 45 − 55 who have a higher probability of disability may choose to retire at or before age 55, creating a relatively healthier workforce in the older group. Until recently, retirement before age 65 was possible on the basis of a pre-pension scheme, but the Netherlands will likely see a larger group of older workers with higher disability rates than in the past.

Other research⁴  shows that the physical and psychological health of people over age 70 deviates only slightly from that of younger employees. A large group of employees, even up to more senior ages, are healthy and are certainly capable of carrying out the responsibilities of their occupation. This leads to the conclusion that the majority of employees can be deployed well, although a higher probability of disability and death should be taken into account.

Employers should establish the extent to which it is possible for older employees to continue working within their organizations and whether it is desirable that they do so. Older employees are often deployed and retained for longer periods at the expense of labor productivity, but this depends on their activities. To determine the right level of retention, employers must draw up policies and take actions to keep their employees fit and motivated with a good work/life balance, which depends on individual circumstances. For instance, one employee at age 55 may have already raised his or her children, while another employee of the same age may still have young children and/or be involved in volunteer work. An employer can take these factors into account by offering flexible employment options so that employees can better align their working conditions according to their individual needs.

In Europe, Finland has taken the lead in dealing with population aging, having introduced its first changes approximately 25 years ago. These were mainly academic, with a considerable portion comprising sociomedical research. However, whereas 10 years ago in Finland only one in three people between ages 55 and 65 worked, this figure has since increased to one in two. Within the European Union, the growth in the number of active employees above age 55 is highest in Finland, followed by the Netherlands. Over the next 20 years, the share of employees above age 65 is expected to double in Finland to 40 % of the total working population.

 The Finnish Institute for Occupational Medicine has developed a tool, Ilmarinen, for keeping the working population as fit as possible − the “Work Ability Index” (WAI). By posing a number of questions, a personnel officer can obtain insight into the performance level of employees relative to their best performance level on record. New entrants also are assigned a WAI to establish a benchmark against which future capabilities can be measured. On the basis of this, actions can be taken at the corporate and individual employee levels.

The most important practical objectives of the Work Ability model are to improve work content and the work environment; develop the work community and work organization; and promote the health and professional competence of employees. In practice, roughly one-third of employees above age 55 have a low WAI.

Targeted action, however, can improve work ability. Possible actions include :

The issue of population aging cannot be treated in isolation, but must be embedded into a company’s overall workforce strategy. To formulate policies targeted at increasing the work ability of all employees, an employer needs to understand the demographic makeup of its personnel and the accompanying financial and capacity risks. This can be done by means of personnel planning software developed specially for research of this type.

By combining the insights that result from this analysis with the overall objectives of the company, appropriate total workforce strategies (including those for elderly employees) can be determined. These strategies will affect the company’s policies and programs in the areas of health, absence management, disability, work flexibility and retirement. Armed with this information, a company can make decisions on the financial risks that it wishes to bear and those that it wishes to pass to an insurer.

Organizations that face aging populations should also further investigate the area of knowledge management: 

• How is knowledge transferred and recorded within the organization?
• How are older employees involved in this transfer? 

   

After all, they are the guardians of one of the company’s most valuable assets − institutional memory, which includes knowledge of what has been done in the past (what has worked well and not so well), information about customer relationships and intellectual capital.

The themes discussed above are the elements that should form part of a broad human capital management strategy to better manage an aging population.

Specific actions in the following areas will determine how productive this important employee segment will be to a company’s success:

Conclusion

Those employers that take the time to understand the needs of their employee segments, including older workers, by analyzing the effects of policies and programs on productivity will benefit in the long run. An effective human capital management strategy that links workforce, compensation and benefits components to better manage an aging population will pay dividends in the future.

Notes

1. Working Conditions of an Ageing Workforce, European Foundation for the Improvement of Living and Working Conditions, 2008.

2. Dealing with an Ageing Labour Force: What Do European Employers Expect to Do?, Nidi, 2006.

3. Older Worker Recruiting and Retention Survey: Global Results, ManPower, 2007.

4. Aukje Nauta, Merijn de Bruin and Roel Cremer. De mythe doorbroken Gezondheid en inzetbaarheid oudere werknemers, TNO Arbeid, 2004.