BSR Changing Labor Demograhic Trends

Changing Labor-Demographic Trends and Their Implications for Responsible Business
Prepared: February 2006
Business for Social Responsibility | Changing Labor-Demographic Trends and Their Implications for Responsible Business
This report was prepared by Business for Social Responsibility (BSR) based upon in-house research and input from experts convened by BSR at the Population Reference Bureau in November 2005, in Washington D.C. Please direct comments to Emma Stewart, Ph.D., Research Manager at BSR (estewart@bsr.org).
Table of Contents
I. II. Introduction.................................................................................................. 1 The Trends and Their Implications for Business .......................................... 2
III. What Is Business Doing to Prepare for These Trends?.................................. 8 IV. Game Plan for Your Company ...................................................................... 9 V. Menu of Best Practices ................................................................................ 11
VI. References & Experts................................................................................... 14
Introduction
While labor-demographic shifts occur all the time, today there appears to be a perfect storm gathering that promises a major global transformation in the character of labor. If current trends persist, in the next 20 years populations will shrink or barely grow in industrialized countries, contributing to slower growth of working age adults. These demographic trends will combine with a number of other labor trends that will augment or accelerate this transformation. Together they will have profound ramifications for business-society and business-employee relations.1 Due in part to the long-term and gradual nature of these trends, the challenges for companies to manage such change, and the complicated nature of collective action by business, most companies are failing to proactively address these labordemographic trends. This implies both risks incurred and opportunities forgone. The longer a company delays in addressing demographic and labor shifts, the more difficult it will be to respond and adapt in strategic and responsible ways. In late 2005, Business for Social Responsibility convened a group of company representatives and researchers with expertise in demography, labor economics, workplace practices and workforce statistics to identify the most significant trends likely to impact companies in the coming years. One point of consensus was very clear: In the next 20 years, the world will see an unprecedented transformation of its population and workforce. Because people are a companys single greatest asset, managing demographic-labor shifts is an issue with broad repercussions for a companys responsibility agenda. Indeed, these trends and their impacts cut across corporate social responsibility issues from dignity and diversity in the workplace, to business-governments relations, to outsourcing and global economic development. This briefing provides BSR members with an overview of these trends, as prioritized by the roundtable experts. We then explore a set of best practices for managing the impacts of these trends in a responsible and strategic manner.2
While there are a number of interesting discussions to be had regarding the implications of these trends for government, these two relationships will be the main focus of this report. This briefing will focus on the trends in industrialized countries, particularly the U.S. These regions are where most BSR members are based, where the data is more robust, and where current trends provide a foreshadowing of things to come in developing countries.
The Trends and Their Implications for Business

AN AGING POPULATION LEADS TO AN AGING WORKFORCE
Over the next 50 years, the population in most industrialized countries is projected to grow slowly or even decline in size because fertility levels will likely remain below replacement level. Populations are projected to be smaller than today in 39 industrialized countries. By 2010, the U.S. workforce is projected to experience a 1% decline in the 18-44 age group, a 29% increase in the 45-64 age group, and a 14% increase in the 65+ age group from current levels. As life expectancy increases (by up to 23% from 1950), the fraction of the population represented by elders will only grow. As a result, the ratio of elderly dependents to working people is expected to double between now and 2080.
The ratio of elderly dependents to working people is expected to double between now and 2080.
These trends will be particularly prominent in Japan, Europe and the United States, and in certain sectors, including energy, healthcare, information technology, government and education. To some extent, immigration will offset the aging workforce in the U.S., less so in Europe and negligibly in Japan, given the degree of relative leniency of immigration policies.
Implications and Opportunities for Business:
It will become more difficult to attract and retain skilled young workers.
o
Greater competition for this group will raise the bar on recruiting and retention measures and make workplace factors beyond compensation critical for success. Included in these factors are reputation and responsibility of the company, quality of workplace, and opportunities for independence and entrepreneurship.
As large cohorts of older employees leave companies, they will take with them a significant amount of experience and knowledge about the company.
o
Thus, to succeed, companies will need to successfully retain older workers and transfer their knowledge to younger generations. This is generally true in an economy that is increasingly knowledge-based, and especially true in sectors where knowledge is the most powerful driver of value creation.
In the short term, immigrant populations may fill certain gaps in the workforce, but in the longer term, immigration may slow and existing immigrant communities fertility rates will slow.
o
Outreach to these communities and measures to attract them into a companys workforce will likely pay great dividends.
The majority of adults in families now work, and as the life expectancies of parents and grandparents increase, many families will experience a lack of available home caregivers just at the time they are in increasing need. Working adults will need to support not only their children, but also their aging parents and other elderly relatives. The majority of Americans supporting elderly relatives report that their work is adversely affected in both quantity and quality.
o
Workplaces that build-in innovative scheduling and family leave flexibility will be well prepared for this and will likely be seen as the employers of choice for employees affected by this trend.
CHANGES IN ATTITUDE TOWARDS EMPLOYMENT-BASED BENEFITS
The cost of supporting both older and younger relatives will require workers to stay in the workforce longer, affecting work-life balance, motivation levels and healthcare burdens on employers. A number of industries are responding to increasing healthcare and pension costs by giving preference to contract workers, reducing the official company headcounts and the requirement to provide conventional benefits. Beyond companies, employees, politicians and the wider public are beginning to look at the entire concept of employer-based benefits as requiring a rethink. The link between employment and health care coverage in the U.S. is undergoing increasing scrutiny in light of rising costs of both active and retired employees. Employees themselves, increasingly transient and contractual, are searching for solutions modeled after Canadian and some European countries single-payer models.
The cost of supporting both older and younger relatives will require workers to stay in the workforce longer, affecting work-life balance, motivation levels and healthcare burdens on employers.
Ongoing and future defaults by companies on their defined benefit plans pose serious reputation risks to companies. Shortcomings by business have prompted discussion, and in some places, legislative proposals for mandated payment ratios for healthcare and pension benefits. o Businesses can get out in front of this trend by helping to seek creative and beneficial public policy responses to this growing benefits crisis.
Even if employment-based benefit plans are reformed, public expectations are rising for companies to assist individuals in financing and managing these new responsibilities. o Company- and industry-lead initiatives to educate employees and provide options in the form of more mobile safety nets like health saving accounts are growing in number. o Absent a major policy shift in favor of single payer or universal coverage models, competitive advantage in attracting and retaining top talent will depend more heavily on the quality and stability of health and other benefits.
INCREASING GEOGRAPHIC MOBILITY OF WORK
As countries shift from manufacturing to service economies, working remotely becomes more feasible and advantageous. Technological advances permit an increasing amount of work away from conventional office buildings. About one-third of Americans work at least one day from home and many more would like to do so. However, there is still a strongly held perception that if workers are not in the office, they are not being productive. This is particularly prevalent in the public sector, where little work is done remotely. One factor that is increasing the demand for remote work is the new structure of the family. Approximately 40% of children in the U.S. live in single-parent homes. Parents that are required to go to the office are forced to rely on relatives or hired help to care for children, placing stress on families that can diminish job performance.
About one-third of Americans work at least one day from home and many more would like to do so.
While certain sectors have duties amenable to remote work (such as the Information Communications Technology sector, which has adopted the notion readily), an entire class of jobs is less amenable, such as site-specific service jobs and manufacturing. There is the potential for a new class divide between knowledge workers and onsite workers, with the latter missing out on the intangible benefits of flexible work programs.
Companies will need to address the operational and cultural demands of increasingly mobile work. This involves leveraging the tangible benefits that are gained (e.g. accessing the best candidates for the job regardless of their locations; reduced real estate costs from smaller office campuses; less time and energy lost to commuting) and managing the intangible benefits that are lost (e.g. teamwork and group learning, understanding ones organization through informal conversation). Those companies that can provide project-by-project work will benefit the most.
More of a companys portable intellectual property will go outside the boundaries of traditional controls, frequently to places with skilled workforces but where Western intellectual property and privacy concerns are not shared (e.g. India, Eastern Europe). The increasing de-coupling between work and place will blur the economic benefits that companies bring to a community through wages, benefits, and taxes, thus making a companys contribution to community development harder to gauge. This blurring of positive impact could have ramifications for everything from corporate philanthropy to siting decisions.
INCREASING RELIANCE ON IMMIGRANT WORKERS
As skilled workforces age, industrialized countries will rely more and more on immigrant labor pools to fill workforce gaps. And with the majority of births occurring in developing countries, youth bulges will most certainly generate flows of immigrants to industrialized countries. However, a few experts believe that immigrant-receiving countries such as the U.S. or U.K. may no longer attract immigrants in quite such large numbers. As immigrant source countries industrialize and attract foreign investment, workers may seek employment locally rather than abroad. At the same time, in the U.S. the focus on national security is stemming immigration of both students and professionals; while in Europe and Australia, serious social and economic tensions have been exposed recently between immigrant and host country populations, potentially slowing future immigration and assimilation.
As skilled workforces age, industrialized countries will rely more and more on immigrant labor pools to fill workforce gaps.
Business may reach out more to existing immigrant populations to find local sources of skilled labor. (In certain cases, such as those professions that require national certifications, well-credentialed immigrants are underemployed simply because they lack the appropriate professional license.) Tapping this labor pool comes with the advantage that immigrant populations, at least in the lower-skilled sectors, are seen to be selfrecruiting in that strong family networks and the desperation to secure employment drive immigrants to fill open positions with little or no effort by the company. This can represent significant cost savings in the form of reduced recruiting and HR costs. Relying more on immigrant workers will create challenges for companies to understand the skills of immigrants and to introduce them to organizational structures and cultures unfamiliar to them, as well as to communicate crossculturally and cross-linguistically.
LACK OF PREPARATION OF AND INVESTMENT IN THE FUTURE WORKFORCE
The absolute number of educated eligible employees will shrink relative to the size of the population. By 2010, the U.S. will have experienced a 15% decline in the number of 35-44 year-olds, the prime age group for middle managers. This is partially due to the decline in numbers of women entering the workforce and to their reduction in time commitment (one in three women with an MBA are not working full-time, compared to 1 in 20 for males). At the same time, skilled jobs are becoming increasingly education-intensive.
By 2010, the U.S. will have experienced a 15% decline in the number of 35-44 year-olds, the prime age group for middle managers.
As a stopgap measure, the U.S. and Europe have eased immigration restrictions to attract skilled workers to certain sectors. However, over the longer term, in order to maintain a competitive workforce, educational systems must adapt to the changing nature of the economy and the skills it requires. Educational change that will strengthen skills in critical areas such as science and technology has been slow in coming, though, due to a lack of political will and structural rigidities in national education systems.
There is a growing consensus that business is requiring job candidates to boast a huge range of specialized skills while failing to offer on-the-job training (formal on-the-job training averages less than one week per year). As such, the pool of eligible applicants is growing smaller, causing business to claim a shortage of workers.
Implications and Opportunities for Business: Companies may have to invest more in the provision of skills training and consider working with educational and vocational institutions to provide financial and management support, with the aim of ensuring a future workforce trained in skills relevant to their needs.
Companies may want to consider providing more on-the-job formal training (such as that provided by financial sector companies to entry-level generalists, which customizes workers skills to the ever-changing needs of the company).
MULTI-JOB CAREERS The job-for-life has been replaced with growing job mobility. Most people expect five or six jobs across their lifetimes. In fact, 45 percent of American workers want to change jobs at least 45% of American every 3-5 years, up from 26 percent in 1999. This is workers want to partially due to a belief that switching companies can change jobs at least accelerate upward mobility, but also due to the fact that, every 3-5 years, up when observing massive lay-offs of long-term employees, from 26% in 1999. workers no longer feel that loyalty secures their jobs, or employers are stable enough to ensure jobs for life.
In light of this, many organizations are not adequately planning for succession and are thereby losing valuable institutional knowledge held by this mobile workforce. There is also the impact of lost work hours while employees seek out offers elsewhere.
Companies will have to work harder to attract and retain high-quality employees, potentially using company workplace policies, diversity or their responsibility track records as differentiators. Numerous studies show that MBAs seeking employment will favor responsible employers over others and even take pay cuts to attain positions with them.
TRADE-OFFS IN WORK/LIFE BALANCE
There is an increasing desire for more flexibility at work. Some of this is driven by the cohort of workers over age 55 who choose to or are forced to continue working for personal or financial reasons. Some is driven by the increasing number of hours worked, especially in the U.S., often with no associated increases in wages or benefits. As the ratio of the working age population to dependents decreases in industrialized countries, workers over 55 will become an important source of skilled and experienced workers, but they will come with their own demands. Some may choose to work on more flexible schedules, others may demand generic paid time off rather than sick days and vacation days to maintain their own privacy over their health. The career map may change to better reflect life changes, such as childbirth. Many workers would prefer to work fewer hours during their child-rearing years and work more hours earlier or later in life.
As the ratio of the working-age population to dependents decreases in industrialized countries, workers over 55 will become an important source of skilled and experienced workers, but they will come with their own demands.
Implications and Opportunities for Business: The demand for flexible workplaces will likely grow and those organizations that can adapt most effectively will gain advantages in terms of recruitment and retention. For example, those that offer flexible scheduling and work on a project-by-project basis will likely attract more female and older workers.
What Is Business Doing to Prepare for These Trends?

Despite the breadth and depth of these trends, business response has been sluggish, even in places where current regulation is mandating changes. This sluggishness is most likely due to the following: a) b) c) d) e) The gradual nature of the trends The complexity of these issues, defying easy solutions A lack of clear and high-quality data available for interpretation by business A lack of in-house expertise to analyze and project demographic shifts A lack of coordination between Human Resource departments and Strategic Planning departments f) A lack of pressure from shareholders to consider these long-term trends g) The familiarity of business with an ebb and flow in workforce availability by sector due to the popularity of certain jobs and the recruiting cycles of companies.
Yet when companies are forced to make quick adaptations to changes as big as these trends promise to be, they tend to ignore the social and wider economic ramifications, and thus can have negative effects on employees, investors and other stakeholders. In order not to be caught by surprise, the following steps may serve as a useful guide to your company through a planning process aimed at anticipating, adapting to, and exercising maximum control over demographic and labor trends.
A Game Plan for Your Company

STEP 1: UNDERSTAND YOUR EXPOSURE Companies need to first examine their own data to understand their exposure to these trends:

Who are you hiring? From where? Who is leaving? How old are they? How has your track record changed over the past few years? What percentage of your employees is eligible for retirement today? What percentage of your employees would prefer project-by-project work or flexible hours? What risks and opportunities do labor-demographics trends present to your employees, communities, investors, suppliers and other stakeholders?
S TEP 2: S TRATEGIZE AND P LAN YOUR RESPONSE Acknowledging the fact that salaries account for such a significant part of your operational costs, look at your human resources in the same way that you project other resources and liabilities into the future. Raise awareness among HR and strategy managers regarding the end of the normal ebb and flow of labor shortages and surpluses. Fundamental shifts are occurring fueled by powerful labor demographic trends and amplified by a globalizing market for goods, finance and labor. Begin to evaluate the intangible value of employees with metrics other than compensation and benefits (e.g. knowledge and expertise, replacement value). Understand that the majority of companies feel they lack the skills to service tomorrows global workforce because it is both diverse and widespread. Create a cross-functional task force to coordinate on long-term workforce planning. Some managers will need to equip themselves with new skills to effectively motivate and engage the future workforce. For example, HR departments often overlook the increasing need for cross-cultural competence (rather than merely awareness), such as recognizing and dealing with differences in financial planning behavior across different generations and ethnicities. Incorporate human resources considerations more closely into site considerations for operations.
STEP 3: INITIATE PROGRAMS TO CAPTURE AND MEASURE THE BENEFITS OF YOUR NEW EFFORTS Make adjustments to become the employer of choice in those areas where you can benefit most and seek to take advantage of the new separation between work and place. Compare the benefits that leading companies have experienced (e.g. attraction and retention of high-quality, remote workers) with the potential for losses (e.g. fewer employees with an intimate understanding of the organization); develop strategy for measuring and reporting tangible and intangible benefits of leading edge practices With this comparison in mind, research, design and offer flexible workplace programs that encourage the use of technology for remote work, particularly where work can be on a project-by-project basis (i.e. from software development to architecture to radiology to teaching) Improve monitoring and measurement techniques for remote work, so that it is comparable to work done in the office.
S TEP 4: UNDERSTAND THE LIMITS OF UNILATERAL ACTION Together with your industry peers and the wider business community, begin a dialogue on the labor-demographic challenges facing your industry, seeking to identify which issues cannot be handled unilaterally and why collective action is essential. Consider proposing a sharing-of-benefits provision between business and government, so that access to benefits does not become even more unequal Encourage truthfulness about the availability of skilled workers in your sector, avoiding political debates as some industries are experiencing (for example, around the true availability of engineers in the U.S.) Alert regulators to the policies most conducive to instilling flexibility into companies like yours.
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Menu of Best Practices

Depending upon the context in which your company operates, you can consider a combination of the best practices described below. The drawbacks and benefits are intended to help your team weigh the costs and benefits such practices will have for your company and its stakeholders.
INCREASE THE USE OF OLDER WORKERS Benefit: Benefit Can retain or win back workers with a breadth and depth of experience not found in younger generations Drawback: Drawback Can potentially increase the burden on companies that provide full healthcare benefits A Good Resource: The Conference Board, Managing the Mature Workforce (www.conference-board.org/publications/describe.cfm?id=1007) Practical Example: An internal task force, including risk management, is focusing on the aging workforce issue at Marriott International. Questions include which jobs are appropriate for individuals and what sort of ergonomically appropriate equipment needs to be put in place.
DEVELOP FLEXIBLE WORKPLACE POLICIES AND PROGRAMS Benefit: Benefit Can introduce flexibility throughout a career, from training and recruitment to mid-career leaves of absence, to a more gradual retirement Drawback: Drawback Can be organizationally complex to implement and finance A Good Resource: Resource Sloan Work and Family Research Network (wfnetwork.bc.edu) Practical Example: A DuPont internal study concluded that workers who used their work-life and flexibility programs were more committed and less burned out than those who did not use any of the programs.
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BUILD A BETTER PIPELINE OF EMPLOYEES THROUGH EDUCATION INITIATIVES Benefit: Benefit Can channel new workers to your company and ensure they have the skills necessary to be good employees Drawback: Drawback Can take years to see results and suffers from free-riding problem A Good Resource: Resource Center for Workforce Preparation (www.uschamber.com/cwp) Practical Example: At the beginning of the era of e-commerce, General Electric matched 500 of its most senior managers with junior employees. They spent two to four hours a week together, learning the ins and outs of the Internet. As a result, senior executives gained insights crucial to moving their businesses into the Internet age, and junior employees got an early exposure to senior executives.
CONSIDER RESPONSIBLE CONTRACTING AND OUTSOURCING OPTIONS Benefit: enefit Can support mobile safety nets that provide support for contractors Drawback: Drawback Can make organizational culture harder to develop; also comes with the risk of losing intellectual property to contractors who then become competitors A Good Resource: The Urban Institute (www.urban.org) P ractical Example: Deutsche Bank has re-hired some senior managers who had taken early retirement from its private banking division in Germany. The so-called ambassadors, on consultant contracts, now specialize in nurturing these close relationships with clients, while full-time staff is responsible for the actual banking work.
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SCRUTINIZE AND IMPROVE OFF-SHORING PRACTICES Benefit: Benefit Can enhance the standard of living for populations in developing countries while cutting costs and keeping positive relations with unions at home; can also anticipate regulation requiring certain ratios of domestic-to-offshore employment Drawback: Drawback Can act as a deterrent to local students entering these professions, and can be viewed in a negative light by increasingly concerned constituencies in industrialized societies; other business risks involve privacy for confidential information and possibilities of disruption due to political or economic instability A Good Resource: Resource Brookings Institution (www.brookings.edu)
Practical Example: British Telecommunication plc commissioned a report to look at the effects of its off-shoring practices. The analysis highlighted some steps to manage the CSR implications of off-shoring, both in the home country and the recipient country: Consult with affected stakeholders before making a decision to off-shore Clearly articulate policy and be honest and transparent about company decisions Limit or avoid involuntary redundancy Invest in retraining and skill development for affected employees Work with communities to help find ways to fill the gaps created by off-shoring Work with suppliers in the recipient country to develop CSR awareness Set standards for suppliers and monitor their implementation Train and develop new employees and provide growth opportunities Help employees deal with psychological and cultural issues that may be involved Share technologies and skills to enable local people and companies to advance
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References and Experts

AARP (2004) Staying Ahead of the Curve 2004: Employer Best Practices for Mature Workers, prepared for the American Association of Retired People by Mercer Human Resource Consulting. Butz, William et al (2004) The U.S. Scientific and Technical Workforce: Improving Data for Decision-making, prepared for the Office of Science and Technology Policy and the Alfred P. Sloan Foundation by the RAND Science and Technology group. CADSR (2005) Will the Real American Family Please Stand Up, Center for Applied Demography and Survey Research, University of Delaware. Callaghan, Chad (2005) VP Enterprise Loss Prevention, Marriott International, quoted in Business Insurance, Volume 39, No 16, April 18. Channel News Asia (2005) Analysis: Steps for Companies to Take on an Aging Workforce, September 29. Cohen, Joel E. (2005) Human Population Grows Up, Scientific American, September 2005. Farrell, Diana et al (2005) The Emerging Global Labor Market, McKinsey & Company. Friedman, Dana (2005) Workplace Flexibility: A Guide for Companies, When Work Works, a project of Families and Work Institute sponsored by the Alfred P. Sloan Foundation. Hewitt Associates (2004) Preparing for the Workforce of Tomorrow, Timely Topic Survey Results, February. Lerman, Robert & Schmidt, Stefanie (1999) An Overview of Economic, Social and Demographic Trends Affecting the U.S. Labor Market, prepared for the U.S. Department of Labor by The Urban Institute, August. Maitland, Alison (2004) FT Report: Reinventing Retirement, Financial Times, November 17. McKinsey Global Institute (2003) Off-shoring: Is It a Win-Win Game, McKinsey & Company. SustainAbility (2004) Good Migrations? BT, Corporate Social Responsibility and the Geography of Jobs, February.
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Taylor, Humphrey (2002) The New Vision of Retirement is Very Different Than the Traditional Image of Retirement, The Harris Poll #23, May 15. The Conference Board (2005) Managing the Mature Workforce, Working Group on Managing Mature Workers. Upwardly Global (2005) Global Business 2010: Trends at Home and Abroad, 4 Annual San Francisco Seminar, Commonwealth Club, October 27.
th
BSR Roundtable Experts:

Angie Watson Bill Butz Diane J. Gherson Ed Vitalos Hal Salzman Ladan Manteghi Linda Jacobsen Marcy Pitt-Catsouphes Mark Mather Marlene Lee Michael Horrigan Michael S. Teitelbaum Global Partner, Mercer Consulting President, Population Reference Bureau Vice President, Human Resources, IBM Business Consulting Services Associate Partner, Human Capital Group, IBM's Business Consulting Services Labor Sociologist, Center on Labor, Human Services and Population, Urban Institute Director, Office of International Affairs, AARP Director of Domestic Programs, Population Reference Bureau Director, Sloan Work & Family Research Network, Boston College Deputy Director, Domestic Programs, Population Reference Bureau Senior Policy Analyst, Population Reference Bureau Director of Employment Statistics, Bureau of Labor Statistics Vice President & Demographer, Alfred P. Sloan Foundation
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Changing Labor-Demographic Trends and Their Implications for Responsible Business

Prepared: February 2006

VI. References & Experts................................................................................... 14

The Trends and Their Implications for Business

Implications and Opportunities for Business:

CHANGES IN ATTITUDE TOWARDS EMPLOYMENT-BASED BENEFITS

Implications and Opportunities for Business:

INCREASING GEOGRAPHIC MOBILITY OF WORK

Implications and Opportunities for Business:

INCREASING RELIANCE ON IMMIGRANT WORKERS

Implications and Opportunities for Business:

LACK OF PREPARATION OF AND INVESTMENT IN THE FUTURE WORKFORCE

Implications and Opportunities for Business:

TRADE-OFFS IN WORK/LIFE BALANCE

What Is Business Doing to Prepare for These Trends?

A Game Plan for Your Company

Menu of Best Practices

References and Experts

BSR Roundtable Experts:

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