Labor Market Data Suggest Older Workers Remain in Workforce
A Transamerica Center for Retirement Study observed that “three out of five workers in their fifties and sixties plan on working beyond the traditional retirement age of sixty-five.” From 1970 until the end of the 20th century, older workers—which the Bureau of Labor Statistics defines as people aged 55 and older—made up the smallest segment of the labor force.
By 2024, the BLS projects that the labor force will grow to about 164 million people. That number includes roughly 41 million people who will be at least 55 years old and 13 million who are expected to be at least 65 years old. Although they make up a smaller number of workers overall, workers 65 and older are projected to have faster rates of labor force growth annually (5 percent) than any other group.
What’s behind the increased rates of labor force growth projected for our older generations? According to Northwest Mutual’s 2018 Planning and Progress Study, 78 percent of Americans revealed that they are extremely or somewhat concerned about not having enough money saved for retirement. In addition, the retirement age has jumped upward with greater benefits for those who delay retiring until age 70, which gives more of a reason for older workforce to remain employed for longer periods of time.
As the labor market participation of older workers continues to increase, a concern for Human Resource managers becomes one of productivity. The question could be asked whether older workers can keep pace with the younger generations and continue to be productive at advancing ages.
The Assumption of Reduced Productivity
A recent study from the International Monetary Fund found that older workers are traditionally less productive. The IMF focused its study on nations in Europe and the portion of workers over 55 years of age.
The study found that an aging workforce was likely to reduce productivity growth in the eurozone by about 0.2 percentage points per year over the next 20 years. Translation: European economies will be approximately 4 percent less productive by 2035 than they would have been if their age profile had remained unchanged.
According to a study of the Productivity of Older Workers, published in the "Journal of Population and Development Review," there is a general consensus that an aging population exerts a negative effect on labor productivity and economic growth. Advanced age tends to beget waning skillsets—and that can hamper job productivity in older adults.
Co-authors of this study, Bo Malmberg, Thomas Lindh, and Max Halvarsson, wrote, “most studies indicate that labor productivity peaks somewhere between 30 and 50 years of age. This suggests that a prime-age workforce would be more productive than either a youngor old-age workforce.”
Not surprisingly, Natalie Schwatka, Lesley Butler and John Rosecrance collaboratively researched and wrote for "Epidemiological Reviews" that, specifically, productivity diminishes in the following skill areas: construction, nursing, or jobs that require physical labor.
Older Workers Just as Able
However, on the other side of the ball is the Horndal effect, referred to as “pure productivity” by Erik Lundberg, a Swedish economist who first observed the phenom at Horndal Steelworks in central Sweden. The study supports the idea that advanced age is not a deterrent to workforce productivity, but it is refuted by other economists, saying that the Horndal effect, “was compatible with rapid increases in labor and productivity through a learning-by-doing effect.”
Additional research by Gary Burtless in the Center for Retirement Research at Boston College suggests that productivity in the older workforce does not diminish. Improved education among the population past 60, coupled with delays in retirement among better educated Americans, tend to boost the contributions and earnings of older workers compared with younger ones.
It is hard to find consistent numbers to support either side of the argument. Some numbers indicate positive productivity while others show signs of decreasing production among older workers. As Malmberg, Lindh, and Halvarsson state, “for further research, it should be emphasized that our results here are also pointing out several difficulties in estimating the productivity effects of the aging workforce.”
As BLS numbers show, the nation’s older population will continue to strive in the workforce for as long as they can. With legislation in place to protect against age discrimination and a decline in the U.S. birthrate, their production will become more valuable as employers fill vacant positions within their companies.
Just as with any potential employee, Human Resource and Hiring Managers take a chance when hiring new talent and for the advanced workforce, it will be hard to judge their production. With their maturity and knowledge, a leery hire could end up being a diamond in the rough for your employer.