The Impact of Aging on Economic Development in the U.S. and Europe
Publish Date: September
American Business Forum
New York, NY
September 17, 2013
Thanks so much for your kind invitation to join you.
I’m president of AARP, an organization dedicated to enhancing the quality of life for people over age 50, for their families, and for future generations.
As AARP president, I have the privilege of serving as the association’s Chief Volunteer Spokesperson, which means that I’m also the Chief Volunteer Listener.
I’d like to share with you our view of the most important, inevitable shift in the global marketplace – the aging profile of America and the economies of Europe …….Often called the Silver Tsunami….
The question I ask you as individuals, as business people, and as citizens…..Will you miss this wave, or will you ride it to Prosperity?
It’s indisputable: we’re all facing this. We simply have to decide how to use it to build not only a vital, vibrant, longevity economy, but also a longevity society.
Let me share with you how AARP sees both the challenges and opportunities here and in Europe.
First, a little bit about AARP. We are a non-partisan advocate for social change, committed to helping all Americans and their families live a vibrant life, with dignity and purpose.
It all started with our founder, Ethel Percy Andrus.
A retired high school principal, she was an entrepreneur, and a trailblazer.
One day, Dr. Andrus went to visit a former teacher who needed help. She found her living in a chicken coop…all the teacher could afford on her meager pension, after medical costs.
Remember, in 1947, there was no Medicare!
That spurred Dr. Andrus to launch a campaign to get health insurance for retired teachers. Like any determined entrepreneur, she persisted through 42 turndowns! But it took only one yes.
She harnessed the power of the marketplace, and the collective buying power of seniors to create a new market for health insurance.
Soon, thousands of seniors, not just teachers, wanted health insurance.
So in 1958, Dr. Andrus formed AARP.
Today we are more than 37 million members strong.
Ethel knew that the aging of the world’s population would be the transformational issue of our time -- everywhere.
Let me paint a quick picture of the vast demographic shifts taking place.
Over the past six decades, the world experienced only a modest increase in the share of people aged 60 and over -- from 8% to 10%.
But in the next four decades, this group is expected to rise to 22% of the total population – a jump from 800 million to 2 billion people.
By 2050, half of continental Europe will be 49 or older.
Globally, life expectancy has increased by two decades since 1950, from 48 to 68.
In wealthy industrial countries – life expectancy = 82 years, and
In less developed countries, it =74 years. That gap, by the way, is narrowing.
Meanwhile, fertility rates have plummeted.
In the US, 10,000 of us turn 65 every day.
This continues for the next 18 years!!
Think about this: of everyone who ever lived to age 65 since the dawn of humans, two-thirds are walking the earth today!
The size and length of this “longevity bonus” should prompt us to ask, “How do we build a longevity economy?”
The scary and exciting news is, it’s never been done before, because human society has never been here before.
This shift is a remarkable tribute to public health, medicine, education and economic development.
Still, people are worried that there are not enough young people to support the older population and to spur a growing economy.
This is a big switch. Shortly after WWII, anxiety over youth unemployment drove societies to urge early retirements, a trend that is now taking a U-turn.
According to the European Commission, the average age of retirement in Western Europe was 65 in 1960, but 60 today. In the US, average retirement age was 66 in 1960, down to 61 today.
Now, the concern is about future workforce scarcity and the economic burden of retirees. In the late 1980s, it became clear that without changes, by 2030, the labor force would shrink from about 5 workers per retiree, to perhaps two workers for each retiree in the Netherlands, with worse projections for Italy and Germany.
Conventional wisdom says an older population requires more health and other services, and produces less wealth, than a younger population. Existing pension and social security programs are under pressure -- here, and in Europe and Japan.
It’s not surprising that doomsday scenarios abound: predictions of market meltdowns, economic growth slowdowns, and the financial collapse of pension and healthcare systems are among them.
There are certainly challenges. But let’s go back a moment – to the “bonus” part of the longevity economy.
How we anticipate and adapt to these changes will determine whether longer lives will also be better lives.
As business people, we can help decide whether we are destined to struggle with the challenges or benefit by seizing the opportunities. The way we look at it, it pays to approach the issue from the vantage point of the marketplace, the workplace, the kitchen table, and the public square of policy.
It’s important to know the consumers and workers we’re dealing with. Especially among Baby Boomers, this generation has the desire to grow, learn, and discover.
· They have a positive view about these extra years of life.
· They tend to be open-minded, eager to learn new things, and they embrace change.
· They seek not the fountain of youth but the fountain of vitality.
· They are planning for “What’s Next.”
· They see real possibilities everywhere, and they seek them.
Within their decisions about What’s Next are abundant opportunities for you and your businesses.
Let’s take a look at Opportunity #1 – The Marketplace.
In the US, 78 million Boomers have changed every marketplace. Keep in mind, next year, all of them will have turned 50.
In fact, Americans and Europeans age 50+ are a roaring consumer market.
Ironically, hardly anyone markets to them.
In this country, those over 50 control the bulk of wealth— over 70 percent, or more than $8 trillion in assets. Baby Boomers and their elders accounted for almost 60 percent of all consumer spending in 2010.
Boomers alone (age 45-64) spent $2.5 TRILLION!
Boomers not only make money; they spend it. As Steve Gillon observes in his book, Boomer Nation, “At heart the boomers were consumers, not revolutionaries.”
Let me run through some characteristics of this demographic in the US that should get your attention.
They are the leading consumers in 119 out of 123 CPG (Consumer Packaged Goods) categories;
Close to 100% own computers (and 41% own an Apple);
53% of them are on Facebook (driven in part by the arrival of grandchildren);
66% send text messages (albeit not quite as many as their teenagers and grandchildren);
They spend $7 billion online annually;
Purchase 62% of new cars;
Purchase 80% of luxury travel;
They buy three-fourths of all prescription drugs and about half of over-the-counter medications;
They purchase 25 percent of all toys;
One in 7 boomers care for a parent or family member.
New markets are emerging in housing and health care, all linked to new living and working patterns as society ages.
People want to continue living at home, and they want their communities to be livable and age-friendly – easily navigated and conducive to social life.
The aging-in-place market is projected to reach $20 billion by 2020 in the US alone.
Still, societies remain largely youth-centered….with the physical and social environments and institutions built by and for young people.
To understand the 50+ market is to profit from it.
According to a senior executive of the boomer-oriented Hallmark Channel, “Our viewers have assets, not allowances.”
So, the Marketplace holds great promise for business.
That brings us to Opportunity #2 – The Workplace.
The key here is to disturb the conventional wisdom, which says that senior workers are too expensive, technologically deficient, and slow to adapt.
Nothing could be further from the truth.
Europe is finding out that expanding working lives is the most promising of four possible ways to rebuild the shrinking labor market.
First, encouraging or mandating later retirement.
Relying on international migration. The drawback here is that this demands huge flows of immigrants, which runs exactly counter to the recent actions in many countries, which have been erecting greater barriers to immigration. Most predictions are that immigration can contribute to, but not solve the worker shortage problems.
A third option is reforming the health care system to emphasize disease prevention, health promotion, and early screening.
Here’s where innovative businesses are stealing the march on the competition. Number four is: rethinking business practices and public policy to encourage businesses to employ older workers, even part time. AARP has been a long-time advocate of this approach.
An active, engaged, employed older population has the potential to be more an economic boon than a social challenge.
We have launched a comprehensive, multi-front effort to build the public policies, workplace practices, legal safeguards, and practical individual supports to promote the attraction and retention of older workers.
Good news: For economic reasons and for personal fulfillment, the great majority of experienced workers expect to stay in the workplace past traditional retirement age.
The highest workforce growth rate between 2010 and 2020 is in the 65-74 age group… a whopping 83.4% percent increase is projected ….The second highest growth rate is the 75+ group.
In absolute numbers, these two older groups will still be small compared to younger groups. Nevertheless, these two older groups will include approximately 12 million workers ages 65+ by 2020.
This is a very, very good thing for employers.
The most important value capital a company possesses is its human capital.
Companies that invest in their human capital realize a return on investment through an increase in their market value. AARP believes in the value of experienced workers and believes in the wisdom of attracting and retaining them.
Over the years, we have observed a wide variety of best practices by employers that help attract and retain older workers. Among the approaches that appeal to older employees and are a good investment for employers are:
Actively recruiting older workers. By maintaining alumni networks, rehiring their own retirees (perhaps part-time), using senior placement agencies, and turning to social media, companies can effectively reach older workers and retirees.
Offering a culture of opportunity. By providing programs such as tuition reimbursement, in-house training (including job rotations and temporary assignments across departments), and mentoring, employers create conditions for growth on a personal and corporate level.
Paying attention to health. Some companies offer health insurance to part-time workers. Benefits for long-term care insurance, even if the employee pays the premium, and short- and long-term disability are also valuable for older workers. Health screenings, flu shots, smoking cessation and weight loss programs advance well-being and productivity.
Establishing a secure retirement. By automatically enrolling employees in a 401 (k) plan and matching at least part of the employee’s contribution, companies can make a solid investment in their workforce and greatly increase their financial security. Offering financial education to employees reinforces this investment.
Building a flexible workplace. Top companies offer flexible arrangements geared to the modern world. Compressed work schedules, telecommuting, phased retirement programs, on-site care, and leaves of absence (with or without pay) are accommodations that enable workers to meet family responsibilities and focus on their work. For boomers juggling child care responsibilities while caring for aging parents, such flexibility is especially welcome.
It’s important to recognize employers that have carried out such forward-looking policies. The AARP Best Employers for Workers Over 50 program, cosponsored by the Society for Human Resource Management, awards businesses that have implemented innovative policies and best practices in talent management.
This program runs in the United States and internationally. Please take a look at aarp.org for the latest list.
To counter negative stereotypes of older workers, AARP has used multiple media channels as part of a 50-year campaign. Our strongest weapons are the facts –experienced employees are among the most reliable, most loyal, and most engaged.
We also lend our support to legislation and litigation to combat age discrimination in the workplace.
Many of these approaches are being put into practice internationally. Let’s take a look at solutions in a few European countries, based on information collected for a new study from the International Longevity Centre -- UK:
In Sweden, population aging is a long-established policy priority. A consensus emerged in the 1990s on the need to promote longer working lives to ensure long-term sustainability of funding for social and development programs. They reformed the pension system and made changes to programs that slowed early retirement. A new system combines a defined contribution pension with a flexible retirement age, which has encouraged later retirement. There is a trend toward later labor market exit, from 62 in 2001 to 64 in 2010, and the average age among men rose to 65 in 2010. Reforms created incentives for workers to pursue work-related income rather than income from pensions.
Offering long-term contracts to older workers entitles Swedish employers to a subsidy of up to 75% of the worker’s salary. Employers’ social contributions for workers 65+ decline to 10% of wages from 31%. Adult education and on-the-job training are prevalent, and they are popular with both general working-age population and older workers.
Germany is experiencing unusual economic growth in the first quarter of 2013 –one of the healthiest economies in Europe. In the past two decades, Germany has been especially effective in encouraging people to work longer.
Labor force participation of those age 60 to 64 has more than doubled since 1992, to 44%. Still, demographic pressures require more people to work longer.
By 2030, the working-age population is expected to fall from 50 million today to 42 million.
Germany has progressively increased the retirement age, up to 67 by 2027, and reduced benefits to early retirees. To increase training and education, the German government intends to introduce more flexible working time and offer more sabbaticals for its older workforce.
On the employer side: strategies include wage subsidies for recruiting older workers, and job creation for long-term unemployed aged 58+.
I had the privilege of visiting DB Services in Germany, a subsidiary of Germany's railway system, and one of AARP’s International Best Employers for Workers Over 50. DB Services promotes older workers through DB Services Academy, a training camp designed to help older job applicants and the long-term unemployed re-enter the workforce.
In addition, DB Services maintains an administrative business unit, designed to employ workers no longer able to work in their physically demanding original positions.
Italy is a different story. There, workers are challenged because so many central industries have collapsed in the recession. Since early 2013, the country has lost over 31,000 companies, and unemployment is 12%.
· to encourage people to work longer, from 2008, workers who reach the minimum limit of pension contributions are allowed to combine pension income with work income;
· The Retirement age is rising, to between 66-70 for men, and from 62 up to 66 for women by 2018.
· Since 2009, employers who hire older workers who have paid in 35 or more years of social security, get an allowance reducing their social security contribution per worker.
· Companies hiring managers age 50+ are eligible for public grants
· They’re revitalizing guidelines for vocational training.
Employment levels of workers age 50 - 64 have increased, from 40% in 2001 to almost 50% in 2011.
So, encouraging longer working lives has great promise.
The longevity economy also offers an opportunity to combat one of the most disturbing trends in developed economies, and that’s the rising, destabilizing levels of income inequality.
Clearly, the recent economy and pressures of the longevity economy have imposed great challenges upon us. Mainly, the middle class is declining, and unless we are able to reverse the trends driving its decline, many of today’s middle-class workers will become low-income in retirement, taking their spending power and their economic contributions to society along with them.
From 2009 to 2012, the top 1 percent of incomes grew by 31 percent, while the bottom 99 percent grew only by 0.4 percent.
You, as corporate citizens and as citizens of this great nation, have a big stake in the fate of the middle class and how they fare in retirement. It’s good business to have a thriving middle class, with a market and consumers who can buy things of value, and a well-educated workforce that can contribute to innovation and economic vitality.
Remember, most folks yearn to leave the world a better place for their children– that’s the kind of social mobility that keeps economic engines churning, instills personal and national pride, and feeds prosperity.
Finally, this is not just about economics. A strong middle class is the bedrock of a functioning society. An ever-widening gap between the “haves” and the “have-nots” leads to instability in families and in society and makes it much more difficult for people to move up the socio-economic ladder, achieve the American Dream and live their best life. That’s not good for business.
We’ve already talked about some of the considerable upsides to the longevity bonus – a broad, deep pool of talent to sustain and replenish your labor force, and a consumer appetite and spending power to fuel the economic engines.
There are many other opportunities:
There’s the opportunity for new industries. Think about technology that helps people age in place, which about 90% of our members frantically want to do. Think about brain fitness, and how to serve the demand for tools and resources.
There are new markets for existing products: look at the Wii game system and its popularity in nursing homes, for example.
There are opportunities for entrepreneurship and small business growth: Individuals age 50 and older are two times more likely to start their own business as the 20-somethings are.
The reality is that the older population is quite possibly the greatest untapped market for labor and commerce that the world has ever seen.
As businesspeople, as corporate citizens, as a society, we can choose whether to embrace and take advantage of this remarkable 50+ generation, or we can risk losing out on their tremendous potential.
I think you know which way I vote!
Thank you for your kind attention.