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For years, economists have been warning about the effects of an aging U.S. population on the federal budget. But a new study finds a much more powerful effect: Researchers concluded that an aging workforce causes a decline in productivity and economic growth. The joint Harvard-Rand study predicts that over the next 10 years, annual GDP growth will slow by 1.2 percentage points due to population aging. Critics of the study say aging workers are just one factor in a slowing economy. But many industries are already creating incentives for older employees to work longer. Guest host Derek McGinty and guests discuss an aging U.S. population and its effect on the U.S. economy.
MR. DEREK MCGINTYThanks for joining us. I'm Derek McGinty sitting in for Diane Rehm. Attention fellow baby boomers. Wondering why the economy's not growing quite the way it used to? Apparently, it's our fault. Okay, that is a bit of an exaggeration, but a new study does find that as our workforce gets older, economic growth slows down. But get this, it may not be for the reasons you think. Researchers from Harvard and the Rand Corporation found that at least part of the reason is that as older workers retire or, let's be real, are pushed out, companies lose crucial experience and knowledge, which, therefore, undermines productivity.
MR. DEREK MCGINTYJoining me here in the studio to talk about the aging U.S. population and what that means for our economic growth, Greg Ip of The Wall Street Journal, Susan Lund of McKinsey Global Institute and Gary Burtless of the Brookings Institution. Welcome to all three of you. Glad to have you here. And we're going to be taking your comments, your questions throughout the hour. Call us, 800-433-8850, or you can send us an email at firstname.lastname@example.org or join us on Facebook or Twitter.
MR. DEREK MCGINTYGreg Ip, let's start with you. What did the study say and what's your interpretation of what it means?
MR. GREG IPWell, I think that all economists know that the aging of the population not just in the United States but around the world is one of the most important pervasive forces at work in the economy today. In 2008, it wasn't just the hear the Lehman Brothers failed. It was also the year that the first baby boomers began collecting Social Security. And I don't think that we have a full grip on all the different ways this wave of retirements might be affecting the economy.
MR. GREG IPWhat this study, I think does is it raises a very novel explanation for how aging might affect the economy. Now, we've always known that as a population ages, you have fewer workers and arithmetically, that just makes it hard to grow as quickly as possible. What these researchers found is that not only do you have fewer workers, but the ones who stay behind and keep working are less productive. And although they don't have a firm and bulletproof story about why that might be, they raise a couple of interesting possibilities.
MR. GREG IPIt might be that when a company experiences a very large wave of retirements, they lose some of their most experienced and knowledgeable workers. And that loss of experience and knowledge reverberates and makes the rest of the company less productive.
MCGINTYAs one of those aging baby boomers, I want to look at companies and say, see, we told you. You need that experience, that institutional memory. How are companies not understanding this, Susan.
MS. SUSAN LUNDWell, I think a lot of companies do and, in fact, there are specific industries across the U.S. that are looking at large shares of their workforce retiring over the next five to ten years. So for instance, anything from a utility linesman who can go out and fix the electrical power cables to aerospace engineers to petroleum engineers, so many companies that we work with are actually looking at how can we keep people in the workforce longer and not let them go because of the institutional knowledge and because young people aren't coming up to fill the pipeline.
MCGINTYWhat's wrong with the idea that older folks just aren't as motivated, work more slowly, have less energy, are sick more often, that's what a lot of folks think about aging workers.
MR. GARY BURTLESSWell, that is true, but the people who tend to stay in the workforce -- this was true 30 years ago. It's still true today. The people who tend to stay in the longest are the people who have the most education and who have been more productive or at least have earned higher wages when they were younger. So the people who drop out are not the most skilled people. Those folks tend to drop out the latest. And as the retirement age in the United States has increased over the last 30 years, that tendency for the more educated, the more skilled to remain in the workforce has accelerated.
MCGINTYSo if that's the case, why has the productivity slowed? I mean, it seems to me the folks you really need are staying in, right?
BURTLESSI think that there are other mechanisms besides the one that you describe that might be explaining this. It could be that younger workforce also contains more inventive, more people who come up with more innovations...
BURTLESSExactly. It could be that they're the people who create new businesses with vastly new ways of doing things and the fact that there's a smaller proportion of those people in the population and a bigger proportion of people who've been around a long time might be the mechanism that explains this phenomenon, if you believe it's true.
MCGINTYYou sound like you don't quite -- you're not quite convinced by the study.
BURTLESSI don't think that we -- part of it is certainly true. As the population get older, there's going to be a slowdown in the rate of growth of the population and that slows down economic growth very directly. The second part of the study that says a lot of it is because of reduced productivity, I don't think is going to be so persuasive without a lot more supporting evidence.
MCGINTYAll right. Susan Lund, what do you think about that?
LUNDI tend to agree. I think that in today's knowledge economy, older workers have experience and what we called embedded knowledge, institutional knowledge of how things are done. That wasn't valuable, say, 30 years ago when we were much more of a manufacturing and industrial economy, but increasingly that kind of experience matters a lot. And so older workers, it's true you're not going to see them staying in manual jobs, but that's not today's economy.
LUNDWe're moving towards experience-based knowledge economy jobs and there, older workers are more valuable. So I also have some questions. I think that these authors raise a really good question about what are all the different impacts of aging on economic growth, but I'm not sure that their econometric results will necessarily stand up.
MCGINTYYou know, I think one of the main things that we've always thought would be the impact of older workers or even just older people in general as the population ages is more a drain on our entitlements, that there would be fewer and fewer of them working and fewer and fewer workers supporting the folks who aren't working. Is there anything wrong with that analysis?
IPI think while the arithmetic behind that is pretty unshakeable, yes. I mean, as the baby boomers have aged, we're going to end up with more retirees per worker and as a mathematical matter, that means the average worker is going to have to work harder and give up more of their income to support that older population. That, too, brings very important economic considerations.
IPIf we can find a way to keep those workers who are able to work and are productive in the workforce longer, not only does it mean that they'll probably be drawing a little less Social Security and Medicare over time, but they'll be generating wages that generate taxes that can pay for those who do have to retire.
MCGINTYAnd so you're saying that the best thing would be for people to work longer.
IPI think that the best thing would be to find a way so that all of our institutions, private and public, can make sure that those who can work longer want to work longer and have something to offer can, in fact, do that. One of the, I think, questions that remains unanswered by this particular study and other studies is the precise mechanism by which an aging population might affect productivity.
IPFor example, I think there's probably an important difference between people who retire voluntarily and those who retire involuntarily, you know. And a company in a very old, mature industry, to stay alive, has to periodically lay a lot of people off because it just doesn't have the sales to support those people. And those people have skills that may not have much application in a new, growing industry, but that's different from when you suddenly have a lot of your best people reaching retirement age.
IPAnd, frankly, they want to go. They've done their time. They want the golden watch. They want to go off driving their RV across the country and there's not much you can do about that. And it may be that those are your managers, your top people, and that when they go, it's a process of rebuilding the firm, filling in behind them and finding a way to replace them.
MCGINTYAnd so do we have any idea, when we look at the overall changeover, right, because the changeover has to happen, as you say, how -- what percentage of people are being forced out because the company wants younger, cheaper workers, and what percentage are people saying, you know what, I've had it with you folks? I'm going, as you say, to drive the RV across the country.
BURTLESSWell, the older you get, the bigger the probability is that when you leave, it's voluntary. You have left -- not left because someone has pushed you out the door. You've left because this is when you want your work life to end. If we're talking about 58-year-olds, it wouldn't surprise me if a majority of those people forced into retirement are pushed out the door. They have been dismissed from their jobs and they just can't find anything that is nearly as well-paying so support themselves.
MCGINTYWell, that was going to be my next point. I mean, a lot of those folks look around and wonder whether or not they're ever going to have a job like the one they had again.
LUNDIt's very difficult for them to find jobs with the same salary that they were let go of when they were in -- when you're in your late 50s. I think that some companies, though, are starting to grapple with this issue and figure out how do you keep your best talent on longer. On one hand, they can't stay at the top management positions they are because there are young people coming up who want to get promoted. So the question is, how can you create new types of positions for these people to be maybe part time, more flexible, mentor the younger generation and let the younger generation move up, get promoted, fill in the top management, but still not entirely lose that best talent.
MCGINTYYeah, you know, that's the interesting thing because a lot of young people would say, you older workers are standing in the way, right? You're taking up the room that I want. You're getting the pay I should get. You're in the job I'd like to have. When are you going to leave?
IPThat's actually a very popular perception, but it's actually not one well supported by the theory or the evidence. I don't -- Gary, you might be able -- and Susan, you might be able to fill in on this, but I believe the evidence does not seem to show that populations that retire later somehow have higher unemployment. There's a basic economic slogan, if you will, called supply creates its own demand. When people work longer, they have more income and they spend more and that spending, itself, creates the demand for other jobs.
IPSo it's probably the case that in certain firms and industries, again, those that are immature, that are not growing very fast and there isn't a lot of new jobs being created that, yes, people who stick around longer do create kind of an obstacle to people at the bottom getting ahead. But on a macro basis, over the whole economy, I don't think that's true.
MCGINTYInteresting. Greg Ip is chief economics commentator for The Wall Street Journal. He's got a book called "The Little Book of Economics: How the Economy Works in the Real World." Susan Lund is a partner at the McKinsey Global Institute and Gary Burtless is a senior fellow in economic studies at the Brooking Institution, co-author of the recent report "Later Retirement: Inequality in Old Age and the Growing Gap in Longevity Between Rich and Poor." I'm Derek McGinty and this is "The Diane Rehm Show."
MCGINTYWelcome back to "The Diane Rehm Show." I'm Derek McGinty in for Diane today. And we're having a conversation about a new study that seems to show our economic growth has been negatively impacted by the aging of our workforce, but perhaps not in exactly the ways that many of us imagine. The phone number here, 800-433-8850. Joining us right now from Twinsburg, Ohio, is Jenny Stupica. She's the human resource manager for a company called SSP Fittings. It's a family-owned business. They make industrial and instrumentation valves and fittings. Jenny, welcome to the program.
MS. JENNY STUPICAGood morning, Derek. Thank you for having me.
MCGINTYNow the reason we're talking to you is, your company values your older workers and makes an effort to keep them. When did you figure out that these people were important?
STUPICAWell, a number of years ago, actually. We started, as folks started to retire, we released that knowledge was walking out the door, as so many of you have mentioned today. We realized that we needed to do something to capture that knowledge before it was gone forever.
STUPICAAnd so what we did was we instituted a program called Silver Eagles. And it allowed our retirees who wanted to retire from full time but not necessarily retire completely from work. They enjoyed what they did. They enjoyed the people they worked with. They wanted some spending money. Weren't ready to just kick around the house all day. And so with that program, they didn't need benefits at this point, so they were offered very competitive wages that matched what their experience and knowledge were.
STUPICAThey were able to set a flexible schedule. They could say, I'm going to work from 8:00 to 3:00 Tuesday and Thursday from September to April. And if they wanted time off over the holidays, they could simply say, I'm going to be gone for a couple weeks. It came down to communication between them and the supervisor of their department. The beautiful thing was -- is it allowed them to continue to work and it gave the company some extra production help. But it also allowed us to pair them with the less experienced associates to get that transfer of knowledge.
STUPICASo that when they decided that they were ready to retire for good, the company didn't only lose that associate, but they didn't lose the knowledge that went with them. We were able to retain a lot of that because of the time that we'd had for them to transfer that...
STUPICA...to other associates.
MCGINTYJenny, I got to tell you, I'm coming out there to work for you. But I've got to ask you, did you find this was a win-win? Was it cost effective for the company? How did that work?
STUPICAIt was absolutely a win-win. We actually got interest from retirees from other companies in the area...
MCGINTYI bet you did.
STUPICA...who found out about this program. The reason it was a win-win, the associate had complete flexibility in what -- their working schedule. So they could schedule around what their lifestyle was in that point in time. And it was a win-win for the company because we got the extra production when orders were high and we needed the extra help working. But also we were able to pair them with those less experienced associates who really enjoyed working with them and getting that knowledge.
STUPICABecause that isn't something that you can teach in a vocational program or a training school. It's something that you can only get from working with someone who has been doing this for a great number of years and who just understands those things at kind of that basic level that it's just -- it's kind of innate.
MCGINTYAll right. I'm going to get it -- let our guests opine and ask a question or two. But I have to ask you, what's your reaction to what you've been listening to so far in terms of this new study?
STUPICAWell, to tell you the truth, I kind of partly agree. We don't have a retirement age for our folks. They're able to work as long as they're comfortable and can work safely and feel that they're being productive. So we don't force anybody out. We're happy to have them as long as they want to stay, as evidenced by our Silver Eagles program. On the other hand, we are looking at other opportunities to get workers in to try to bring them up to speed so we don't lose that productivity when those experienced workers retire for good.
LUNDJenny, I applaud your company. One question, very tactically. So how do you manage around all the flexibility you're giving these workers, so they can say they want the holiday off, they want to work certain days? How -- is it difficult for your company then to fill in younger workers with this ever-moving schedule?
STUPICAYou know, it really hasn't been. It's all come down to communication between the associate and their supervisor. They've always been very good at giving plenty of advance notice so that we can reallocate personnel, we can reallocate jobs to machines, to make sure that all of the work is covered. It just has happened that not everybody takes off at the same time. We have one man who likes to ride motorcycles in the summer time, so he's off in the summer. We have others that like to winter in Florida, so they like to be here in the summer. So it really has just worked out for us. Again, it all comes down to communication. We're had plenty of time to reallocate things so that we can make sure the work is covered.
MCGINTYI'm curious. You're a relatively small company with less than 200 -- fewer than 200 workers, Jenny. Do you think this could be expanded for some multi-national company with, you know, hundreds of times that number of workers?
STUPICAI'm sure it could be. Again, it just -- it's going to have to come down to organization and communication. Some of those that are that big may not be able to be quite as flexible as we've been able to be. But certainly I think it's something that -- an option that people need to look in to, in light of the fact that they may have many more people ready to retire at the same time than a company our size would.
MCGINTYJenny Stupica, human resource manager for SSP Fittings Corporation. Thank you so much for your time. And as a guy in middle age who just had a birthday last week, I love you. Thank you so much.
STUPICAWell, thank you.
MCGINTYWe appreciate this. Greg Ip, what's your reaction to what you heard?
IPYou know, one thing I'd be curious to hear more about from employers and perhaps from people like Stupica, is that there is -- there's positives and negatives of an older workforce. One of the positives we've been talking about today are the knowledge and experience. The negatives include the fact that older workers tend to be more likely to have health issues.
IPThey might have disabilities and so forth. And historically that was one of the reasons why older workers were thought to be less productive than young workers. That is changing. The average 60 year old today is about as healthy as the average 55 year old was in the 1970s.
IPThe other thing that's changing is educational attainment. Historically, because the big surge in college enrollment took place in the '60s and '70s, the average younger worker was more likely to have a degree than the average older worker. But as time goes on, that difference too is declining. Long way of saying, today's older worker is not the older worker of the '70s. Now, whether those disadvantages have narrowed enough that it is actually now advantageous to keep more of these older workers around, I think is an open question. The sort of thing studies like this are trying to find out and people like Jenny Stupica are going to try and tell us...
MCGINTYBut she's saying, don't keep them around in the same capacity. She's saying, you change the job, but you still keep the people and you keep paying them fairly well.
LUNDI think it's a great model for other companies. And in fact there are other companies out there thinking along the same lines. I mean one thing you have to remember is that longevity has really changed the nature of retirement. So when Social Security and Medicare were founded, life expectancy in the U.S. was much shorter. So when the retirement age was set at 65, you were expected to be in retirement for, say, less than 10 years.
LUNDWell, now, we all live longer. And if you do reach the age of 65, your life expectancy is out in the mid-80s. So you're looking at 20 years of retirement. The fact is we can work a lot longer, given the advances in health care.
MCGINTYAnd we may need to, because can we afford 20 years of retirement for your average worker, Gary?
BURTLESSI don't think we can. The question is how long can we have 35- or 40-year careers and have 20- or 25-year retirements? That's a much more expensive proposition, when the population consists of many -- a much larger proportion of people who are past 60.
MCGINTYLet's take a phone call or two. Rick in Mount Dora, Fla., you're on the air. Go ahead, Rick.
RICKHi. Yeah, I'm a 61-year-old employee of Federal Express. And at 62, I plan on taking Social Security early. And if I were able to take Medicare in the same way, at 62, I would be out the door in a flash, as would a lot of people that I work with. Because we are old men doing a young man's job.
RICKAnd if you want to leave the opportunities for young people, universal healthcare, Medicare for all, one other reason it makes sense to me.
MCGINTYSo you're looking forward to your 20-year retirement is what you're saying.
RICKAbsolutely. I want to travel. I want to do all these things. And I'm ready to go. I'm healthy. The job has kept me healthy. But there's just the health care. And there you bump into health care. You can -- I'm taking a bit of a bet on Social Security. But I've saved enough so that money is not the problem, it's health care that's the problem.
MCGINTYThis is interesting. Comments anyone?
LUNDSo is the Affordable Care Act going to be the way you go for a couple of years, until you're eligible for Medicare?
RICKYes. That's probably the way I will go. But that, once again, that is an expense that's coming out of my pocket that I wouldn't have if I continued to work for Federal Express.
MCGINTYAll right. Thank you so much, Rick. We appreciate it, appreciate the phone call. Let's go to John in Tulsa, Okla. You're on the air, John.
JOHNWell, good morning. Thanks for taking my call.
JOHNHey, I'm wanting to talk to the folks who are forced in the transition and they still have to make some money to -- because they have substantial bills. That's where I was. Oh, we moved from Los Angeles to Tulsa and I was leaving the entertainment business. And I had, you know, two kids and -- well, I have two kids, and I thought how in the world -- I'm going to start over at $10 an hour. Now are we going to pay our mortgage? And I went into real estate, just out of default. What can I do because I have to find something that can quickly ramp up and help me pay the bills or we're not going to be able to make it.
JOHNAnd so I did that and found it, you know, I don't get paid unless I close something. So I had to build a business. And within seven years, I mean, quickly, I started excelling in real estate, because I had, you know, over 20 years of being an entrepreneur anyway, to build my own career. Now I applied it using a structure. And I found that, you know, after this amount of time, it really has paid off. And I think that people look for the acumen of experience, especially when someone's guiding you on one of your most important decisions.
MCGINTYAll right. Well, John, let me just stop you for a second and turn to Gary and ask, is that story the exception or the rule?
BURTLESSIt's very common for people who work later in life to be self employed. There's two ways that that happens. One is that a lot of self employed just stay in the workforce longer than do people who are wage and salary workers, partly because the wage and salary workers have some retirement arrangements with their employer that permit them comfortably to retire. But the second thing is a lot of people who have worked as wage and salary workers through much of their life find that it is much easier to find employment that you like as a self-employed person. You don't have to worry about the employer discriminating against you.
MCGINTYYeah. But are most people cut out to be self employed?
BURTLESSNo. I think that that is an unrealistic expectation. I think that people who have been comfortable as wage and salary workers throughout their careers are going to be most comfortable if they can find a work opportunity that permits them to stay in that arrangement.
MCGINTYSusan, you wanted to say something?
LUNDBut this does reflect another broad trend in the U.S. labor force, which is what we call independent work. So there is a growing number of people in the economy who are either self employed, their freelancers, they're building their own businesses. Now sometimes that's as their primary source of employment, like this guest. Sometimes it's supplemental. So if you take an Uber, there's a good chance that your driver is doing this part time to supplement his retirement. If you stay at an Airbnb room, those renters are disproportionately older people.
LUNDSo there are lots of new opportunities to make little bits of income here and there.
MCGINTYIt's a gig economy, as they call it.
LUNDA gig economy.
MCGINTYSusan Lund is a partner at McKinsey Global Institute. Greg Ip is chief economics commentator for The Wall Street Journal. And Gary Burtless is senior fellow in economic studies at The Brookings Institution. We're talking about a new study that says the economy is being slowed down in part because so many workers are getting older and because companies may be forcing them out or they are retiring. You're listening to "The Diane Rehm Show."
MCGINTYYou know, Gary, I wanted to get back to something. You pointed out that there were times before now when the economy seemed to slow down and not grow and there were plenty of younger workers around.
BURTLESSThat's right. The way most economists measure productivity is not really the way it was measured in the study. Most economists think about productivity as how much workers, on average, produce per hour that they work. And in fact, the decade -- the last decade of the period that they examined in which they see a big slump in productivity was in fact the 10-year period in which there was the fastest growth in hourly productivity.
BURTLESSSo we have had theories in the past that emphasize one factor as being the driver of this hourly productivity trend. One, in the 1970s and early '80s was, well, the baby-boom generation just got such a lousy education that the fact that they have all these college degrees doesn't mean anything because those were lousy degrees compared with what younger people received. Another theory was, well, when the price of energy spiked, it made a lot of technology capital obsolescent.
BURTLESSAnd so we needed to replace at that lowered productivity. So we have had these theories in which one dominant factor accounts for the ups and downs in productivities. But I think most economists nowadays don't think that these one-factor explanations fit the facts. Because a lot of things contribute to the ups and downs in productivity.
MCGINTYSo the big question becomes, do we know what contributes to some of these ups and downs in productivity? Or is it sort of mysterious because there are so many factors involved?
BURTLESSWe know a few that contribute. We're pretty certain that better education, better schooling of the workforce has boosted productivity compared with what it would have been had the educational attainment and schooling of our workforce remained much lower. We're pretty confident that the fact that the economy has shifted away from agriculture and manufacturing, where productivity gains for some -- one reason or another have been consistently high for a century-long period, the fact that so many fewer workers are engaged in those high-productivity-growth fields, also has contributed.
MCGINTYBut wait a second. I remember the '90s. Who doesn't remember the -- fondly, the growth of the '90s? It may have been a bubble, but the fact was part of the issue there was productivity...
MCGINTY...was off the charts. I mean it was growing very rapidly. What's the difference between then and now? Greg Ip.
IPDerek, you're absolutely right. And I think, as we've been like talking about for the last few minutes, productivity is a multifaceted thing. And, like Gary, I think that over time we've all become a little bit jaded hearing the one magic bullet theory. And in time, we may conclude the same thing about this study. But I think that what we have is a mosaic, where we have little pieces of the puzzle. Now in the '90s, what we had was the arrival of a new family of technological innovations, like the microprocessor chip, the Internet, the Ethernet, and so forth, which allowed a lot of business models to be transformed in ways that boosted productivity.
IPWell, eventually, the most obvious innovations and improvements that could be attained that way -- you know, you got your air boarding pass from a kiosk now instead of a human agent, that sort of thing -- those were all installed and you couldn't get much further. But there's, at the same time, all these things layering in and out. Now, earlier on, we had a discussion -- I think Gary mentioned about how younger people tend to be more entrepreneurial. There's some research that suggests that the peak -- that the likeliest age when somebody goes out and starts their own business is in their 40s or 50s.
IPThat suggests, when that group of people is the largest portion of your population is when you are demographically most likely to have a burst of entrepreneurship. As you get past that point, perhaps the entrepreneurial spirit starts to recede a little bit.
IPThat might be one of the things going on. I think the bottom line is we don't know. But with each passing year we have more interesting pieces of the puzzle and they give us ideas about how to fix it.
MCGINTYFascinating stuff. We're having a conversation about slacking off in economic growth because the population is getting older. I'm Derek McGinty and you're listening to "The Diane Rehm Show."
MCGINTYWelcome back to "The Diane Rehm Show." I'm Derek McGinty in for Diane today. And we're talking about a brand new study suggesting that part of our economic issues, a slowdown, as it were, is due to the aging of our population. Our guests here in the studio, Greg Ip, chief economics commentator for "The Wall Street Journal," Susan Lund, a partner at McKinsey Global Institute, and Gary Burtless, senior fellow in economic studies at The Brookings Institution. Again, I'm Derek McGinty. The phone number here, 800-433-8850, 800-433-8850. And Greg, we understand that this is a fact in this country, but in many countries it's also a problem.
IPOh it is, absolutely. The entire world is getting older and I mean, in fact, the United States is relatively fortunate in that the population here is getting older more slowly than other countries. But for example, the UN tells us that by the year 2050, the working age population in all developed countries, you know, like France, Germany, Japan, will have declined by five percent. And in fact, this is a phenomena you now see in developing countries like China, which is actually said to be the first country to grow old before it grows rich.
MCGINTYHow much of that has to do with their one child, one family policy that they came up with?
LUNDIt's absolutely due to the one child policy. When you have a generation that's had only one child, guess what? When your parents start retiring, the work force is actually gonna shrink in the coming decades quite dramatically, by as much as 150 million people.
MCGINTYA lot of folks. Gary Burtless, how does that affect growth, when your economy -- when your workforce, your population gets that old, that quickly, and can you extrapolate that to what's happening in the rest of the world?
BURTLESSWell, the -- as the population gets older, and if retirement patterns do not change at all, then you have a shrinking number of people supporting all the dependents, child dependents and elderly dependents, and that is precisely what has been happening in rich countries for the last 25 years. But many rich countries, after a late start, saw that there are big advantages to encouraging people to expand the portion of life that they spend working and the United States was one of the early movers in this. We started retiring later, in the early 1990s, but over the last 15 years, the trend toward later retirement has picked up speed in the rest of the rich, industrialized world too, and so there have been startling increases in the percentage of people in their late 50s and in their 60s who are working in a lot of European countries.
MCGINTYIs that a solution to the problem? I mean, if you're not gonna have more children, is later retirement sort of a real solution or is it only a stop gap?
BURTLESSIt's not a complete solution, because eventually you're going to have people -- increase in the proportion of people who are past ages where it's realistic to expect people to make a major contribution. But remember one thing, only one of the reasons for population aging is that we are living longer. The other reason is that we're having many fewer children, and as a result of having many fewer children, we do not have to support as many young people, when we're in prime age as our parents' generation had to do.
MCGINTYWow, that's an interesting take on it, because what we usually hear is that there are many more old people that must be supported by a shrinking number of young people, Susan Lund.
LUNDAbsolutely. I think one of the things that the US has benefitted from is immigration, and I know that that's a political hot button during this election year. But the US has benefitted not only that we're getting working age people emigrating to the US, but when they come here, they tend to have more children. And so both factors are one reason that the US is actually in much better shape than western Europe or Japan or China.
MCGINTYLet's talk to some more listeners. Patricia in Orlando, Florida, thanks for waiting.
PATRICIAYes, good morning. So, I'm 61 years old and I'm still gainfully employed as a software systems engineer. I don't foresee my retiring any time soon. I have several reasons. First of all, monetary. I use goods and services that I wouldn't normally use if I were retired. For example, I have people clean my house, and I wouldn't do that if I were retired. My home is almost paid for, I have a car that's paid for, so there's a monetary aspect to it. But also because I want to keep my mind fresh. And I really enjoy the work that I do, it's very complex.
PATRICIAIt would take about three years for me to train someone else to perform my tasks, and some people may say, well, you know, you're actually taking a job away from a younger person. However, that's not the way they do things in our industry. What would happen is they would train somebody they already have to do my job. So that's my observation. I consider myself pretty productive.
MCGINTYI would, I agree with you, Patricia. I'd also consider you very fortunate to be in that job and to be in the position that you're in. A lot of folks, I think, would envy that.
IPI'd be curious, Patricia, whether, how your employer feels about this. I mean, do you feel any pressure from your employer to retire soon?
MCGINTYThat's a good question, Patricia, what do you think?
PATRICIAI work for a very large company. So when you say my employer, it's my project manager, and he and I have known each other for 25 years. He's the same age as I, and you know, he and I have sat down a couple times and talked about a possible exit strategy, but I feel no pressure to do that. He says, well, you think about it, that's your homework, and you think about it and next time we talk -- he's not co-located with me, he says, next time we talk, you know, maybe you'll have a plan.
MCGINTYWhy does he feel like you need to have a plan? I mean, it sounds like you're not anywhere near ready to go?
PATRICIANo, but I do think about retirement. I mean, you know, my project has been awarded a follow-on for another ten years, and I don't think I'm gonna be around, you know, to be working at that time.
PATRICIASo, I don't know, we'll see. I just kind of play it by ear.
IPOne point I want to make here is I think for companies and the government, perhaps the most important principle in dealing with the aging population is flexibility, and not impose rigid rules about when people retire or don't retire. What type of Medicare they can get from the private sector from the government. I'll give you an example. There's a study done at a BMW factory in Germany. Germany is one of the fastest aging countries in the world. It's actually -- their working age population is shrinking right now in a very serious way.
IPAnd so fat companies, very successful companies like BMW, have had to explore what are they gonna do about the fact that a lot of their workers are aging? So they did an experiment where they said, let's take a look at our older workers and see what we can do to make sure that physically they're as able to do the same work that their 30 or 40 year old colleagues can do. And they found that a small number of very simple fixes, replacing concrete floors with wooden floors, which are easier on the joints, giving large magnifying glasses for handling small parts, and larger font sizes on their computer screens, actually brought those older factory floor workers up to the same productivity level as the younger workers.
IPAnd the advantage for them means that they now do not face this cliff of losing all these workers. And what is encouraging about that story is it was generated from within the company, it wasn't forced on them. And so the more creatively, I think, both employers and governments think about this process, the more likely you are to come up with solutions that make everybody happy.
MCGINTYLet's go to Matt in Ohio. Matt, you're on the air.
MATTHi, how are you doing?
MATTMy question was, why -- you had mentioned Germany, why -- I caught a story a couple of years ago on NPR about apprenticeships, and they had mentioned Germany. Why more companies aren't' doing that if they're worried about losing the knowledge from the older employees, why they aren't having more apprenticeships, bringing people in and training them?
MCGINTYSounds good to me, Matt. Let's find out. Why aren't they doing that?
BURTLESSIt's not a traditional way to impart skills in the United States, except in the construction and building trades industries, is the simple answer.
MCGINTYIs that a mistake?
BURTLESSIt's a mistake, I think. And I think a lot of people who are students of the way skills are imparted in other rich countries, and compared to the United States, I think it is a mistake. Countries like Germany and Switzerland and Australia, which have this long standing tradition of educating about a third of their youngsters or up to half of their youngers, in outside of the school, but in the workplace, at least partly in the workplace, do seem to have much better transitions from being a 16 year old to being a gainfully employed 25 year old, than we do.
LUNDIt's a discussion that's starting to happen in the United States. So the German auto manufacturers BMW and Mercedes in the United States, in fact, have apprenticeship programs at their factories. And other companies are starting to think about this, particularly with the cost of a college education increasing and the realization that not everybody needs a four year college degree. That what the US is facing at this point is a lack of people in many skilled technical trades, that don't need a general four year college degree, but need a very specific type of training.
LUNDAnd those are the types of programs that would benefit from incorporating apprenticeship-like models, where students learn in the classroom, but then also go out and get real experience, and, by the way, they're getting paid while they're getting that experience.
MCGINTYI'm gonna read an email from Shawn who asks, one thing he'd like to see the guests discuss, the effect of automation in balancing the productivity declines associated with an aging population.
BURTLESSWell, automation should make it easier for older people with their experience to do a lot more productive work, and reduce the need for people to retire because their joints are weakening and their -- and it's tougher for them to stand on their feet all day long. We heard earlier from a Federal Express delivery driver, the kind of job he has is shrinking in significance in the United States. Fewer, a smaller and smaller proportion of the workforce has jobs that require this kind of effort. There are still many of them. The nurses require this kind of heavy physical exertion, but those kinds of jobs represent a shrinking share of employment, and so one would think that the workplace would be more welcoming to those of us who find it harder...
MCGINTYYeah, but here's the thing, they also -- automation means fewer jobs period, right? So as you have fewer jobs, isn't there a temptation by industry to push out the older workers and hire younger, cheaper workers?
IPIf you're an economist, them's fighting words. The theory and evidence tells us that over time, automation does not actually displace jobs. When automation enables you to produce something more cheaply, consumers have money they can spend on other things. And what you discover is that new jobs are created. Half of us used to work on farms, now less than two percent of us do. We don't have 50 percent unemployment as a result. The other thing I think when it comes to the aging issues it that automation has different impacts on different sorts of workers.
IPFor example, object oriented software programming has made it harder for some young software programmers to get jobs. On the other hand, some colleagues of mine went to Japan and discovered some interesting phenomena there. This is the oldest country in the developed world, and in some sense, it's a microcosm of what all of us can expect. You have people there working into their 70s. There was a story about a guy who works as a bricklayer. He's in his 70s, and was working with an exoskeleton that a Japanese company had designed so that he could lift many times the normal amount of weight somebody his age could lift. As the demographic makeup of our workforce changes, I think we'll see more of these creative solutions applied to make sure that older workers can do what in the past they couldn't.
MCGINTYFascinating stuff. I'm Derek McGinty, and you are listening to "The Diane Rehm Show." All right, let's take a minute to talk about more possible solutions that might or might not involve exoskeletons. Susan Lund.
LUNDI think automation and digital technologies are one part of the solution. It's true that some jobs get automated away entirely, but new research that we've done shows that the vast majority of automation compliments labor. So it's more changing the composition of what many different occupations actually do. And in many ways, this has been pointed out, this can actually benefit older workers in particular, but all workers. I think another solution that we've talked about is being creative.
LUNDHow do you create the flexible programs that take advantage of older workers' experience, without pushing them out the door, and make sure that that's imparted to the younger generation.
MCGINTYI think we have to get back to the key question we began with this hour, thought, which is, productivity growth. If it's down one percent because of the aging of the population, as this report would suggest, that's a significant number. Do any of these solutions get at that problem?
BURTLESSI don't know, but I'm going to wait for a while before I accept that the aging population has reduced productivity.
BURTLESSI think that that's still an open question, it's not a closed one at this stage.
MCGINTYFair enough. Greg Ip?
IPI think that where we'll come out on this is that it may be a factor, it's not the dominant factor. It's just a lot of things going on. I think that there's a lot of things we can do to deal with the aging of the population. They may not fix the productivity problem directly, but they can help in other ways. For example, later retirement ages and more flexibility for people who can work to work longer instead of being shunted onto the safety net can, I think, make our entitlement programs more sustainable and free up money that can help improve, for example, the education of all workers.
MCGINTYAnd I guess if I've got a decent job that pays me well enough into my old age, I don't think there's a productivity problem.
LUNDThat's right. And let's not forget, I think where we all do agree is that aging reduces the size of the workforce. But there are many different ways to get more people in the United States out working. Today, there are seven million working age men in the US that are not seeking jobs, not in school, not in training. There's a huge untapped resource. There are women who choose to drop out of the workforce, at higher rates than they do in some of the European countries, for example.
LUNDSo there are policy solutions around how can we raise the labor force participation of other groups in society if we know that in fact we are getting older?
MCGINTYSo Gary, since you are skeptical about this idea that the productivity decline is related to aging, can you give us an example of how the aging workforce might increase productivity?
BURTLESSWell, one reason I think it may have done so in the last 15 or 20 years is that the population that is past 60 and under 75, let us say, is vastly better educated, both relative to their fathers when they were that age, and their mothers when they were that age, and relative to the population that's, say, 25 to 54 years old. So there has been a vast improvement in the relative schooling of aged people in the United States, and compounding that, the people that have the most education, that have the most skills that they bring to old age are the ones disproportionately that are remaining in the workforce.
MCGINTYSo it sounds like the problem has been finding a way to make use of these better educated seniors, that we haven't been doing so far.
BURTLESSIn fact, I think the elephant in the room here is employers' feelings about the productivity of older workers. There seems to be very little doubt that employers have low opinions of the productivity of older workers. Our guest earlier today might be an exception, but most people feel that as they get older, their employers have a lower opinion of what their contributions can be, and randomized trials have shown, in fact, that employers are less likely to make job offers to older workers who have exactly the same skills as workers who are 20 years younger...
MCGINTYWell, we've read so much about this factor -- this is a fact that has really marginalized a lot of older workers with a lot of skills.
IPYeah. I think that one of the factors, and Gary might actually know the answer to this better than I, is that the employer looks at a typical older worker and worries about the costs of sustaining that person on health care and so on. So in fact, I think that this actually takes us -- we talked about immigration, I think getting health care right is also part of the story of making sure that we age as productively as possible.
IPI think one of the goals of the Affordable Care Act was to offer a way for people in their 50s who might have trouble getting a job because they are seen as a high health care, an expensive hire, finding another way that doesn't create that burden. It's problematic that the Affordable Care Act is actually somewhat struggling to fulfill what it had hoped to do, and if we can find a way to fix that, that would be another, I think, piece of solving this puzzle.
MCGINTYGreg Ip, you'll get the final word. Greg Ip is chief economics commentator for "The Wall Street Journal," his book is called "The Little Book of Economics: How the Economy Works in the Real World." Susan Lund is a partner at McKinsey Global Institute, and Gary Burtless is senior fellow in economic studies at The Brookings Institution. His recent report is called "Later Retirement: Inequality in Old Age, and the Growing Gap in Longevity Between Rich and Poor." I'm Derek McGinty, and thanks for joining us on "The Diane Rehm Show."
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