Daniel Smentek
Managing an Ageing Workforce
The Impact of an Ageing Population on the German Labour Market and how Employers
can deal with related Challenges
ISBN-10: 3-8324-9904-0
ISBN-13: 978-3-8324-9904-4
Druck Diplomica® GmbH, Hamburg, 2006
Zugl. Fachhochschule Aachen, Aachen, Deutschland, Diplomarbeit, 2006
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Abstract
II
Abstract
Germany's population, and consequently its workforce is ageing. Fewer
young people will enter the workforce and employers will be pressed to
draw from an expanding pool of older people. As a consequence the work-
ing age population is projected to decline significantly; while the numbers
of organisations depended on them will rise. At the same time, baby
boomers are moving towards retirement and can not be replaced by mid-
dle-aged or younger workers. Facing impending talent shortages and a
substantial loss of knowledge and experience, companies might have little
choice but to implement new employment strategies. Primarily based on
secondary research and supported by available data from various re-
search institutions, this paper considers relevant variables and ap-
proaches related to challenges from a German perspective. This is done
regardless of specific industry conditions and circumstances. The paper
covers selected peripheral issues like attitudes and retirement intentions of
older workers and the myths and stereotypes about them. It provides an
overview of the German labour market, specifically the situation of older
people, and how public policy has been responding to improve related
conditions. Finally, minor and major interventions are presented to adapt
human resource methods, work arrangements, and framework conditions.
Recognising that an effective response to the demographic changes re-
quires a broader perspective, i.e. considering all working generations, the
proposed initiatives primarily focus on the attraction and retention of older
people.
Table of contents
III
Table of contents
1
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4.1.
Myths and stereotypes
16
4.2.
Benefits to employers
18
4.3.
Attitudes towards retirement
20
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5.1.
Public pension system
26
5.2.
Employment protection
28
5.3.
Non-wage labour cost
29
5.4.
Level of education
30
5.5.
Legislation on age discrimination
32
5.6.
Further initiatives
32
6
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6.1.
The need for change
36
6.2.
Dimensions of good practice
37
6.2.1.
Workforce planning
38
6.2.2.
Development of an age neutral culture
40
6.2.3.
Recruiting and selecting older workers
41
6.2.3.1.
Expanding recruiting focus
42
6.2.3.2.
Considering new recruiting channels
43
6.2.3.3.
Adjusting selection procedures
44
6.2.4.
Training and career development
45
6.2.4.1.
Training opportunities for all ages
46
6.2.4.2.
Cross-generational training
47
6.2.4.3.
Adapting training programs to older workers
47
6.2.4.4.
Providing management training
48
6.2.4.5.
Rekindling mature careers
48
6.2.5.
Alternative work arrangements
50
6.2.5.1.
Phased retirement options
51
Table of contents
IV
6.2.5.2.
Flexible retirement deals
53
6.2.6.
Occupational health and safety
54
6.2.6.1.
Ergonomic considerations
55
6.2.6.2.
Considering sensorial systems
55
6.2.6.3.
Preventive health care and rehabilitation
56
6.3.
Implementing new policies
56
6.3.1.
Ensuring overall commitment
57
6.3.2.
Involving all generations
57
6.3.3.
Encouraging knowledge transfer
58
6.3.4.
Conducting a situational approach
59
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List of abbreviations
V
List of abbreviations
ARRP:
American Association of Retired Persons
e.g.:
exempli gratia / for example
EPL:
Employment protection legislation
EU:
European
Union
HR:
Human
resource
IAB:
Institute
for
Employment Research
i.e.:
id est / that is
OECD:
Organisation for Economic Co-operation and Development
List of figures
VI
List of figures
Figure 1: Demographic Transition Model
4
Figure 2: Birth rate ranking
6
Figure 3: Old-age dependency ratio - Germany 1970-2050
8
Figure 4: Population pyramids - Germany 1950-2050
9
Figure 5: Population pyramid - Germany 2006
11
Figure 6: Historical and projected labour force growth in Germany
13
Figure 7: Expectations for work in retirement - Germany 2005
21
Figure 8: Confidence in comfortable retirement - Germany 2005
22
Figure 9: Adequacy of public pensions - Germany 2005
23
Figure 10: Confidence in government's ability to provide health benefits 23
Figure 11: Labour force participation rate by single year of age
26
Figure 12: Educational composition of the labour force aged 50-64
31
Figure 13: Possible retirement trajectories
51
List of tables
VII
List of tables
Table 1: Labour force composition - Germany 2000-2050
15
Table 2: Planned vs. expected retirement age - Germany 2005
21
Introduction
1
1. Introduction
Demographic change, more precisely a rapidly ageing workforce, is one of
the major problems in Europe. Countries like Germany anticipate that the
population will age substantially over the next few decades (Patrickson &
Hartmann 1998; Robson 2001). By 2050, on current trends, half the Ger-
man population will be aged over 48 and one third will be 60 or older (The
Economist 2005). The ageing population results from a significant decline
in the number of young people, and an increasing number of older people,
who live a longer and healthier life (European Foundation for the Im-
provement of Living and Working Conditions 2004c). In Germany, a higher
life expectancy is accompanied with historically low birth rates, causing a
natural decrease in its population (Kuné 2003). A subsequent reduction in
the supply of labour and a change in its composition are likely impacts on
the German workforce. The ageing of the German workforce is mainly in-
fluenced by a particular generation - the baby boom generation i.e. people
born between 1946 and 1964 (Donkin 2006b; Organisation for Economic
Co-operation and Development 2005a). Being far larger in numbers than
the generations that follow, baby boomers are moving towards retirement
and unlikely to be replaced by middle-aged workers moving into their posi-
tions or younger workers entering the workforce (Jadin 2006; Yoder 2002).
The looming challenge stretches beyond the lack of bodies. Companies
face losing significant numbers of their most experienced workers in re-
tirement, including skills, training, and qualifications (Kiyonaga 2004; Tif-
fany 2006). Talent shortages and a substantial loss of knowledge and ex-
perience may be the result. Against this background, companies are fac-
ing tight labour markets on the one hand and little choice but to employ
more older workers on the other hand (Concours Group 2003). As future
competitiveness is increasingly resting on the performance and productiv-
ity of older people, their efficient retention and utilisation becomes crucial
(Walker 1998). In view of this demographic urgency, this paper considers
variables and suggestions on how to approach related challenges from a
German perspective, regardless of specific industry conditions. It starts
addressing stereotypes and assumptions about older workers and their
Introduction
2
likely value for an organisation. The paper furthermore concentrates on
attitudes and intentions of German workers regarding the issue of working
beyond the traditional retirement age. German labour market conditions,
particularly the situation of older people, and public policy responses are
looked into next. Considering the need for new employment strategies to
offset the impending labour and skill shortages, the paper ultimately pre-
sents a range of possible interventions for employing organisations in
Germany. In conclusion the paper includes recommendations focusing on
workforce planning, coping with internal age bias, recruiting and training of
older workers, alternative employment deals, and adaptation of the work-
place.
The ageing population European & German trend
3
2. The ageing population European & German
trend
Over the next 50 years global demographic structures are projected to un-
dergo major changes (Robson 2001). Demographic change, more pre-
cisely a rapidly ageing population, is regarded as one of the biggest prob-
lems in Western developed countries, especially in Europe. Since dec-
ades, Europe has the highest proportion of population over 65 years old
and, with the exception of Japan, the world's 25 countries with the eldest
population are all in Europe (Kuné 2003). European countries like Ger-
many can anticipate that their population, and consequently workforce, will
age substantially over the next few decades (Patrickson & Hartmann
1998). By 2050, on current trends, the largest segment in the European
population will be 65- to 69-year olds. Half the population is expected to be
over 50; and the segment of 65 and over will be as large as the under 15s
(The Economist 2005).
The ageing population results from a sharp decrease in the number of
young people, caused by the change from high birth rates (fertility) and
death rates (mortality) to low birth and death rates (Wikipedia - The free
encyclopedia 2006). This trend is labelled the term demographic transition.
The underlying Demographic Transition Model by Warren Thompson de-
scribes the population changes through 4 stages as depicted in Figure 1.
Most developed countries are argued to be in stage four of the model,
characterised by low birth rates and low death rates. The majority of de-
veloping countries are expected to be in stage 2 (rapidly falling death
rates) or stage 3 (falling birth rates), and no country is argued to currently
be in stage 1 (high birth rates and death rates). Although the original
model has just four stages, it is widely accepted that a fifth stage repre-
sents a situation where there is a natural decrease in the population, as
birth rates have fallen below the death rates. Countries like Germany and
Italy could be argued to be entering this stage.
The ageing population European & German trend
4
Figure 1: Demographic Transition Model
Source: (Wikipedia - The free encyclopedia 2006)
One reason for this looming shift is simply that people are living longer
(Kuné 2003). High-technology medical treatment and advances in health
care have contributed most to the mortality reduction. Diseases and death
are increasingly treated medically and a further rise in longevity can be
expected as a result from continuing successful medical interventions.
Trends towards better working conditions, and above all, towards a better
life-style and health behaviour have further contributed to a higher life ex-
pectancy and are expected to continue doing so in the next few decades.
Germany has experienced a rapid decline in mortality rates since 1975,
which is expected to continue into the future. A further increase in life ex-
pectancy of around five years for men and women, will lead to a high
growth in the number of people in the 80 years bracket, and subsequently,
to a prolongation of the retirement phase (Organisation for Economic Co-
operation and Development 2005b).
The ageing population European & German trend
5
According to the 10
th
population projection by the Federal Statistical Office
of Germany, half the German population will be aged over 48 and one
third will be 60 or older in 2050 (Federal Statistical Office of Germany
2003a). The Organisation for Economic Co-operation and Development
(2005) projects that by 2035, the share of the elderly aged 65 years and
over is to increase from its current 18% to 30%.
The overall European population is expected to not only live longer, but
also to decrease in size over the next 50 years (Kuné 2003). Whereas
significant population growth is projected in Asian and African countries,
moderate growth in Northern America, in contrast European countries are
likely to decline primarily due the demographic transition. Germany is ex-
pected to be one of three societies (accompanied by Italy and Spain) suf-
fering most from a significant decrease in population.
Although the reduction in mortality rates seems to be the most obvious
reason for an ageing population, several studies argue that the major
cause of the looming demographic shift is to be found at the beginning of
the life course. According to Kuné (2003), the ageing population is primar-
ily determined by the decline in the fertility rate (births per woman) or birth
rate (births per citizen), additionally reinforced by the reduced mortality. In
2005, the German Federal Statistics Office reported the lowest birth rate
(8.33 births per 1,000 population) in the European Union and the lowest
total on record since 1946 (Spiegel Online 2006). Another study published
in March 2006 by the Berlin Institute for Population and Development puts
Germany at the bottom of the world's birth rate ranking (Kroehnert,
Medicus & Klingholz 2006). Figure 2 compares birth rates of selected de-
veloped countries confirming the status of Germany.
The ageing population European & German trend
6
Figure 2: Birth rate ranking
Source: (Kroehnert, Medicus & Klingholz 2006)
The Federal Statistical Office of Germany assumes that current fertility
rates will remain at this level during the next decades. In 2006, Germany
has about 82,4 million inhabitants (Federal Statistical Office of Germany
2003a). Based on the assumed constant birth rate, the population is ex-
pected to marginally increase to 83 million in the next few years but then
to decline from 2013 to 75 million by the year 2050 the population in
1963. This is expected to lead to a situation where the group of over 60s
(28 million or 37% of the population) will be more than twice as large as
the under 20s (12 million or 16% of the population). To keep the ageing
index of the German population constant would require an increased fertil-
ity rate of 3.8.
Kuné (2003) attributes the downward trend in European birth rates to
changes in reproductive behaviour which were caused by the following:
The ageing population European & German trend
7
a shift away from traditional `family values'
the growing number of women in the work force (meaning that
those who chose to raise up children are faced with the opportunity
costs of children)
a well developed system of social security (making children dispen-
sable as a form of extended family-based social insurance)
These determining factors of reproductive behaviour are expected to re-
main in the future and contribute to the fact that children in Germany are
seen as so called Luxusgüter (luxury goods) (Kuné 2003).
According to the Demographic Transition Model, populations decline when
deaths exceed births. Migration as a third factor can also contribute to the
overall level of population change. Although current net migration rates in
Germany (2.18 migrants per 1,000 population) offset the excess of deaths
(10.55 deaths per 1,000 population) over births (8.33 births per 1,000
population) a positive net immigration (immigration exceeds emigration) is
unlikely to compensate for the fall in fertility rates. In the long run immi-
grants would have to arrive constantly in unfeasibly significant numbers
(Beatty & Visser 2005; The Economist 2005).
Changes in demographic structures can also be expressed in terms of
median age or the old-age dependency ratios (Beatty & Visser 2005). The
median age (also known as the middle age) is that age at which half the
population is younger and half older; an index that summarizes the age
distribution of a population. Whereas the old-age ratio illustrates the num-
ber of people aged 65 and over (potentially retired), relative to the number
of person at working age (currently between 20 and 65 years) and there-
fore indicates the expected shifts in the age structure (Federal Statistical
Office of Germany 2003a).
Given Germany's current demographic structure and the recent projec-
tions of fertility, mortality and migration rates, both the median age and the
old-age ratio are expected to increase steeply by 2050 (Organisation for
The ageing population European & German trend
8
Economic Co-operation and Development 2005b). The median age is ex-
pected to climb from currently 42 to 47. The old-age ratio on the other
hand is likely to increase from currently 26% to 55%, after experiencing a
critical acceleration between 2020 and 2030 where the ratio is expected to
rise twice as fast as in the previous decades, from 36% to 47% as shown
in Figure 3 (Federal Statistical Office of Germany 2003a).
Figure 3: Old-age dependency ratio - Germany 1970-2050
Source: (Federal Statistical Office of Germany 2003b)
To illustrate the previously described changes in Germany's demographic
structure the following population pyramids are used. Showing the distribu-
tion of population by age and sex, Figure 4 graphically displays the signifi-
cant demographic shift between 1950 and 2050.
The ageing population European & German trend
9
Figure 4: Population pyramids - Germany 1950-2050
1950
600
300
0
300
600
thousand
Men
Women
2006
600
300
0
300
600
thousand
Men
Women
2050
600
300
0
300
600
thousand
Men
Women
Source: (Berlin Institute for Population and Development 2006)
The demographic transition from high-fertility and high-mortality to low-
fertility and low-mortality is illustrated by the shape changes from a pyra-
mid like 1950 to a skyscraper like 2050. As shown the population structure
in Germany not only has changed considerably in the past 56 years, but is
expected to continue to change dramatically in future.
The ageing population European & German trend
10
As the future course of fertility, life expectancy and migration is difficult to
project over the long run, demographic projections like these are always
uncertain (Kuné 2003). Nevertheless demographic trends over a period of
up to 50 years can be seen as applicable. Unpredicted shifts in mortality
and birth rates tend not to have a big impact upon the age structure of a
population. It is more likely that the demographic challenge facing Ger-
many may be even greater than these projections suggest as medical
breakthroughs, for instance, are likely to further improve longevity in the
future (The Economist 2004b).
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