This article first appeared in Business Horizon Quarterly (BHQ), published by the National Chamber Foundation (NCF), and on NCF's website.
Is the world in crisis because of an aging population? There is no doubt that the world’s population is growing older. There is equally no doubt that the world must adjust to an unprecedented population shift. The resulting changes and crises will force readjustments on a grand scale. Individuals and nations will adapt to global aging in different ways in different places. Yet older workers everywhere will need to make the most dramatic adaptations. In many instances, the adjustment will come in the form of mid-life and late-life work. Some of the changes will be dictated by policy, but in those places where older workers can seize control of their own destiny and make fresh starts, the aging of the population may also drive an entrepreneurial wave that will change the contours of the economy.
Our Changing Demographics
The median age across the world increases every year. About half of the current global population is older than 29. By 2050, about half of the world’s population will be older than 39. In the places on the globe that have aged first, such as the older countries of Europe and East Asia, median ages are closing in on 50.
Workforces are also aging. Thirty years ago, the median age of a worker in the U.S. was 35; now it is six years older. In most of Europe and developed East Asia, the shift is more dramatic and the median age of workers is several years higher. The shift changes how countries work and who works in them. It also tips the balance on who collects pensions, social insurance, and other benefits from the state and private sectors.
Europe’s financial crisis erupted in its oldest countries which, when they were demographically young, promised government supports to retirees that far exceeded what their governments could in fact pay as their countries aged. Yet, not all financial strains result from the increased demands on social safety nets. Public spending and private investment change in myriad ways as the population ages and businesses and individuals adapt. Japan’s outsized public debt also owes much to its lopsided age demographics, in which the portion of older people in the country keeps climbing and the percentage of younger people keeps falling. Money spent on public infrastructure to stimulate the Japanese economy, for example, is also partly an attempt to counter the country’s “demographic decay.” By mid-century, four in ten citizens of Japan will be older than 60, and only one in eleven will be younger than 15. Interestingly enough, when today’s 60 year-olds were born, Japan was one of the world’s youngest countries.
Demographics can change fast, and political and economic systems can be stubbornly slow to adjust to them. In one recent survey, an astonishing 70 percent of Japanese firms say that they have made no special plans to adjust their businesses to fit the country’s so-called “demographic decay.” One way Japanese firms and employees adjust is to keep on older workers in surprisingly large numbers. More than half of Japanese men over retirement age continue to labor for the firms they worked for before retirement. Their work is the same. Their hours are usually the same. What is different is their pay. They return to their firms as contract employees, earning around half of their former salaries. They put up with these terms because they need and want the money. Pensions are often too low to live on, but high enough to underwrite a lower level of pay. Japan, among advanced industrialized countries, has the second highest level of workforce participation among its older citizens. Korea, where pensions are leaner, has the highest rate, though older Korean workers are more likely to find low-paid work outside their former workplaces. Yet, what may seem idiosyncratic in Asia’s fastest aging countries today is growing into a bigger global trend.
Our Changing Workforce
The aging of the world’s industrialized countries is feeding one of the biggest shifts in the world of work; namely, the conversion of vast numbers of jobs from salaried employment to contingent employment. In 2010, about half of the world’s workforce was employed on a contingent basis, which is to say that they are employed as contract or temp workers or are otherwise self-employed. The experience of older Japanese men shows how a huge cohort of workers can be converted into a contingent class. Elsewhere in the world, the road to contingent work for older workers is being encouraged by governments that need to keep their aging populations engaged and productive. In late October 2011, the Dutch government introduced legislation that would remove limits on the contingent employment of older workers. The shift has not been easy though, as Italy attests to. The trade publication Staffing Industry Analysts noted in November 2011, as Silvio Berlusconi battled to hold onto his prime minister’s chair in Italy, that the European Union’s insistence that Italy push its citizens to work longer – and thus allow for more contingent work – contributed to the acceleration of the country’s economic crisis.
For structural reasons, European countries have relatively low worker participation rates, even for the healthiest segment of it older population (those aged 65 to 69). According to Staffing Industry Analysts, only ten percent of UK citizens of that age group are currently employed; only three percent of this cohort in Germany currently works; and only one percent of those in France work at present. Even putting Asia work-bound elders aside, Europe’s numbers are strikingly low. In the U.S., about one in five persons between the ages of 65 and 69 still work.
Legislative proposals are percolating all over the European continent to bring down the barriers to work. While Europeans hit the streets to preserve younger retirement ages and benefits, the reality is that large numbers will need to work. The fact that firms will need to bring on experienced workers as the global economy picks up seems destined to change the way firms hire and engage older workers. “As demographic trends in Europe create an increasingly elderly workforce, employers will need to reconsider their employment policies, workforce planning and working conditions,” says a report in the trade magazine. “[T]hose who are responsible for managing the contingent workforce will be at the forefront of this new paradigm. With an inevitable squeeze on pension payouts, many elderly people will opt for semi-retirement and choose to continue working on a temporary basis rather than a permanent one.”
In the United States, workforce participation is higher among older Americans (especially among those closer to midlife and thus in better health). Still, the nature of work in the United States is often different from those of older workers in other countries.
According to a recent survey by MBO Partners, a Virginia firm that provides services to independent consultants, the U.S. is home to around 16 million independent workers, with an additional 28 million who are considering striking out on their own within the next two years. In some ways, the survey goes against the common wisdom that America’s younger workers are the most willing to blaze their own path. Younger adults of the ages 21 to 29 make up about 12 percent of the independent workforce, while those aged 30 to 49 make up 49 percent. Interestingly, those over age 50 make up about 40 percent of the group. For the younger age groups, the percentages of self-employed workers are below their general workforce participation, but for the older group the percentage is higher.
Aging and Entrepreneurship
In truth, the older group of workers in America is disproportionately willing to be entrepreneurial. “By a number of measures we have seen the age distribution of entrepreneurs skew to older entrepreneurs,” says Dane Stangler, a researcher at the Ewing Marion Kauffman Foundation, a Kansas City philanthropy devoted to promoting economic growth through entrepreneurship. “You would expect the 55-plus group to have a growing proportion of businesses because their proportion of the population is going up. What is perhaps surprising is that they also are responsible for a larger share of businesses created. In the tech fields, where you expect a lot of younger entrepreneurs, we do find the average for someone who starts a business is around 39, but is also true that there are more over 50 than there are under 30.”
If the image of the American entrepreneur once belonged to the younger tinkerer in computer labs and basements, it now deserves to shift a bit toward the older adult walking out of an office park to hang up his own shingle at home or to a newly assembled office underwritten by angel investors. Younger entrepreneurs are, proportionally, a shrinking group when compared to their elders. Entrepreneurial activity among Americans 18 to 44 years old has dropped significantly in the past decade. Among those under the age of 25, the rate is down the most, to about 30 percent today. At the same time, the rate of entrepreneurship for those over the age of 65 is impressively high: nearly 1 in every 20 adults in that age group starts, or tries to start, some sort of business. In the United States, 1 in 10 workers is self-employed, but among workers over 50, 1 in 6 is self-employed.
The more representative vision of the contemporary American entrepreneur then might be a man or woman, fifty or older, who is capable of innovation but somewhat less likely to rewire the world. The great strengths of the older entrepreneur, after all, are his or her connections to the businesses and processes in place.
The reasons why there are a disproportional number of older entrepreneurs are statistically murky, according to Stangler. Nevertheless, there are strong reasons to believe that older workers bring to their businesses a set of robust networks and expertise built up over time. They also may have better inroads into finding the money needed to start their enterprises. What is more, the numbers do not capture one of the biggest group of older entrepreneurs – the older professionals who step into a leadership role at a younger start-up company. Is starting a business itself a form of innovation? Stangler says that many new businesses start without an innovative idea. They are as likely to be created to bring their founders independence and a sense of fulfillment as they are to grow out of a creative business idea. Then again, no business can begin with the idea that it will do its work worse than the incumbent competition. If the products or services that the new business offers are not themselves innovative, then something about the new enterprise itself is often an improvement on what’s gone before. After all, the processes and modes of customer service can be innovative too. Moreover, innovation can occur after a new firm is established. Stangler notes that in a survey of the most innovative firms in the INC 500, an index of fast-growing firms, the genesis of many companies was rather ordinary, but that innovations grew over time as the companies learned to compete.
A New Vision for Retirement
As the world and the world of work configures around global aging, the nature of work and leisure later in life is bound to change as well. The good news is that the change will come as lifetimes expand and people remain healthy, such that their potentially productive years expand with them. Indeed, medical breakthroughs look set to bring outsized expansions to our years. Reputable scientists disagree on how long humans might be expected to live in the coming decades, but there is a camp that makes strong arguments for healthy lifetimes that will routinely top out at 110 or 125 years old.
There is not enough money in the world to support billions of people that stay retired for periods that run as long as or longer than their working lives. Yet, as people stay employed or self-employed and engaged at increasingly old ages, the best world will be one in which we have more choices on the terms of our employment. Economies more open to entrepreneurship will offer older workers more options. Those that offer more opportunities for independent work will have to think deeply about the sort of protections and safety nets that come with that work. Underwriting low wages for actively employed older workers with pensions can drive down the wages of younger workers with no such support. It can also push younger workers into contingent work at a time when they need to compound their skills in the more formal workplace.
Workers and workplaces will innovate around the inevitable aging of the planet. The places that get it right will have an older workforce that creates wealth and jobs, making an older world a more prosperous one too.
Ted Fishman serves as an NCF Fellow. Fishman is a veteran journalist, essayist, and former member and trader of the Chicago Mercantile Exchange. He is the author of China, Inc.: How the Rise of the Next Superpower Challenges America and Shock of Gray: The Aging of the World’s Population and How it Pits Young Against Old, Child Against Parent, Worker Against Boss, Company Against Rival, and Nation Against Nation.