Impact of the Baby Chapter | 1 Boomer

❖ How important are Boomers to the Texas economy?

Not surprisingly, recent recessionary Introduction economic conditions have played havoc Americans born between 1946 and 1964 with Boomer retirement. Employers across — the or “Boomers” — have Texas indicate that their Baby Boomer had a significant impact on national and workers are not retiring — for now. state demographics. History has shown the However, employers say they still worry enormous effect of this generation on social about an impending worker shortage once services, education and the labor market. older workers finally decide to retire. Now, as they ready for retirement, Boomers Meanwhile, people in their 30s and 40s pose concerns for workforce development have been flooding into the Lone Star and planning, corporate succession planning State in such huge numbers that the largest and the social safety net. generation of workers in Texas is now from While individual situations will vary . This is a uniquely Texas and personal finances will influence phenomenon. large numbers of Boomer decisions, Still, when the Boomer cohort demographic actuarial tables have been eventually begins large-scale retirement telling us that growing numbers of this from their primary jobs, the numerical demographic cohort could begin retiring in labor shortage is likely to be larger than any 2010. experienced during previous generational transitions.

Bill Gates once suggested that the top programmers employed at Microsoft were anywhere from 30 to 300 times more productive than the ones with the fewest skills, least experience and little firm-specific know-how.

CHAPTER 1 | 5 Worker Demographics in Texas, by Age Group

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Number employed (in millions) 1

0 2000 2001 2002 2003 2004 2005 2006 2007 2008

Born in 1930–1945 Born in 1965–1980

So u r c e : U.S. Census Bureau, American Community Survey Born in 1946–1964 Born in 1981–1994

Figure 1.1 end of the skills-based occupational | What’s Happening employment hierarchy retire, they will be The record number of births after harder to replace. Occupations involving World War II and the increased life complex nonroutine cognitive knowledge, expectancy as a result of medical advances abstract thinking, independent judgment have resulted in a disproportionally high or intricate and nonroutine manual skills percentage of older workers in today’s (e.g., surgeons, systems analysts) are more workforce. These workers will soon at risk of shortages. The supply of persons retire in record numbers. In lower skill with the requisite education, training, occupations, no significant reduction in know-how, and proficiencies is far smaller. output is anticipated when less-experienced While employers may treat turnover (due workers replace retiring Boomers. Job to retirement or other causes) in low-skill openings at the low end of the skill occupations as a trivial matter, they are spectrum won’t stay vacant very long likely to want to retain the services of their because there is no shortage of people who hard-to-replace senior knowledge workers meet the minimum requirements for these who add significant value. jobs, which demand routine manual tasks On the flip side of this argument, and little cognitive knowledge. New hires age and tenure are not necessarily the shouldn’t take long to become proficient at determining factors in productivity among these jobs because the required tasks can be knowledge workers, so it’s rational for mastered after a short demonstration, and employers to let some of their older the pace of work and the work activities knowledge workers retire, even if they are set for them by workflow design (e.g., are somewhat more productive than the customer-initiated orders at fast-food companywide or industry average. That establishments). they may generate more output or add However, when workers at the high more value than their younger co-workers 6 | CHAPTER 1 may be offset by seniority- or longevity- “You’re experiencing something so based wage premiums, the higher cost of different from the rest of the country, providing “senior” health care coverage, or Texas is really an anomaly,” said Rebecca their disruptive effects on the productivity Ryan, economist and expert of others (e.g., presumed resistance to with Next Generation Consulting in change, technophobia, personality clashes Madison, Wisconsin. She said the most with younger workers, resentment from likely immediate result within the Texas having to report to younger supervisors). work environment is “stagnation” at work For now, Census Bureau analysis of the — where older workers hold on to their workers in the Lone Star State from 2008 jobs and younger workers in Generation X shows that Texas has a unique situation and the Millennial generation (those born with four generations in the workforce at 1981 to 1994, also called Generation Y) the same time: become frustrated as their careers stall due to congestion of upper level jobs with older •  (born 1930 to 1945 workers. and making up 4% of Texas workers) “Boomers are scared as their retirement • Baby Boomers (born 1946 to 1964 and plans are in flux. Generation X and making up 36% of Texas workers) are seeing their career plans • Generation X (born 1965 to 1980 and on hold because those positions ahead of making up 38% of Texas workers) them are not opening up because people • Generation Y or Millennials (born aren’t moving on,” Ryan said. “While the 1981 to 1994 and making up 22% of average age of workers in other states has Texas workers) been drifting up, Texas seems to be getting A national survey by the Pew Research younger. This will probably mitigate some Center found that Baby Boomers say they of the worker shortage in Texas when older are opting to delay their retirement by workers retire.” several years. If Baby Boomers and even Silent Generation workers delay their retirement by about five years, then the | The Data Texas workforce that is already congested with four generations working together Texas is generally regarded as a young could become more congested this decade. state, a perception buoyed by the median Meanwhile, a unique situation unfolded age of the population, which is 33.2 years, in 2008 as Generation X surpassed the or 3.5 years younger than the nation as a Baby Boomer generation for the largest whole, according to the Census Bureau. number of workers in Texas, according to Almost 28% of the Texas population is the Census Bureau (see Figure 1.1). younger than 18, which is more than 3

“You’re experiencing something so different from the rest of the country, Texas is really an anomaly.“

— Rebecca Ryan, Next Generation Consulting in Madison, Wisconsin

CHAPTER 1 | 7 years younger than the national average. (know-how) they’ve accumulated over so A younger and growing population is many years on the job. More than 29% largely viewed as a positive sign for future of Boomers have a Bachelor’s degree or economic prosperity. higher, making them the most highly But Texas is also home to 5.2 million educated cohort in American history. Baby Boomers, roughly 29.1% of the White men, who comprise the largest 16-and-older population, who comprise group of retiring Boomers, attained about one third of the state’s civilian labor more education than most groups in the force. Though that percentage is lower replacement pool of workers. Older white than the national average (78.2 million men also accumulated vast amounts of tacit Baby Boomers nationwide comprise 31.7% knowledge acquired through many years of of the noninstitutionalized 16-and-older on-the-job learning. population, or labor force eligible), it Employers say that replacing Baby represents an entire generation of Texas Boomers is already proving to be a workers about to retire. problem. Multiple surveys of human These numbers do not tell the whole resources managers show that newer story. In 1964, Boomers represented nearly workers often lack the specialized 40% of the U.S. population and about education or appropriate college degrees 35.9% of the national civilian labor force. and even lack adeptness with “workplace To visualize their enormous demographic fundamentals.” The characteristics of the impact, imagine the noticeable bulge younger Generation X and Generation of a pig passing through a python that Y further concern employers. These swallowed it whole. younger generations include more female workforce members. Though these women The numerical effects of Boomer have high rates of college degrees, they retirement are compounded when lack degrees in scientific and engineering compared with skill shortages. “Baby fields. The younger generations also have Boomers are going to be retiring in droves high proportions of Hispanic and African- starting with the end of this decade,” said Americans populations, which in the past Arlene Dohm, an economist with the have had below average graduation rates Bureau of Labor Statistics in Washington, for high school and college. These patterns D.C. “There are certain industries and provided much of the impetus for the professions that are going to be hit very Texas “Closing the Gaps” initiative, which hard.” encourages more young Texans to attend As they moved from infancy into college. adulthood, Boomers in sequence In the wake of an increasingly strained the capacity of public education, competitive global economy, companies’ postsecondary education, the labor focus on the bottom line also affects the market, and the housing market. Today, future of the talent pool. After years of they are the largest cohort in the labor downsizing through layoffs of middle force. As Boomers exit the workforce, managers and technical and professional they will strain the Social Security system. workers, employers are growing anxious Meanwhile, the economy will lose their to find appropriate successors. Worker productivity and the value Boomers add to talent — or bench strength — has been goods and services by virtue of both their further winnowed by -inspired formal training and the tacit knowledge

“Adding willing hands to the economy is not the same as adding trained brains.”

— from “The Search for Talent,” The Economist, October 2006

8 | CHAPTER 1 Population Pyramids of Texas

Male Age Female 85+ 80–84 2040 2040 75–79 2008 2008 70–74 65–69 60–64 55–59 50–54 45–49 40–44 35–39 30–34 25–29 20–24 15–19 10–14 5–9 0–4 5 4 3 2 1 0 0 1 2 3 4 5 Percent of Population So u r c e : U.S. Ce n s u s Bu r e a u

Figure 1.2 layoffs. Anecdotal evidence gathered from in service-related industries, older workers surveys of human resources professionals who want to continue working will have shows large increases in the average time more difficulty retaining jobs or finding needed to fill the high-skill, upper level new work that uses their existing skill jobs vacated by early retiring Boomers. sets. Older workers also tend to hold They also report the increased likelihood of more senior positions than do younger filling those vacancies with younger, less- workers, a typical result of Baby Boomers’ qualified applicants. accumulated formal education, work Some general trends should also be experience and tenure. noted regarding workers of the The population pyramids for the United generation. Although the concentration States show the prominence of the Baby of older workers varies from region to Boom cohort (see Figure 1.2). Men and region, older Americans tend to live in women are depicted on separate sides rural areas. In Texas, for example, rural of the age key in the middle. Though communities have a higher percentage of this chart shows only population (not older workers than do urban communities. workforce) statistics, economists and Industry attachment of older adults also demographers extract the gender breakouts varies. Senior workers, more than younger because men and women tend to have workers, also tend to work in “legacy” different labor force participation rates. industries, such as agriculture, petroleum, Their average educational attainment manufacturing, government and education, also differs, as do their concentrations by which were thriving when older Americans fields of study, occupational and industrial came of age in the 1960s and . As employment, average life expectancy and employment opportunities diminish in average age at retirement. these sectors and more job growth occurs

CHAPTER 1 | 9 “American businesses lost their ‘bench strength’ during the 1980s and 1990s. “

— John Sullivan, San Francisco State University

responding to recent surveys, human | So What? resource managers reported the following The eventual retirement of older observations: workers will result in a host of economic • Large increases in the time to fill high- effects, including a strain on the Social skill, senior-level jobs being vacated by Security system, lost productivity of older early-retiring Boomers workers, and lost added value to goods and • Notable decreases in the qualifications services through Boomers’ formal training of younger applicants for high-level, and know-how. senior positions, especially in engineering, To make matters worse, middle skilled trades and precision manufacturing managers and technical and professional • Increased instances of filling high-level workers took the biggest hit in the vacancies with less than fully qualified middle of their careers when companies younger replacements (and, thereafter, reengineered production lines and experiencing sharp declines in overall firm downsized to reduce labor costs. Workers productivity) who found their career progressions • Increases in salary and benefits truncated during this organizational demands by younger applicants who are “flattening” were part of the lower tail of well qualified because they have a good the Baby Boom generation or the upper tail sense of their market value when high of Generation X. Thus, the feeder cohorts skills are in short supply comprising the talent pool to replace the first wave of retiring Boomers suffered Many economists predict that the collateral damage when downsizing and is headed for an economic reengineering “cut the muscle along with contraction when Boomers retire. the fat.” Today, many companies facing Americans of usual working age may expect impending Boomer retirements obsess to shoulder larger tax burdens to fund over short-term, bottom-line issues and fail government services, if they continue at to devote enough attention to succession current levels. Therefore, workers may have planning and within-firm skills-gap fewer after-tax dollars to fuel consumption. analysis. Without increased consumption demand to drive it, total domestic output likely will Quantifying the coming skills shortage not match its average annual growth rate has been problematic because many (around 3% per year), which economists Boomers say they are delaying retirement. historically have considered healthy enough However, a great deal of anecdotal to sustain prosperity. evidence supports its significance. In

10 | CHAPTER 1 Chapter 1 | Suggested Strategies

 Think Globally, Plan Regionally • Become an “employer of choice” to outdo competitors in Some of the anticipated labor shortage could be filled recruiting talent and retaining skilled workers. in the following ways: • Effectively deploy state-of-the-art information technology, • Increased labor force participation of women implement human resource management best practices and deliver productivity-enhancing training. • Postponed retirement, especially of male Baby Boomers • Structure opportunities for retirees to return to work as • Increased labor force participation of African-Americans independent contractors to complete unfinished projects or and Hispanics as training consultants to mentor replacement workers. • Recruitment of foreign-born workers to fill the void • Allow older workers to stay on the job without Even then, the raw numbers do not tell the whole jeopardizing their own Social Security and private story. For example, women have relatively high levels of pension benefits. postsecondary education, but few have specialized scientific • Conduct thorough internal skills inventories and develop and technical degrees that underpin the new economy. In rational succession plans. addition, African-Americans and Hispanics may not be as likely to fill the employment voids unless postsecondary • Develop internal career progressions to retain young educational attainment rates increase, and highly skilled talent. international workers are having more trouble entering the • Embrace new leadership styles to engage and retain United States and obtaining work visas since September 11th, the next generation of workers while managing 2001. Qualified foreign workers are increasingly tempted to intergenerational conflict as retiring Boomers relinquish work in their homelands as their native countries’ economies the reins of leadership in the workplace. grow and offer more job opportunities. • Broker arrangements for local firms to use Texas Skill The effects of the numerical labor shortage will Development Fund dollars for customized training at be compounded by more significant skill shortages. community colleges, particularly for workers who will White men, who comprise the largest group of retiring replace retiring Boomers. Boomers, have on average attained more postsecondary • Pool resources and expertise with firms in the same education than most groups in their younger replacement industry to establish a training consortium and develop a pool. Moreover, the high-skill professional, managerial core training curriculum for incumbent workers and new and technical workers who are about to retire have hires of the consortium’s member firms. accumulated indispensable tacit knowledge, specialized degrees and skill sets. • Provide training services that increase worker productivity as an integral aspect of regional economic No single policy or action will prevent an economic development. contraction when Baby Boomers retire. Still, Texas policymakers, business leaders and workforce • As work shifts to the upcoming generations, demonstrate intermediaries can capitalize on several strengths of the a collective commitment to retaining and growing legacy Texas economy to mitigate this phenomenon: businesses within a community. • Provide incentives and establish procedures that entice • Adjust for more part-time positions to allow older Boomers to postpone their retirement. workers to ease into retirement while opening new roles for younger workers. • Identify, retain and groom young in-house talent to replace retiring Boomers.

Getting Boomers to postpone retirement is only a stopgap measure. At some point, they will leave their jobs and they all will have to be replaced.

CHAPTER 1 | 11