The (Real) Effects of the Baby Boomers Retirement Boom

Trying to read the economy’s tea leaves has been an extended exercise in frustration. On any given day, leading economic indicators?be they manufacturing orders, new housing starts or retail sales?may signal an upswing only to be confounded the very next day by sluggish corporate profits and a rise in the number of layoffs. It’s enough to give the army of displaced IT workers apoplexy.

While all that the short term offers is conflicting signs, conventional wisdom holds that in the long run there’s a built-in solution to chronic unemployment: During the next five to 10 years, millions of baby boomers will be retiring, essentially heading for the exits en masse. This exodus will create a demographically driven worker shortage that will put the power back into the hands of the job seekers. That means that today’s workers will eventually be able to say good-bye to static or shrinking paychecks, and that today’s unemployed can look for an end to all that pavement pounding.

For job seekers, it will be back to a future of multiple job offers at 25 percent more than their previous salary.

For corporate managers, it will be a nightmare.

Preparing for the Hiring Frenzy?Not

The folks advancing this argument say that hiring managers better get hip to the shortage scenario. In fact, they say, those who aren’t currently planning for the coming hiring frenzy may be putting their enterprises permanently behind the proverbial eight ball.

Others think this is all a load of hooey.

Peter Cappelli, a management professor and the director of the Center for Human Resources at The Wharton School, conducted research that questioned these assumptions about the potential economic impact of an aging employee population. Cappelli found that any projected labor shortage caused by retiring boomers is, in fact, a complete fiction. True, the generation following the boomers?the so-called baby busters?is about 16 percent smaller than its predecessor, but with an average age of 30, the busters, who already have been in the workforce for a number of years, won’t be retiring anytime soon and are both willing and, more important, able to fill any voids left by the departing boomers. Add to that the fact that the generation after the busters is composed of the boomers’ offspring and is therefore relatively large, and that many members of that generation are currently in college and will be looking for work in a few years. Putting all that together, Cappelli concludes that the future pool of skilled employees?the kind most in demand by employers?promises to be more than adequate for businesses’ needs.

Finally, Cappelli finds a flaw in the proposition that retirement will soon beckon legions to abandon the workforce. Given the lousy state of retirement accounts, coupled with increased life spans, it’s unlikely that everyone who turns 65 will be decamping for that gated community in Florida. And even many who can afford to retire will choose not to, although they may change jobs or cut back on their work schedules.

“Yes, there’s the potential for a lot of people to retire all at once, but there have been few cases where it actually happens,” Cappelli says, adding that the auto industry and government agencies are the most likely sectors to experience widespread retirements. In that scenario, Cappelli says the most pressing issue won’t necessarily be finding workers as much as preserving the knowledge of those who are leaving. “Organizations should be examining now if they have the capability to retain some of the knowledge,” he says. “If they are paying any kind of attention, they should be able to do that.”

In short, don’t look for tomorrow’s population trends to provide a solution to today’s unemployment problem. “Demographics, which change slowly and predictably, aren’t going to cause a labor shortage,” Cappelli says.

That’s not to say there won’t be a labor shortage sometime in the future. But if there is one, it will be a labor shortage caused by increase in business activity?and good luck trying to predict that.

Not a Labor Shortage, a Knowledge Shortage

So if there’s not going to be a labor shortage based on demographic shifts, what’s the problem? As Cappelli sees it, many companies are fixated on the idea of a manpower shortage and thus will spend precious time, energy and resources solving the wrong problem. The real challenge?retaining the workers you already have?will likely go unaddressed. According to Cappelli, the employment boom that occurred in the late ’90s was in actuality a retention issue in disguise. “A couple of years ago, all sorts of companies were hiring like crazy and weren’t able to meet their business demands,” he says. “The thought was that the problem was an inability to find enough people, but companies were losing people out the backdoor as quickly as they were hiring in the front door.”

In effect, companies were paying a tax on two fronts: They paid to hire and train new employees; and they paid for the loss of experience and knowledge.

Ironically, IT is one of the professions that historically has been most at the mercy of demographics because employers have focused on hiring people right out of college. So if Cappelli’s theory is right, is there any hope for a rebound in IT employment? Unfortunately, the answer isn’t clear-cut. In light of the trend toward the global outsourcing of IT work, companies may not believe they need to fret about retaining skilled workers because the pool of available labor is now a worldwide one.

“The ability to outsource work outside the U.S. gives employers a safety valve,” notes Cappelli. “They don’t have to find or retain the workers here; they can just move the work to where the workers are.” Cappelli prefers to keep his own counsel on whether the millions of IT jobs sent abroad will ever return or whether millions more are destined to go the same way. What that question comes down to is flexibility versus control. If companies want the former, they’ll continue to ship work and jobs offshore; if they want the latter, IT jobs will stay put and, perhaps, even return.

The notion of a worker shortage based on aging boomers and flagging birth rates is a seductive one because it’s quantifiable and lifts the responsibility for the future from our already overburdened shoulders. After all, you can’t fight demographic trends. Que sera, sera, as it were. But as Cappelli reminds us, assuming that the future is out of our control just about guarantees that it will be.