Confidence or complacency the implications of an ageing workforce in germany

The working population is ageing fastest in Germany, and many of its companies are leading the way when it comes to adapting to demographic change.. In the years to 2020 German executive

The implications of an ageing workforce in germany

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COnfIdEnCE Or COmplACEnCy?

Contents

Executive summary

Workforce ageing will hit Germany sooner than any other

European country Are the nation’s executives right to be so

relaxed about the impact?

Historically low birth rates and increasing life expectancy

mean that Europe’s working population is ageing fast In 2012

the continent reached an inevitable demographic tipping

point The percentage of the population of working age fell

for the fi rst time in 40 years It is now forecast to fall every

year until 2060 This inescapable trend will have profound

implications for governments, citizens and companies across

Europe

The working population is ageing fastest in Germany, and

many of its companies are leading the way when it comes to

adapting to demographic change Those that have yet to act

have little time for further delay, as Germany has less room

for manoeuvre than the continent’s other large economies,

according to the European Commission

To explore some of the issues that senior executives will have

to address as they seek to adapt their organisations to this new

world, The Economist Intelligence Unit, on behalf of Towers

Watson, surveyed 480 senior executives at companies across

Europe, of which 56 are in Germany Almost two-thirds (58%)

of German respondents expect the number of their employees

aged 60+ to increase by 2020, including 7% who expect it to

increase signifi cantly

This report explores some of the major issues that senior

German executives will have to address as they seek to adapt

their organisations to this new world

The key fi ndings include the following

 German executives are leading the response to workforce ageing Compared with their counterparts in other countries,

they rank in fi rst or second place when it comes to offering more fl exible working hours or working from home (77%), changing the employee benefi ts they offer (55%), and making physical changes to the workplace (45%)

Early action reduces the sense of panic, possibly

Germany’s working-age population has been declining for years Yet only 14% of its executives—the same as the average for Europe—see ageing as high-priority human resources issue today

Talent becomes a priority, but not at the expense of cost control In the years to 2020 German executives will pay more

attention to talent management The share of those rating it as

a top two priority leaps by 237%—by far the biggest increase

in Europe But at the same time—and unlike others in Europe—German executives plan to maintain their tight grip on cost control

German workers value fi nancial security Today, they worry

less than anyone else in Europe about whether they might lose their jobs, according to their employers And any fears they do have will ease further as the economy improves But that will not stop Germans worrying about their fi nancial security Their worries on this point barely fall between now and 2020—41%

of employers rank it is as a concern of their employees today, compared with 39% in six years’ time

The economic and business implications of Europe’s ageing workforce are huge, and the demographic trends that will affect the continent

as a whole are more advanced in Germany than anywhere else

In the decade to 2012 the German ratio of dependent people (those aged under 15 and over 65) to the working-age population increased from 45.6% to 51.2%—the biggest rise in Europe

The decline of the working-age population in Germany has been under way for a number of years, according to the European Commission, which predicts that the country could experience labour bottlenecks within the next two years

That is much earlier than in the UK, for example,

which is unlikely to feel the pain until the early 2020s

And with unemployment relatively low, Germany faces another challenge: there is not a lot of productivity slack in its economy, so it will not have as much time to adjust as other countries

“Over the next decade Germany will fi nd it diffi cult to sustain employment and its GDP growth path without recourse to much higher infl ows of foreign workers and a substantial increase in its annual productivity growth,” the Commission says To achieve annual GDP growth

of just 2%, productivity growth levels would have

to climb by about 3% annually—three times the level achieved before the 2008 fi nancial crisis

Leading from the front?

Regulation Ageing

Healthy Cost control

Skills Talent

Motivation Retention

Recruitment

What, if anything, does your business plan to do by 2020 in order to adapt to the changing needs of your workforce?

(% of respondents)

Chart 2

France Germany

Europe

Source: The Economist Intelligence Unit.

Other, please specify

Looking at how to address generational differences in our

Ensuring that the skills of older employees remain up to date

Offering more flexible working hours

or working from home

Changing the employee benefits we offer

Making physical changes

to the workplace

28

45 27

50 39

56

77 46

36 48 32

33 39

48 45

0 2 2

29 25 21 27

55 49

Despite these gloomy forecasts, German executives are no more concerned about the threat of an ageing workforce than their counterparts elsewhere Some 14% say it is a priority human resources issue today, which is the same as the European average By 2020 the level of executive concern doubles, but it leaps much further elsewhere, such as in the UK (280%

increase) and Spain (160%)

Likewise, German executives are not especially likely to rate skills shortages as a top three human resources problem, despite the Commission’s prediction that the country will feel the pinch sooner and harder than others Today, 16% rate it as a top three issue, compared with a European average of 21% By 2020 it will climb a little to 20%, but this is still below the European average (24%)

German executives might be more relaxed than their European counterparts about the ageing

threat because feel they have responded to it Given a list of possible management strategies to deal with the challenge of an ageing workforce, German executives lead the way in most areas They rank in fi rst or second place of European countries when it comes to offering more fl exible working hours or working from home (offered

by 77%), changing the employee benefi ts they offer (55%), and making physical changes to the workplace (45%)

The only two areas where they are not among the top two are giving employees more choice over their benefi ts (45%) and looking at how to address inter-generational differences in their workforce (25%) But even on those points they are broadly in line with the European average, and well ahead of laggards such as France and Spain

Which of the following do you think is most likely to happen as a result of an ageing workforce?

(% of respondents)

Chart 3

Germany Europe

Source: The Economist Intelligence Unit.

Increased flexible working (to provide care for older dependents, phased retirement, etc)

Progression of younger workers becomes more difficult

43 38

39

6 © The Economist Intelligence Unit Limited 2014

As Europe’s economic prospects improve, executives across Europe plan to rethink the way they balance cost control with talent management Those in Germany are on the same journey, but they expect to arrive at a rather different destination

Today, executives in every country have a clear focus on controlling costs—57% say it is one

of their top two business concerns Talent management is a much lower priority; just one-quarter (24%) rate it as a concern This makes sense, given recent economic history The picture

is the same in Germany, but the lines between these priorities are drawn more clearly here than anywhere else

Getting the balance right 2

The gap between how highly German executives currently rank cost control and how lowly they rank talent management is 48 percentage points—well above the European average (33 points) and second only to Switzerland (49 points) In the years to 2020 German executives will pay more attention to talent Indeed, in 2020 the share of those who rate it as a top two priority leaps by 237%—by far the biggest increase in Europe (the average is just 73%) But the survey shows that German executives plan a more subtle rebalancing of their priorities than their counterparts in other countries

Today, those in the UK, Italy and Spain, for example, say cost is far more important than talent; and by 2020, they think talent will be far

What would you say is the most important business priority for your organisation currently?

57

24

68

25 63

14 27 49 67

29 50

21 68

19 58

13 23 42

20

45 39 48

24 33

more important than cost For these executives, the gap between the two concerns in 2020 will range from 24 to 27 percentage points in talent’s favour By contrast, German executives expect

a more balanced set of priorities; yes, talent will rate higher than cost in 2020, but only by a modest 9 percentage points

The desire of German executives to reach a closer balance between cost and talent management

connects with another of the survey’s fi ndings: although many of them believe that workforce ageing will increase the cost of benefi ts (38%), this is a greater worry for executives in every other country Perhaps the Germans’ willingness

to adapt now to demographic change offers

a cost-control lesson to executives in other countries?

Many German executives are looking to manage the impact of workforce ageing by designing better benefi t programmes The survey suggests there is plenty of scope for improvement here

Some 41% of them say their company has built

up its benefi ts package over time, without any overarching strategy—by far the highest fi gure

in Europe, where the average is 29% And

one-fi fth of German executives (20%) say they have lost track of why they even offered the benefi ts

that were in their programme—almost double the European average

Ironically, German executives are also the most likely in Europe (48%) to say it is often better for employees to get certain benefi ts through work rather than having to buy them themselves

If that is what they believe, a review of the benefi ts they offer seems in order

24

% point difference Talent management (HR)

Cost control

Spain Switzerland

Netherlands Italy

France Germany

UK Europe

23 42

19 20

45

25

39 48

9

24 33

9 13

2

A brightening economic outlook across Europe

is likely to affect the concerns of employees The survey shows that in most countries employers think their staff will begin to worry less about whether or not they have a job and more about how hard they work But the trends are different

in Germany

Today, the country’s workers are the least worried

in Europe when it comes to hanging on to their jobs Only 57% of German executives say this

is among their employees’ top three concerns;

the average across Europe is 64% By 2020 that

fi gure falls by 38 percentage points in Germany,

Keeping Germans happy 3

which is one of the biggest proportional drops in Europe

But the famously prudent Germans are not all smiles Those easing job fears will not stop them worrying about their fi nancial security In fact, their concerns on this point barely fall between now and 2020—41% rank this is as a concern today, compared with 39% in six years’ time Countries such as Switzerland and France, by contrast, both see proportionate falls in concern

Germany now Europe Now

41 41

32

39

64 57

29

20 20 23

31 38

23 25 19 11 15

27

17 20

42 38

45 46

14 21

25

21 20 20

33 39

24 21 25 30

3 4

8 9

Source: The Economist Intelligence Unit.

Caring for dependents (children and elderly)

Skill development

Employment flexibility (job sharing, portfolio careers, part-time working, phased retirement)

New technology /pace of change

Work-life balance

Healthcare provision

Stress and wellbeing

Saving for retirement

Job security

Financial

security

Chart 6

whether they are saving enough for their retirement Here workers can expect their employers to help them out The country’s executives are the most likely in Europe to say that the employer should provide or fund retirement savings (64% agree, compared with 41% across Europe) But that generosity has limits: only one-third (36%) of German executives feel that the employer should help employees have a “comfortable” living in retirement—below the European average of 43%.

Like their counterparts across Europe, German executives question whether their country’s system of pension provision is sustainable About one-quarter (26%) believe demographic change

is the biggest threat They also worry about the high cost to businesses of providing pensions (16%), stretched government fi nances (13%) and

a lack of suffi cient savings made by individuals (13%)

When they look to adapt their pension provision

to the reality of workforce ageing, executives across Europe see excessive regulation as a barrier But those in Germany worry about this the least Instead, their big concern is cost—

whether that relates to making changes to provision (43%) or funding (also 43%)

German executives have a different perspective

on healthcare, too Many of them agree with their counterparts across Europe that the responsibility of employers for their workers’

wellbeing and their share of the social welfare burden will only grow But this trend is less pronounced in Germany Less than half (40%)

of German executives expect the state to play a reduced role in providing healthcare, compared with 54% across Europe

Even if state health provision were not under pressure, the health and welfare of employees would logically become a growing human resources concern, as workforce ageing will require companies to rely more on older workers However, German executives are less likely than their European counterparts to believe that the health and wellbeing of their workforce will be

an increasingly important issue for them as an employer (56% in Germany, compared with 70% across Europe) They are also the least likely to agree that healthcare costs will increasingly fall

on employers (42% in Germany, compared with 55% across Europe.)

Why do Germans not fear increasing costs in this area? Perhaps the answer is that many of them have been adapting their working practices for years “There has been a noticeable change in our business culture as a result of better awareness of health issues and prevention,” says Ralf Urlinger, vice president for corporate health management

at BMW “It’s diffi cult to quantify the benefi ts in

a few years because most of the results will be in the long term But what we see and hear is that it impacts the motivation of the workforce and their dedication.”

Bosch and Siemens Home Appliances Group (BSH) is Europe’s

largest manufacturer of home appliances It has six main

factories in Germany making products under a range of

brands Just under one-third (30%) of its workers are aged

over 50, with 10% under 30 Over the last fi ve years their

average age has increased from 42 to 43

“There is no doubt our workforce is ageing, and this creates

a lot of challenges,” says Carlito Voss The company has not

been slow to adapt BSH has been improving the ergonomics

of its production lines and adapting shift patterns to suit

older workers since 2006, says Mr Voss In 2010 it opened a

new assembly line especially designed for older employees

One of its most important challenges has been to make each

individual employee aware of his or her own responsibilities

with regard to the changing workplace—a project Mr Voss is

leading

“We want to continuously invest in the qualifi cations of

our employees, but there needs to be an interest from the

employees to improve themselves,” he explains To help, BSH has built a new training centre, where all employees can learn not only about technical issues but also about ergonomics and health and safety

Mr Voss believes it is important to invest in the health of employees now, so that they are able to work for longer, rather than taking corrective action later in life “We are all getting older and working longer, so we have to ask: what is each person’s responsibility, and not only what the company

or the government will do about it.”

As an employer, BSH’s role is to invest in ways that will make demographic change easier to manage “It is a matter

of our company culture We believe it is better to work on prevention; this is the same for younger workers as well as older ones This is the way to prevent costs and have success

in the future.”

Case study

Germany has a rapidly ageing workforce, an imminent shortage of potential employees and less scope for manoeuvre than other countries

in Europe Yet its executives are no more worried about demographic change than their counterparts in other countries This might sound like complacency

But Germany reached its demographic tipping point before other countries and has been making the necessary adjustments for years

Companies such as BMW and BSH have already made impressive changes to the way they operate More importantly, they have begun the

Conclusion

essential process of cultural change, whereby workers are thinking harder about how to make themselves employable for longer

So perhaps the relative lack of concern is explained by the simple fact that German executives understand the challenges of demographic change; they have tried to do something about it and are learning from what in their experience works

Appendix:

Survey results

Cost control Expansion Restructuring Innovation Talent management (HR) Risk control and management

63 36

34 34 14

11

(% respondents)

What would you say is the most important business priority for your organisation currently? Select up to two

Talent management (HR) Innovation

Cost control Expansion Risk control and management Restructuring

48 43

39 38 11

9

(% respondents)

What would you say will be the most important business priority for your organisation by 2020? Select up to two