The economics of age management Offensive vs defensive model - an study using business economics - Competence 50+, Götebor...
An economic perspective   <ul><li>My study is based on the following scenario: </li></ul><ul><li>A steady increase in the ...
An economic perspective <ul><ul><ul><li>A summary </li></ul></ul></ul><ul><ul><ul><li>Youth are older when they start work...
An economic perspective <ul><ul><ul><li>This trend of late job market entry and early departure is leading to a major stra...
Business economic study  <ul><ul><ul><li>Why keep employees 55+ working? </li></ul></ul></ul><ul><ul><ul><ul><li>The short...
<ul><ul><ul><li>My study has two parts;  </li></ul></ul></ul><ul><ul><ul><li>a theoretical analysis  </li></ul></ul></ul><...
Age management - potential revenues - Age management Employee behaviour The activity The outcome <ul><ul><ul><li>Lower sic...
Productivity <ul><ul><ul><li>Productivity  can be influenced in many ways: </li></ul></ul></ul><ul><ul><ul><li>Better mana...
Costs <ul><ul><ul><li>Working time; disruptions from implementation and maintenance </li></ul></ul></ul><ul><ul><ul><li>Co...
Different strategies <ul><ul><ul><li>Offensive strategy </li></ul></ul></ul><ul><ul><ul><li>Cost neutral concerning labour...
Defensive strategy vs no measures   + - Measures Loss  of   production Refilling Changed behaviour
The defensive strategy ,  1  - what is necessary for profitability? -   <ul><ul><ul><li>At constant productivity </li></ul...
Is productivity constant? Productivity Age 50 years 65 years Average
The defensive strategy ,  2  - what is necessary for profitability? -   <ul><ul><ul><li>At decreasing productivity (80 %) ...
Offensive strategi vs no measures + - Measures Changed behaviour
The offensive strategy ,   - what is necessary for profitability? -   <ul><ul><ul><li>At constant productivity </li></ul><...
Offensive strategi vs defensive + - Avoid loss of production Avoid refilling Influence more  employees (Higher labour cost...
Offensive strategy vs defensive   - summary of the theoretical analysis -   <ul><ul><ul><li>Higher costs for implementatio...
Practical case <ul><ul><ul><li>An administration in an average Swedish municipality </li></ul></ul></ul><ul><ul><ul><li>St...
Practical case, defensive <ul><ul><ul><li>At no refilling, cost corresponds to 2 % of turnover. </li></ul></ul></ul><ul><u...
Practical case, offensive <ul><ul><ul><li>Cost corresponds to 0,45 % of turnover </li></ul></ul></ul><ul><ul><ul><li>Profi...
Turnover <ul><ul><ul><li>Can turnover finance the cost at defensive? </li></ul></ul></ul><ul><ul><ul><li>If turnover costs...
Finally <ul><ul><ul><li>Still I have not seen any economic evaluation or analysis from any age management project…  </li><...
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Session 04

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From the conference Competence 50+ 2007 in Gothenburg, Sweden.

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  • Session 04

    1. 1. The economics of age management Offensive vs defensive model - an study using business economics - Competence 50+, Göteborg 19th of June, 2007 Claes Malmquist [email_address]
    2. 2. An economic perspective <ul><li>My study is based on the following scenario: </li></ul><ul><li>A steady increase in the proportion older persons related to gainfully employed (from 27 to 40% by 2040) </li></ul><ul><li>Increased longevity - stable retirement age (+16 years since 1930) </li></ul><ul><li>The birth rate is declining - in addition young people are older when they start working (prolonged studies and new lifestyle) </li></ul><ul><li>Early retirement and long-term absence due to sickness is high (approx. 780 000 or 18 % compared to labour force) </li></ul><ul><li>Many negotiated pension agreements at downsizing or restructuring </li></ul>
    3. 3. An economic perspective <ul><ul><ul><li>A summary </li></ul></ul></ul><ul><ul><ul><li>Youth are older when they start working and declining birth rates mean there are fewer of them </li></ul></ul></ul><ul><ul><ul><li>Many workers are retiring before age pension; others are absent for long periods before formal retirement age </li></ul></ul></ul><ul><ul><ul><li>The gap between actual retirement and our length of life is increasing </li></ul></ul></ul><ul><ul><ul><li>” from 50 to 30 years of working life and towards a length of life of 85 years” </li></ul></ul></ul>
    4. 4. An economic perspective <ul><ul><ul><li>This trend of late job market entry and early departure is leading to a major strain on national economies through: </li></ul></ul></ul><ul><ul><ul><ul><li>lower growth </li></ul></ul></ul></ul><ul><ul><ul><ul><li>financing public sector is more difficult </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>tax revenues down </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>costs up </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>a shortage of manpower in some sectors </li></ul></ul></ul></ul><ul><ul><ul><li>In Sweden, keeping persons in the work force one additional year will increase the GNP approximately 2,5% (6 bil €) </li></ul></ul></ul><ul><ul><ul><li>If 10% of the Swedish work force continues working 65+ it will increase tax revenues by 1 bil € </li></ul></ul></ul>
    5. 5. Business economic study <ul><ul><ul><li>Why keep employees 55+ working? </li></ul></ul></ul><ul><ul><ul><ul><li>The shortage perspective </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Organisations face a coming worker shortage among certain job skills </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>The capital perspective </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Organisations have a major human capital investment which is lost when workers retire or are absent due to long illness </li></ul></ul></ul></ul></ul><ul><ul><ul><li>an average employee costs 5 000 - 50 000 € in turnover </li></ul></ul></ul><ul><ul><ul><li>production value yearly 60 000 - 150 000 € </li></ul></ul></ul><ul><ul><ul><li>many 55+ are highly productive </li></ul></ul></ul>
    6. 6. <ul><ul><ul><li>My study has two parts; </li></ul></ul></ul><ul><ul><ul><li>a theoretical analysis </li></ul></ul></ul><ul><ul><ul><li>and </li></ul></ul></ul><ul><ul><ul><li>a practical case </li></ul></ul></ul><ul><ul><ul><li>The practical case is an application of my theoretical analysis; it is not a study of the behaviour of individual employees - that study remains to be done! </li></ul></ul></ul>Business economic study
    7. 7. Age management - potential revenues - Age management Employee behaviour The activity The outcome <ul><ul><ul><li>Lower sick leave costs </li></ul></ul></ul><ul><ul><ul><li>Lower rehabilitation costs </li></ul></ul></ul><ul><ul><ul><li>Higher productivity </li></ul></ul></ul><ul><ul><ul><li>Lower turnover costs </li></ul></ul></ul><ul><ul><ul><li>Goodwill and other intangibles </li></ul></ul></ul>
    8. 8. Productivity <ul><ul><ul><li>Productivity can be influenced in many ways: </li></ul></ul></ul><ul><ul><ul><li>Better management </li></ul></ul></ul><ul><ul><ul><li>Better health and wellbeing </li></ul></ul></ul><ul><ul><ul><li>Investment in competence </li></ul></ul></ul><ul><ul><ul><li>Higher awareness about the benefit of age adjusted solutions </li></ul></ul></ul><ul><ul><ul><li>Higher exit average age (many older staff more productive than younger) </li></ul></ul></ul><ul><ul><ul><li>Transmission of skills </li></ul></ul></ul>
    9. 9. Costs <ul><ul><ul><li>Working time; disruptions from implementation and maintenance </li></ul></ul></ul><ul><ul><ul><li>Costs in loss of production because of shorter working time/refilling labour force costs </li></ul></ul></ul><ul><ul><ul><li>External costs </li></ul></ul></ul>
    10. 10. Different strategies <ul><ul><ul><li>Offensive strategy </li></ul></ul></ul><ul><ul><ul><li>Cost neutral concerning labour work force </li></ul></ul></ul><ul><ul><ul><li>” Age conscious leadership” </li></ul></ul></ul><ul><ul><ul><li>Defensive strategy </li></ul></ul></ul><ul><ul><ul><li>Not cost neutral </li></ul></ul></ul><ul><ul><ul><li>” Age adjusted work hours” </li></ul></ul></ul>
    11. 11. Defensive strategy vs no measures + - Measures Loss of production Refilling Changed behaviour
    12. 12. The defensive strategy , 1 - what is necessary for profitability? - <ul><ul><ul><li>At constant productivity </li></ul></ul></ul><ul><ul><ul><li>No refilling </li></ul></ul></ul><ul><ul><ul><li>Profitability = - 0,16 x whv </li></ul></ul></ul><ul><ul><ul><li>The cost is appr. 13 000 €/y </li></ul></ul></ul><ul><ul><ul><li>The demand for every one in 55+ is: </li></ul></ul></ul><ul><ul><ul><li>Productivity + 16 % </li></ul></ul></ul><ul><ul><ul><li>High cost sick leave - 43 days/y </li></ul></ul></ul><ul><ul><ul><li>Refilling </li></ul></ul></ul><ul><ul><ul><li>The cost is appr. 7 500 €/y and the demand is: Productivity + 10 % </li></ul></ul></ul><ul><ul><ul><li>High cost sick leave - 27 days/y </li></ul></ul></ul>
    13. 13. Is productivity constant? Productivity Age 50 years 65 years Average
    14. 14. The defensive strategy , 2 - what is necessary for profitability? - <ul><ul><ul><li>At decreasing productivity (80 %) </li></ul></ul></ul><ul><ul><ul><li>No refilling </li></ul></ul></ul><ul><ul><ul><li>Profitability = - 0,12 x whv </li></ul></ul></ul><ul><ul><ul><li>The cost is appr. 9 000 €/y </li></ul></ul></ul><ul><ul><ul><li>The demand for every one in 55+ is: </li></ul></ul></ul><ul><ul><ul><li>Productivity + 12 % </li></ul></ul></ul><ul><ul><ul><li>High cost sick leave - 33 days/y </li></ul></ul></ul><ul><ul><ul><li>Refilling </li></ul></ul></ul><ul><ul><ul><li>The cost is appr. 6 000 €/y and the demand is: Productivity + 8 % </li></ul></ul></ul><ul><ul><ul><li>High cost sick leave - 22 days/y </li></ul></ul></ul>
    15. 15. Offensive strategi vs no measures + - Measures Changed behaviour
    16. 16. The offensive strategy , - what is necessary for profitability? - <ul><ul><ul><li>At constant productivity </li></ul></ul></ul><ul><ul><ul><li>To be profitable the demand for every one in 55+ is: </li></ul></ul></ul><ul><ul><ul><li>Productivity + 3 % </li></ul></ul></ul><ul><ul><ul><li>High cost sick leave - 8 days/y </li></ul></ul></ul><ul><ul><ul><li>At decreasing productivity (80 %) </li></ul></ul></ul><ul><ul><ul><li>The demand for every one in 55+ is: </li></ul></ul></ul><ul><ul><ul><li>Productivity + 2 % </li></ul></ul></ul><ul><ul><ul><li>High cost sick leave - 6 days/y </li></ul></ul></ul>
    17. 17. Offensive strategi vs defensive + - Avoid loss of production Avoid refilling Influence more employees (Higher labour cost) Meausures for more employees
    18. 18. Offensive strategy vs defensive - summary of the theoretical analysis - <ul><ul><ul><li>Higher costs for implementation and maintenance for the offensive </li></ul></ul></ul><ul><ul><ul><li>A defensive strategy has considerably higher costs for loss of production/refilling </li></ul></ul></ul><ul><ul><ul><li>The demand for changes in behaviour are much less for the offensive strategy ( especially if all employees are influenced ) </li></ul></ul></ul><ul><ul><ul><li>” Why pay productive staff to work less?” </li></ul></ul></ul>
    19. 19. Practical case <ul><ul><ul><li>An administration in an average Swedish municipality </li></ul></ul></ul><ul><ul><ul><li>Staff; 347 employees </li></ul></ul></ul><ul><ul><ul><li>Number 58+; 45 full time (13 %) </li></ul></ul></ul><ul><ul><ul><li>Turnover; appr. 200 mil sek (22 mil €) </li></ul></ul></ul>
    20. 20. Practical case, defensive <ul><ul><ul><li>At no refilling, cost corresponds to 2 % of turnover. </li></ul></ul></ul><ul><ul><ul><li>Profitability demands: </li></ul></ul></ul><ul><ul><ul><li>Productivity + 16 % </li></ul></ul></ul><ul><ul><ul><li>High cost sick leave - 12 650 h (35 days in average) </li></ul></ul></ul><ul><ul><ul><li>(Total absence 58+ 19 500 h, of which 1 900 high cost sick leave!) </li></ul></ul></ul><ul><ul><ul><li>At refilling, cost corresponds to 1 % of turnover. </li></ul></ul></ul><ul><ul><ul><li>Profitability demands (refilling): </li></ul></ul></ul><ul><ul><ul><li>Productivity + 8 % </li></ul></ul></ul><ul><ul><ul><li>High cost sick leave - 6 100 h (17 days in average) </li></ul></ul></ul>
    21. 21. Practical case, offensive <ul><ul><ul><li>Cost corresponds to 0,45 % of turnover </li></ul></ul></ul><ul><ul><ul><li>Profitability demands (refilling): </li></ul></ul></ul><ul><ul><ul><li>Productivity + 3,5 % </li></ul></ul></ul><ul><ul><ul><li>High cost sick leave - 2 800 h (8 days in average) </li></ul></ul></ul>
    22. 22. Turnover <ul><ul><ul><li>Can turnover finance the cost at defensive? </li></ul></ul></ul><ul><ul><ul><li>If turnover costs 100 000 € and is at the level of 5 %, every year costs 5 000 € </li></ul></ul></ul><ul><ul><ul><li>If turnover is at the level of 4 % every year costs 4 000 €, </li></ul></ul></ul><ul><ul><ul><li>the “profit” is 1 000 € a year </li></ul></ul></ul>
    23. 23. Finally <ul><ul><ul><li>Still I have not seen any economic evaluation or analysis from any age management project… </li></ul></ul></ul><ul><ul><ul><li>My wishes: </li></ul></ul></ul><ul><ul><ul><li>such a project should </li></ul></ul></ul><ul><ul><ul><li>last several years </li></ul></ul></ul><ul><ul><ul><li>contain pre – and after calculations </li></ul></ul></ul><ul><ul><ul><li>have a control group </li></ul></ul></ul><ul><ul><ul><li>measure effects on the business economy as well as on the employees health and wellbeing </li></ul></ul></ul>

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