People are living and working longer and the implications for areas like health care and entitlement government programs are profound. But what about employers? Is there value to companies when they have an older workforce? It depends on how you define experience. Employees have no impact on business performance, whether performance is measured through financial, operational, or customer outcomes. Teure, however, has a significant positive and sometimes significant impact on financial performance and operational excellence. This suggests that there is no place for ageism at work. It also suggests that gig or temporary workers should not replace tenured staff.
People are living and working longer and the implications for areas like health care and entitlement government programs are profound. But what about employers? Is there value to companies when they have an older workforce?
We are new answered this question with unique data covering workforce characteristics, management practices and business performance. Our findings are clear: Employee age has no effect on business performance, whether performance is measured by financial, operational, or customer outcomes. Teure, however, has a significant positive and sometimes significant impact on financial performance and operational excellence.
Older employees bring two types of experience to an organization. The first is “total human capital” and it consists of things like knowledge, skills, learning capabilities, and behavioral patterns acquired through a lifetime of work and work. Individuals can carry this type of human capital with them from employer to employer because it has value to many, and employers looking for it can “buy” it in the labor market. The second type is “firm-specific human capital.” It consists of knowledge, social networks, skills, and knowledge generated through the experience of working in an organization with suppliers, customers, technology, proprietary processes and intellectual capital and, of course, with partners in work. Specific human capital has value to an organization and it is “built” through employment (years of service) with the employer.
We examine the business impact of total human capital, measured by age, and specific human capital, measured by employment, in 23 organizations operating in a variety of industries such as financial services, healthcare , retail, manufacturing, distribution, hospitality, business services, and mining. Business performance, the specific measures appropriate to the industry and circumstances of an organization, is measured in three ways: financial (for example, revenue growth, profitability), operational (for example, error rate, speed), and customer reactions (eg, referrals. , retention rates). The performance of work units in each of the 23 organizations was studied over long periods of time, tracked monthly or annually. Overall, the impact of age and tenure was analyzed based on nearly 1.25 million employee-years of workplace performance.
While tenure and age are related – we get older as we accumulate experience – it is possible to separate the effects of tenure (firm-specific) from age (general) human capital. Our analyzes do exactly that and show that, after statistically accounting for the correlation between age and tenure, age does not have a statistically significant effect on performance, but tenure does. The positive effects of tenure vary in magnitude from organization to organization, with the implication that well-managed tenure may return greater than average value to the employer. Further analysis also shows that the tenure of leaders and managers also positively affects the financial performance of the units they lead and that the mix of older and younger workers (“age diversity”) within work units does not affect performance.
There are three important implications of these findings for employers.
One is that there is no place for ageism at work. It is a common perception among business leaders that older workers are a liability to the business because of their higher costs and a perceived decrease in productivity. Our research upends the stereotype. Prejudices that demean older workers and antagonisms that alienate or drive them out are bad for business.
Another implication is that employer practices — sometimes called age-friendly or age-inclusive — that enable older, “retirement-age” workers to remain in the organization can be good for business. These practices not only extend the opportunity for older workers to contribute but can also accommodate non-work interests that often come later in a career, such as participating in service work or continuing long-time hobbies. Reduced hours, flexible work hours, switching from full-to part-time without loss of benefits, and various formal and informal phased retirement programs are ways to get to businesses value their older, older employees by keeping them motivated, engaged, and at work.
The third implication is perhaps the most important: Traditional forms of employment – that is, businesses with employees who establish tenure – have a competitive advantage over organizations that choose alternatives such as contracts, gigs , and platform workers. These organizations lose the business value that the tenure and longevity of an employer brings.
Decisions to rely on non-employee labor are often made for cost reasons. But cost is only half the equation; the other half is created by value, and while traditional employment arrangements tend to have higher costs through wages and benefits the value created through stability and tenure often outweighs those higher costs, such as the evidence shows. This is not to say that there is no place for gig or temporary workers. However, today’s businesses need to be wary of this trend as HR circles take traditional forms of work organization for granted and be wary of those who say that the qualities of platform work and the “deconstructing” of work systems into elements such as discrete tasks that. can be performed by substitute persons.
There are organizations for good reasons, reasons that are well documented in the economic and management literature, and technological changes that support platform and contract work have not raised all or even most of them. Our research adds an important factor: Organizations create economic value and competitive advantage by facilitating the accumulation of employee time. Decisions to adopt non-employed workers should be made only after factoring in the potential cost savings against the value generated by traditional forms of employment.