Posted by: drdata921 | February 28, 2014

THE YIN AND YANG OF DEMOGRAPHIC WAVES

Recently, I was introduced to the very interesting concept of “demographic waves.” The current demographic wave is represented by baby boomers. Think of this as a group of people moving through time with people ahead of them and people behind. Metaphorically, it is sort of like a large rodent moving through the digestive tract of a snake. It is not that the baby boomer phenomenon is a new concept. However, the image of groups of people moving through time is an interesting way of framing it.

Groups of people, such as boomers, represent a large wave that has exerted significant influences as they have passed through various life milestones. These influences are political, economic, and social. Some of the influences are positive for the society as a whole and some could be relatively negative. On the positive side, I would attribute much of our progress on civil rights and women’s issues, sexual attitudes, development of a multi-ethnic culture and preferences, and the legalization of marijuana to the boomer demographic wave. On the other hand, liberalized attitudes towards drug use may have come back to bite us as the Mexican drug cartels have clearly illustrated.

Demand for Services

Think of an aging wave passing through time and their impact on the economy and the demand for services. Let’s say that you are managing a school system. As the wave of boomers entered school age, there was pressure on local governments to ramp up the system to handle the greater number of students. However, here is the rub: Once the wave passes through their school years and the number of kids entering the educational system diminishes, you are left with excess capacity. How do you deal with this and how do you anticipate the next demographic wave. Think of the implications for teacher training, hiring, and layoffs. Boomers are defined as people born in the years 1946 through 1964. That means that the back side of the boomer wave was leaving high school in the early 1980’s and leaving college in the late 1980’s or early 1990’s.

Just like in business, if demand for goods and services is constant over time, planning is relatively easy. The challenges come when there are periodic changes and particularly if they are of the magnitude of the baby boomer wave. But, it doesn’t end there. We saw another wave as boomers aged into their child bearing age years – the Junior boomer wave. The pattern of demand changes once again putting pressure on the best planned and managed of systems.

As the wave ages through various points, the demand for goods and services change. Think of the implications for health care and nursing homes as the boomer wave moves into their senior years and retirement. Think of the opportunities and challenges for marketers as this wave passes through various life stages. Some goods and services come into demand and some decline. An astute marketer will anticipate these changes and step out in front of the wave. Others will be crushed by it.

Economic Repercussions

There was a very interesting article in our local paper last weekend about the implications of the boomer wave on the economy and the labor force. Think about this:

• Monthly reported unemployment rates are based on people who are looking for work as a percentage of those available to work (actually working + looking for work). This number is called “labor force participation.” The other side of the coin is people who are not participating in the labor force. According to this article, in 2012 and 2013, 80% of people dropping out of the labor force were due to retirements as opposed to people giving up the search. But, here are the implications: currently only 63% of the adult population are labor force participants, nearly the lowest point since the late 1970’s. Will this accelerate as boomers enter retirement?

• Notwithstanding the relatively high unemployment rates currently, there is an anticipated labor shortage in the future. However, there is more to this than just the raw numbers. At present, there are frequent reports by employers that they have openings, but can’t find workers with the skills to fill them. Even now, it is much more than just more people vying for fewer jobs. However, consider this: many of the boomers who are moving into retirement are experienced, skilled and knowledgeable workers. When these people leave the work force it is equivalent to the proverbial brain drain. Sure, you are dropping off some of the highly compensated workers to be replaced by those with lower salaries. Companies are very happy about that. However, a company does not hire workers just because they can pay them less. They hire for experience, expertise and knowledge. So, you may lower your payroll, but also your capabilities and productivity.

Consider the implications of that. If I am a retiree with several years of experience in a field, I should be feeling pretty good. If I am considering part-time consulting or freelancing when I retire, particularly in fields where a high level of technical competence is required the sky could be the limit. However, as a retiree, I come back on my terms!

• For the society as a whole, there are some potential economic downsides. One of the most talked about is the ratio of workers paying into Social Security compared to recipients. In the 1940’s, when the Social Security system first started, there were 42 workers paying into the system for each recipient. In 2011, that number had shrunk to 2.9 workers for each recipient. However, the economic implications of the baby boomer wave go well beyond just the stress on the retirement safety net. The loss of a massive number of workers into retirement goes right to the core of economic growth in the US. Most economists believe that growth rates in the gross domestic product (GDP), a measure of productivity, must be above an annual rate of 3% for the economy to be healthy. However, the exit of baby booms into retirement and its impact on the labor force, at least for the next couple of years, may limit GDP growth to only around 2.6%. For many years boomers where a major factor in the work force and now they are exiting. Will we see a reduced work force and lower economic productivity as a result? Do you see the emerging picture?

“Politics is local”

The political implications of the boomer wave is enormous. Think of the looming fights over Social Security and Medicare and the huge voting block that boomers represent. Social Security used to be the “third rail of politics.” Smart politician stayed away from any changes. Now it has nuclear implications, particularly in the voting booth. Improvements in health care and health in general are boomer issues. So health care will be part of campaign platforms like never before. The need to provide financial security through regulation of the banks and the huge Wall Street institutions all could be boomer issues with political ramifications. At present, the lobbyists control the game, but how much longer will that continue?

So, boomers through their sheer size are a force to be reckoned with. And, one thing is clear: the demographic wave of baby boomers will have an impact on the social, economic, and political landscape of American society for years to come. Politicians, marketers, and economists take note – “HEAR US ROAR!”

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