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And They’re Off! (But Should You Worry?)

The hysteria over retiring baby boomers is ill-founded, but companies do face a specific kind of labor shortage.

When Kathleen Casey-Kirschling collected her first Social Security check in Vero Beach, Florida, last February, alarm bells went off across the nation. Casey-Kirschling, born January 1, 1946, is considered the first baby boomer. Therefore, her retirement foreshadows the mass exodus of tens of millions of people from the workforce, a demographic catastrophe that should have companies in a collective panic.

Alarmists would seem to have the facts on their side: the number of people entering the retirement sweet spot (ages 65 to 74) will grow by more than 80 percent between 2006 and 2016, according to the Bureau of Labor Statistics, while the number of people in the prime of their careers (25-to-54-year-olds) — will grow a mere 2.4 percent. Already, retirements are slashing the supply of qualified air-traffic controllers, petroleum engineers, and nurses, and a 2007 study by the Federal Reserve Bank of St. Louis suggests an imminent impact on GDP growth.

But Peter Cappelli, a professor at the University of Pennsylvania’s Wharton School and the director of its Center for Human Resources, doesn’t buy it. “There’s nothing to this story about a national labor shortage,” he says. Despite the impending retirement bubble, the labor force will continue to grow in absolute numbers over the coming decades, albeit at a slightly slower rate than in past years. Meanwhile, productivity gains have erased the need for certain workers, and many others may delay retirement past 65, due to their generally good physical health or poor fiscal health.

The real issue, Cappelli maintains, is a talent shortage, not a labor shortage. “There’s nothing new about people retiring at age 65,” he says. “What’s new is that companies haven’t taken the time to develop talent.” Cappelli’s recent book, Talent on Demand (Harvard Business School Press, 2008), chronicles the shift U.S. companies have made in the past 30 years from growing all talent internally to looking externally for pretrained talent.

More experts are coming around to Cappelli’s way of thinking, at least in calling for a cap on the hysteria. What’s needed, they argue, is not so much a rapid embrace of programs such as phased retirements, in which companies try to hang on to departing employees as long as possible, but a cool analysis of hiring and training needs. “Macro trends don’t matter that much to any given company,” says Mary Young, senior research associate with The Conference Board. “What they really need to do is analyze their own workforce.” Enter the CFO, who can help with everything from projecting labor supply and demand to handling cost/benefit analyses of retaining specific people. Why should finance get involved? As Young tactfully notes, “The ability to do statistical analysis is not traditionally within the realm of HR.”

File under “I Don’t Do Filing”

Even in industries like health care and energy, where retirements will soon reach a critical point, a little forward thinking can go a long way. PSEG, for one, would appear to be the perfect victim of a baby-boomer brain drain. The New Jersey–based utility has an older than-average workforce and harder than-normal work (some employees, for example, routinely hang out of helicopters to fix live wires). Thirteen percent of its employees will be eligible for retirement (most with pensions) over the next five years even as the company confronts major growth opportunities, given the renewed interest in alternative energy sources including nuclear power and solar panels.

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