The changing workforce - and its tug on your bottom line.

• Author: Johnston, William B.

The changing workforce--and its tug on your bottom line What are the most important, the most fundamental changes occurring in our economy today, and what do they mean? What implications do these changes have for today's policies and for today's managers? These are the kinds of questions that we at the Hudson Institute try to answer. We focus on the trends that are shaping the business environment in the 1990s.

Demographics is the one thing that is very certain about the next decade. We know a great deal about the way in which our society will change, our workforce will grow. We know a lot about who's going to be in that workforce. But what will be the five most influential happenings in terms of the financial arena?

Slowed population growth

At the most basic level is a slowdown in the pace at which our country's population--and thus its workforce--is growing. By the year 2000, the workforce will be growing at a rate of less than 1 percent a year, as opposed to almost 3 percent in many years during the '60s and '70s. And, of course, the trend is already being felt dramatically in some industries.

The reason for this? It's combination of two things. One is that the baby boom has been followed by a baby bust, and therefore we have fewer young people coming into the workforce. The other is that the rate at which women will enter the workforce will slow, simply because such large proportions of women already are at work and there's less room for that group to grow.

What does all this mean for the economy and society? It constrains our capacity to grow, because we're used to thinking that a 3-percent-per-year growth rate is our birthright. We've built our fiscal and monetary policies around that rate. And if a company's worksforce is growing 2 or 3 percent each year, it has to gain very little in productivity to realize a 3-percent business growth. But if the workforce is growing at only 1 percent a year, then a 3-percent business gfrowth arequires enormous productivity improvements, much greater than any we've seen in the last 15 years.

We're going to see repeatedly, I think, during the '90s the sort of behavior we've seen recently from the Federal Reserve, where even with growth bumping along below 3 percent the brakes are put on. And the targets of 3 percent may be revised down to 2.5 percent a year, which isn't particularly threatening but, again, it constrains our growth rate.

We'll jalso see a real shift in the structure of our economy. We'll move away from a population-dependent growth to growth based on selling to those who have money. That is, rather than selling one widget to every household in a fast-growing population, we'll shift to upscale, service-type products and sell them to the upper-income population segments.

And, of course, as labor markets become much tighter, the balance of power between employers and employees will shift in favor of the worker because employers will be hungrier for talent.

Aging workers

Second, we're facing a rapidly middle-aging society, going from a predominantly young workforce, mostly under 35, to one that is predominantly 35 to 54--not yet hitting the big retirement crunch o the next century but looking at an absolute decline in the number of young people. Indeed, a decline, in absolute numbers, of several million through the mid 1990s.

Does it really matter if the workforce is 35 or 45? It certainly does. On the positive side, these people are already educated, they're more reliable, they show up for work, and they don't quit so often. These are things that could improve productivity.

Also, because, on average, people are borrowers funtil about age 35 and then they become savers in their 40s and 50s, we may see improvements in personal savings. And we're obviously a society that has a real problem increasing our personal savings rate. Economists, however, are very divided on how this tendency jwill change business.

Then there are the not-so-good things about a middle-aged workforce. Middle-aged people are more set in their ways. They move less frequently, change jobs or...