The Demographic Cliff
Preparing for the workforce of 2030
What is the demographic cliff?
A demographic cliff occurs when a country experiences a labor shortage caused by low birth rates and an aging population.
This scenario has significant implications for labor force replenishment and the sustainability of businesses in a country. Unfortunately, many people fail to recognize it as a pressing concern, often assuming that low birth rates are a normal characteristic of a developed countries. To comprehend the seriousness of this issue, it is crucial to understand the root causes of the demographic cliff.
Source: National Center for Health Statistics, Various Years
What causes a demographic cliff?
Recession
The 2007 recession had a severe impact on the US economy, causing significant job losses and a steep reduction in household wealth. To withstand this economic downturn, many people decided to have fewer or no children.
This resulted in a sharp decline in birth rates. As the nation gradually recovered from the worst of the recession, these lower birth dovetailed with an aging population, driven by increased life expectancies.
Retirement
The “Baby Boomer” generation (also called “boomers,” typically classified as having been born between 1946 and 1964), has been reaching retirement age for the past decade.
This population is relatively large due to high birth rates at that time; as boomers age and retire, the working-age population also reduces in size. Declining birth rates, even before the 2007 recession, have resulted in a lower number of available individuals to replace retirees.
Boomer retirement also creates a knowledge and skills gap problem for the workforce which needs to be mitigated by employers.
Annual increase in Boomer retirements in millions
Annual increase in Boomer retirements in millions
Source: U.S Bureau of Labor Statistics
Recruitment
Workforce preferences are changing to fit the values, interests, and perceptions of the next generation of workers. Emerging sectors are piquing more interest compared to traditional industries like manufacturing and the skilled trades. A lack of clear understanding of career prospects, job stability, and skills needed for these jobs also contributes to the decline in the number of individuals choosing these venerable and critical industries.
These trends have significant implications for the future of the US population and its economic and social development. The demographic cliff has brought the country to a point where educators, employers, and leaders need to understand its effects and take action to ameliorate its biggest challenges.
What are the effects of the demographic cliff?
As a result of low birth rate and aging population, the country will see a drop in the number of young people entering the workforce to replace retiring workers in the near future.
Lack of interest in certain jobs (manufacturing, the skills trades, etc) as well as a lack of knowledge and awareness of these jobs and industries will compound this problem, leading to labor shortages and increased demand for higher wages.
Labor force participation rates by age
The labor force participation rate of teenagers (16 to 19 years old) and young adults (20 to 24 years old) has been on a decline for several decades. (Data is in percentages).
Source: Pew Research Center
Understaffing
When there is a lack of interest in doing specific jobs, businesses will be understaffed. Understaffed companies will have to prioritize production selectively using their available workforce. The available workforce will be overworked to meet the demands of the business.
Overworking
Existing and established employees will start to burn out as they act as both trainers and workers. Training the limited number of new hires becomes less of a priority and new employees will be left without formal training for months or even years, creating a skills gap which can be difficult to overcome.
Many businesses will be unable to attract and retain talent, due to lack of long-term investment in proper training and upskilling.
Lack of training
Due to the high costs associated with traditional training programs, employers often prioritize cost-saving measures over investing in training initiatives.
Additionally, employers may be hesitant to compromise immediate productivity and short-term objectives in favor of long-term skill development.
This lack of training can leave employees with skill gaps in their current roles that can lead to dissatisfaction and ultimately, attrition. Employers, in turn, face the negative impacts of high workforce turnover and diminished competitive advantage.
How can you prepare for the effects of the demographic cliff ?
Employers will need to be proactive in developing & sustaining a pool of skilled workers, as well as investing in education & training programs to prepare younger generations for the changing labor market.
Key focus areas for businesses include the following:
Investing In Training & Upskilling
Improving Employee Retention
Identifying & Attracting New Talent
Investing in training
Employers need to provide workers with proper training by investing upskilling and reskilling offerings, which can be easier said than done. Training programs and facilities can be expensive capital investments and employers often to look for cost-effective alternatives to provide formal training to employees. Adoption of new technology like VR can be a step in the right direction: Unlocking the potential of VR technology can empower businesses to train workers more easily and allow them to learn new skills on the job in a safe, immersive environment.
Transfr’s Virtual Training Facility includes VR simulations for many high-demand industries like aviation, manufacturing, automotive, diesel technology, electrical construction, hospitality and tourism, construction and health sciences. VR simulations take place in a virtual learning environment where users master vital skills for a variety of job under the continuous guidance of a digital instructor. VR training simulations require minimal setup and can be a valuable asset for companies looking to combat the demographic cliff by investing in their workforces.
Investing in VR training helps reduce capital investments on new facilities or equipment. Employees are able to learn and upskill through unlimited practice sessions in a safe environment — anywhere, anytime. Standardized training ensures consistent knowledge transfer for all employees.
Improving employee retention
Skilled employee retention is one of the most challenging aspect for any business. A workforce needs constant motivation to stay engaged and operating efficiently.
Promotions , wage increases, and good treatment all help keep employees motivated and reduce attrition. But even with those elements in place, overburdened workers wearing multiple hats or feeling stagnant may still leave.
Employers can support seasoned employees and continually upskill new employees through immersive training simulations – that allow them to develop new and valuable skills and reduce worker downtime.
In addition to retention, it’s also critical to to develop a stable pipeline of new recruits who are aware of in-demand jobs and ready to join the workforce. Employers will have to continuously attract new talent to meet the rising demands of many industries.
Attracting New Talent
The new generation of workers is largely unaware of the changes many mature industries have undergone in the recent past.
For example, many still associate manufacturing with old warehouses, smoke stacks, and factory sirens.
In reality, the modern manufacturing industry is focused on automation, process controls, and safer working environments. Companies in these industries also face a challenge of educating students about real-life working environments and the kinds of skills they’ll need to secure these jobs.
Building more robust classroom-to-career-pathways with ample career exploration opportunities can help students in K-12 systems and community colleges be more aware of the skills required for various job and will also help them make educated decisions about their career paths. Transfr’s Career Exploration VR simulations allow students to experience and variety of different careers in an immersive VR environment. Students get an inside look at high-paying careers like diesel technology and construction which are usually overlooked by job seekers due to lack of knowledge or exposure.
Several workforce boards including Mid-Ohio Valley and West Central Texas have invested in Transfr’s Career Exploration products and are seeing positive impacts: An increased number of students are enrolling into CTE programs with a clear idea of their future jobs and a better idea of how these industries help build and maintain the nation’s infrastructure.
Employers operating in industries with a massive amount of unfilled roles can also benefits of utilizing VR simulations from Transfr to attract and retain a skilled, diverse workforce, especially women and underrepresented minorities (URMs). These workers may be fearful of judgment and be actively working against biases (internal and societal) when trying to fill the open roles in male-dominated industries like manufacturing and construction. VR career exploration simulations have the potential to help people from all backgrounds embrace new career paths and find fulfilling jobs with great pay and upward mobility.
As the effects of the demographic cliff become more visible in the labor market, investing in the skillset of your organization’s workforce becomes more and more valuable.
Speak with a Transfr expert today to learn how immersive VR training can help you achieve your organizational and workforce development goals.