UBS Outlook Switzerland: Generation Silver in the labor market

Zurich, 13 July 2017 – In the next 10 years, approximately 1.1 million people in Switzerland will turn 65 and as a result over 690,000 employed workers¹ will exit the labor market. By contrast, without immigration, only 480,000 employed workers will enter it. Moreover, if employment continues to grow as before, Switzerland will lack 480,000 full-time employees over the next 10 years. So a demography-related lack of skilled workers will be unavoidable. A longer working life can counteract the demography-related shortage of skilled workers and spiraling social security expenditure. Today, the employment situation of older workers is generally regarded as problematic in this contentious issue. Labor-market participation of this age segment has admittedly been rising since the 1990s. However, this group of people has grown markedly due to the population strength of the baby-boomers, meaning increasing numbers of people over 50 are affected by unemployment and have greater difficulty to reintegrate in the job market. Due to the emerging scenario described above, companies could become more dependent on older employees in the years to come, including those of pensionable age.

Workload reduction as trump for companies

Companies can secure a competitive advantage in the labor market if they accept the desire of older employees to reduce their work load in stages. Job-sharing of an older employee with a younger, part-time one – someone returning to work after a family-planning leave, for example – offers an option for a smooth transition and phased transfer of knowledge between generations.

Moreover, with flexible configuration of employment agreements, companies can adapt to the changing needs of older employees. One option is extending the period of notice in favor of the employee, coupled with an extension of working life beyond 65, or a staggered exit from professional life. This will enhance planning certainty for companies. Another option would be to integrate (further) education in the remuneration system instead of additional vacation, wage increases or bonuses. A third option could be a contractual agreement regarding gross wages instead of net wages, so that the attractiveness of the employee for the company remains preserved, even if ancillary wage costs rise.

Swiss economy and franc

Despite a subdued start to the year, UBS economists expect vigorous economic growth in 2H 2017. This year they expect the Swiss economy to grow by 1.4% and forecast a further recovery of the Swiss economy in the coming year with a growth rate of 1.6%. The Swiss export industry is benefiting from solid demand from the Eurozone. By contrast, modest momentum is to be expected from the domestic economy.

The monetary policy of the European Central Bank (ECB) will be front and center in the second half of the year. UBS economists expect the ECB to announce in September that it will allow its bond-buying program to run out next year. In a first phase, weakening the Swiss franc, which continues to be overvalued, will take priority for the SNB. Hence, in the coming months no increase in prime rates by the SNB is to be expected, but rather a clear devaluation of the Swiss franc vis-à-vis the euro. An initial move on interest rates by the SNB might occur in June 2018 – on the condition that the Swiss franc has indeed devalued by this time.

¹ The comparisons below are always expressed in full-time equivalents (FTE).