Hiring the Elderly: an Ethical Dilemma

Hiring the Elderly: an Ethical Dilemma

Hiring the Elderly: an Ethical Dilemma Abstract The purpose of this report is to examine the topic of hiring the elderly in Latvia from a business ethics point of view. Since there are several tendencies, like ageing population, lack of labour-force, a shift towards western values and standards of company conduct, etc. , that are observable in Latvia, the authors believe this complex issue to be of significant importance and controversy.

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While putting forward the principle-based argument that age discrimination of elderly work candidates is morally wrong, the paper discusses the consequences of hiring elderly and also common misperceptions of these consequences and of elder workers’ capabilities. Conflicting economical and social values are identified and discussed, affected interest groups are considered, and a possible solution – applying a tax allowance for companies that hire elder people – is presented and its effects on the different interest groups are considered in this report as well.

Additionally, a hypothetical calculation model of what such a policy would cost to the government with explanations is included, and also benefits and costs to various stakeholders are looked upon. The few currently implemented government incentives to deal with this issue are reviewed, as well as possible alternative solutions apart from a tax allowance. Conclusions are given at the end, the main result being that there is a need for further state support to the elderly in the labour market, and a tax allowance being found to be the most suitable means for that in Latvia.

The information used is mainly derived from published material in form of internet publications, relevant textbooks, and personal interviews with managers of companies and the elderly employees. Table of Contents Scrooge vs. philanthropist4 Urgency or Demographics of Trouble4 Age Discrimination at its Finest5 Price of Experience or First Out5 Unrealised Advantages or Last In6 Values against values or Subconscious Power Struggle6 The Principle of Non-discrimination7 Kant’s Theory (ethics of duty)7 Stakeholders or Who is in8 The Elderly8 The Government9 The Companies9

The Young Jobseekers10 Suggestions for Improvement10 Presenting the Model10 Incentives to Act or Why Should They Bother11 Discrimination or from Old to Young? 12 The Next Best Thing13 Conclusions14 Works cited15 Appendix A16 Economic modelling of the effects of suggested tax allowance16 Appendix B17 Appendix C18 Appendix D19 Scrooge vs. philanthropist When a company has to make a decision if to hire an older person, the HR people are facing a conflict of two major values. On one hand, the law states that the company should not discriminate among candidates on the basis of age.

On the other hand, it is a common perception that, due to lack of flexibility, relative underdevelopment of particular skills (computer literacy being mentioned most often in this context), or decreased ability to learn new things, elder persons are less efficient, i. e. , less valuable to the company, and hiring them would oppose the economic efficiency criteria of the company. If we consider the triple-bottom-line model presented by Crane and Matten (20, 2004), the economic sustainability component is in conflict with the social sustainability component when the company evaluates whether to hire and elder person or not.

What seems to be the case currently in Latvia is that the economic criterion is given more attention than the social one. Whether the economic aspect is really disadvantageous to the elderly, and what is the role of the social component, will be discussed in the following sections. Urgency or Demographics of Trouble The National Report on Adequate and Sustainable Pensions (2005) constitutes that people receiving pension already comprise 21. 8% of Latvia’s population. According to their calculations, this number is expected to increase while the number of working Figure 1. Population by sex and age in 2004-2050 people is expected to tay similar or even decrease. In addition to this, statistics show that moving from the age range 55-59 to 60-64 the employment figures shrink more than in half (see Appendix D). What that literally means is increasing number of social benefit and pension receivers being a burden to a smaller number of economically active tax payers. The government has already tried to address this issue: in the recently published Latvian National Development Plan 2007-2013 people approaching pre-pension age are named as a high vulnerability group and measures are being considered to improve their status.

Yet, the government currently addresses this issue by compensating the minimum wage of an elder employee to the company (if the employee earns more than that) for three months or by paying the hiring manager a bonus of 40Ls for six months (State Employment Agency 2005). These measures seem more like temporary means to relieve the urgent problem rather than a sound solution. Age Discrimination at its Finest In recent years the number of complaints about age discrimination in Latvia has been increasing (Appendix B). Naturally, with the NGOs fighting for human rights getting more active, people in general become more aware of heir rights and institutions to address for help so the number of reported cases has grown. Yet, we believe it reflects the fact that even given all the anxiety about globalisation, multiculturalism and tolerant society, the problem of age discrimination has not gone away from the list of urgent issues. For instance, when we asked the people responsible for recruitment if they’d prefer a younger or older employee the former was favoured; yet the managers say they see that more and more 50+ people are ready to compete in the labour market and deliver good results.

What this shows is that it is a high time for an action, a strong push, because currently the people have started to think “the right direction”, and what they need is an incentive to act. Price of Experience or First Out Firstly, it is often the case that when an average small or medium sized business (SME) faces difficulties, redundancy is a tough, but necessary solution. In such cases, older employees are among the first ones to be sacked (Imdiversity “Is Age Discrimination [Baby] Booming”, 2006).

The reasons behind this phenomenon seem to be simple economic rationale: during the long time of employment, these people receive a lot of promotions resulting in wage/premium increases and also long-service eventually. Usually they are much higher-paid workers then the young employees and for the management willing to literally cut the costs, dismissing one person who’s been working in a company for 10-20 years might save as much as dismissing three or four younger people. Of course, since these people are “worth their price”, i. e. heir experience in the field brings additional value to the firm, it might be made to hire more than one new person to do the job instead of one experienced pensioner, but strangely it is not exactly how management thinks these days. Unrealised Advantages or Last In Secondly, the surveys made by the Latvian National Observatory in the year 2000 have shown that employers advertising positions in the newspapers and looking for employees via the State Employment Agency demand mostly low-paid workers (LNO, 2002) – mostly, sales people, cafe personnel – jobs usually not done by the elderly.

Many of the pre-pension or pension age people still at work take high positions in companies since their experience is truly valued there. But in occupations like accountants, tax consultants, bank governance, law and many other highly valued positions experience also brings a huge value added and yet the companies do not realise it. They are so much prejudiced against the so-called homo-sovieticus stereotype here in Latvia, that they rather hire young people straight out of their universities and train them and wait for them to gain all the expertise. Values against values or Subconscious Power Struggle

In a practical situation when an older person comes to an interview it is most likely that the interviewer will be younger that him/her; the same situation repeats with the person ultimately responsible for employment. Actually, most of the people, when selecting their subordinates, subconsciously want to feel comfortable giving orders to them and thus avoid personalities which they feel might be stronger charismas then themselves (this is of course not a rule of thumb, because some managers consciously look for leaders to take to their collective, but even then a person seeks the ultimate power).

Consequently, when given a choice between similar quality older and younger employee many managers prefer the later for the abovementioned reason. Another significant factor is the corporate value system. It is a relatively recent phenomenon in the Baltic states and in many companies the value system is still at the espoused value stage, meaning it is important to use the buzz words that successfully work everywhere when declaring your mission statement without your business being actually in line with those statements.

Many managers look a bit superficially at this and when hiring a new person it is hard for them to realise how a pre-pension age employee may meet the criteria of teamwork, analytical skills etc. Taking in younger people and “educating” them according to a corporate culture, deriving from a thought how strong it might be, is in a way making sure that people do it “the way” and then the educator gains authority and superiority against the educated ones. With the elderly this model rarely works out – these people have their value systems lready formed and it is really hard to change a mindset of someone in his/her 60. Possibly, companies fear that these people won’t be in line with the other obedient workforce and might confront the management with a psychological authority issue. It is hard to prove that in reality, because most people when asked directly would not admit or maybe would not even realise it is the case, but in our survey of companies when asked to rate the importance of personal qualities, leadership skills were one of the least important things.

Given this and the recent development trends of the corporate culture in Latvia we conclude that the psychological leadership issue might be one of the influencing factors. The Principle of Non-discrimination Kant’s Theory (ethics of duty) We argue that discrimination based on age differences is morally wrong in principle, since it violates the rights of individuals to equal and fair treatment. Let us consider this issue from a categorical imperative (Kant, 54, 1983) point of view.

It implies that, when making a decision about some action, an individual ought to act according to three maxims, which Crane and Matten (87, 2004) describe in a more comprehensive way as: • the aspect of consistency, i. e. , the action should correspond to what could be chosen by every rational individual in such a situation [if nobody hired elder persons, there would be a huge imbalance in treatment of different age groups and elderly were seriously harmed, thus such discrimination should not occur] • dignity, i. e. the needs of other people should be taken into account as well, not treating people as means for achieving own goals [in this case, the risk to company profits if the older person does not perform as expected is relatively small whereas to a person of pre-pension age it makes a great difference if to hired or not – the company should not be a completely bald-profit-chaser] • universality as whether anyone could accept the action performed [which surely is not the case when rejecting elder applicants, not only because of their own protest, but also because the majority of people do not consider this to be right] Kant’s theory is quite sophisticated, yet, if applied to the given context, its three maxims represent the main arguments against age discrimination fairly well. If we consider this issue from his recommended attitude, we argue that age discrimination against elderly is strongly disapproved. Stakeholders or Who is in Another approach to the principle side of this issue is the stakeholder approach (a stakeholder being defined as anyone being harmed or benefited by the corporation).

It is also mentioned by Crane and Matten (88, 2004) as derived from Kant’s theories and being one of the most influential business ethics theories. It basically implies that management of a company should not only consider shareholders’ interests in the short run, but also the other stakeholders’ interests in order to maintain long-run efficiency of the company. The Elderly Due to the wide spread discriminatory attitudes of the employers, it is ever harder for the people to find a new job when approaching the pension age. They are still active and productive, but yet their chances in the labour market are unfairly limited. As indicated by (Nussbaum and Coupland, 1995) “It has [.. been part of the general stereotype about old age that intellectual decline is inevitable…” and it is further on argued that little/no evidence supports the opinion of decreasing intellectual capacity, be it wits or wisdom, at increasing age. They also relate the development of mental capabilities to environmental context throughout a person’s life, not to “chronological aging”. Yet, given the constantly improving living conditions and prolonged life expectancy, after 50 years of age a person is capable of working productively for years still. If by the use of our model the age discrimination problem is relieved, hopefully more people of pre-retirement age would get hired or stay in their positions. The elderly would surely benefit from that first of all financially, since even the minimum wage is higher then unemployment benefits they are now eligible for (see Appendix A).

In addition to this, the competitiveness of the elderly in the labour market would increase since they would be made to maintain their working knowledge up to date. Finally, if a person will have a longer working experience, afterwards he/she will receive a larger pension, so it is both, long and short term financial benefits. The Government Discriminatory actions of the firms create misbalance among the social groups which then needs to be resolved by government’s intervention. Productive and capable people become a burden for the budget due to the economic inefficiencies the age discrimination creates: these people become recipients of unemployment benefits and later on pension, while they could still be working and adding to the budged (paying taxes) instead.

According to the model that we propose, the government should provide tax allowance for the companies hiring elderly. The allowance should be of the size that would even out the average wages and the approximate average wages of the elderly (see Appendix A). The costs of such project of the government would be smaller then with the current unemployment benefits it is paying; in addition to this, it would get some tax inflows from the newly employed people. According to our estimations, even if the increase in employed population of pre-retirement age people increases only by 1%, such policy is still cheaper for the government than the one it is running now.

So overall, it is the economic benefit the government could reap; furthermore, as the Ministry of Regional Development and Local Government of Latvia has expressed concern about the current state of this social group, our program would help to reduce their vulnerability and improve the social status. The Companies Currently many companies are facing shortage of the work force and under our plan they would be encouraged to exploit an additional pool of prospective employees which they have not been actively using before. Moreover, a company actually needs a combination of experience that the elderly can bring and flexibility, innovativeness and fast learners that the young represent. Thus, by making the elderly more attractive to employers, would help them to lose the bias that you cannot teach the old dog new tricks and actually have a more balanced team in their company.

Furthermore, with foreign direct investment increasing continuously (see Appendix C) and the cultural background of the society shifting towards western values, the requirements of investors and of the general public are growing. There is an increased pressure not only for law obedience, product quality and usual things like that, but especially for the corporate social responsibility. Banks, accounting companies and big law firms already start disclosing more of their environmentally responsible actions as part of company image; hiring elderly people is also a form of social responsibility, so by undertaking this action companies could improve their image in the eyes of both, society and prospective investors, and show themselves as truly subscribing to the values they espouse. The Young Jobseekers

By making the older employees more attractive to the employers, we do not decrease the competitiveness of the younger applicants as some sociologists might fear. The logics behind our model are to propose a solution to most vulnerable groups of society. Youth actually falls into this category and what we are doing is evening out the average wage of an older worker with an average wage of the people of the age of 30-50. Currently, according to our calculations, the average wage of the employees under 25 years of age is lower than the national average; by lowering the average of the elderly we, however, do not push it beyond the one of youth. Thus the older employees entering labour market would be competing against the middle-aged workers, and not youth.

Overall, thus, there should be no significant effects on this group of stakeholders. Suggestions for Improvement Presenting the Model To address the issue of age discrimination when making hiring/firing decisions, we have developed an economic model (see Appendix A) based on the recent data of Latvian Statistical Bureau. We have calculated the average costs of an employee to the company, the government and the average receipts of a pre-pension age person in case of employment and unemployment. Our suggestion followed that the government should provide accumulative tax allowances to the companies employing the elderly so as to even out the average costs of an older employee to the company with the national average.

The rationale behind the model is as follows: taken a random industry, the employee’s wage increases with increased number of working years in an industry and especially in one company. That comes from various promotions, bonuses and company perks and the longer a person has stayed with a company, the bigger the probability that he/she will have the “starting salary” increased by the system of rewards. Another thing is that currently moving from the age group 55-59 to 60-65 the employment rate decreases more than by half; this indicates that for a person over 50 it is problematic to find a new job. Consequently, if a person is nearing his/her pension age and is still working, it is most plausible that he/she is staying in a company he/she has been in before rather than working in a newly found place.

From these two statements it follows that the average wage of a working older person is above national average and that of people under 25 years of age – below, since they yet haven’t had the chance to go through the system of rewards. In our model we thus adjust the average wages of the elderly and of youth to these factors (although the National Statistical Bureau does not provide with data for these two categories). Finally, one more factor that needs to be adjusted for is health care costs of employees: according to National healthcare reports, with increasing age, the probability of various diseases increases, so we adjust the national average of the yearly sickness days for the older and younger workers as well. Incentives to Act or Why Should They Bother

We have discussed the main effects our model would produce within the stakeholders’ part, but even given the model itself is relatively simple, there still issues to be resolves, like raising the public awareness about it and the incentives of the agents we have chosen to implementation the plan. The general motivation for the government would be that it has recently expressed concern about the situation and in the National Development Plan 2007-2013 it obliges to take some unspecified action to improve the situation. We could provide this as a particular solution to a problem the government has decided to tackle – meaning that since the government has noticed the problem and promised to act, we as society should now press it to stick to its promises.

The lesser budget outflows and even some additional inflows should also work as a motivator. For the firms the incentives would be primarily reduced costs: since they are now often basing their discriminatory decisions on economising strategy, showing that now the most economically efficient strategy is search for best employee, not to segregate by age and possibly even lose. The main source of information for companies will be “Latvijas Vestnesis”: it is the primary source for changing in legislation, implemented policies by the government; also the National Employment Agency which is constantly publishing relevant data on their website and taking on promotional campaigns.

A very important source of informing the wider social groups about this issue and one of a very attractive ways how to do it could be a Lithuanian example of social advertising. Lithuanian legislation states that companies owning the advertising boards have to pay taxes on them regardless if there is an ordered add there or they just stand empty; but if a company creates and puts some social advertisement on the board, it receives a tax relief on that. We believe this example could be successfully copied to the Latvian legislation and actually that would encourage all types of social advertising in the country, but also social advertising for our policy.

Since the private advertising companies create these adds themselves, they have the expertise on how to make them appealing and get the message through so this, as an additional means, would make our plan even more efficient. Discrimination or from Old to Young? Thinking for solutions to the age discrimination problem here in Latvia, the country specifics actually put us into a very tough position. Being a young democracy, we see that the truly tolerant society is only emerging and, unlike in the USA or UK, here it has so far been tough to attract public’s attention with “Fight Discrimination at Work” issue. In addition, given the recent Soviet past, employers are led by a precedent of seeing old people as slow adapters, people with already formed viewpoint and hey do not see how such employees could possibly fit into their innovative idea-driven business. Fighting with this prejudice it is necessary to show the employers that there are benefits that only an experienced worker can produce, but to do that, the first thing to happen is for that older person to be hired so that an employer can see another, positive, precedent being set. For this purpose putting the elderly into preferential conditions, we see another interest group, the young workers, becoming possibly vulnerable. So the question really becomes as follows: if we assume the fixed number of workplaces, is the attempt to shift employers’ attention towards the elderly not merely a redistribution of staff.

We believe it not to be entirely so. The Next Best Thing When researching on the issue we have sent out the questionnaires to employers in great variety of companies and held personal interviews with couple of them. Among the factors affecting their decision if to employ and older person they also mentioned the level of computer literacy and overall level of knowledge. We found out that the state is currently providing some courses on the subject regardless of the age group, yet some managers perceive as not to be sufficient, moreover most of these programs are oriented towards unemployed people and no possibility to educate existing employees.

In addition many firms consider government courses to be inefficient. Therefore, another way how to increase competitiveness of the working elderly and to prevent their dismissal could be special government donations for educating employees who are over 40 years already. In other words employer educates his/her workers not via governmental courses but chooses where to educate the person and in which sphere. During the interview, financial director of one medium-sized company provided a vivid example why such policy would be desirable: their firm has a bookkeeper who is 55 years old and the company is about to change the Accounting program to “1C Bookkeeping”.

In order to be able to work with this program special courses need to be attended, but for firm it is rather costly (approximately 1000Ls) to educate an employee. So there is tough decision: fire the existing bookkeeper and employ a new one who already knows this program or educate the existing person. The problem is that the firm considers it to be risky to invest in education of someone who will retire in 5 years – the company would lose the money paid for education and the knowledge (Interview with O. Dedel by M. Timofejeva). So, this firm would appreciate if the government could at least partially cover their costs for education. This would help the employee to stay at work and for the government it would be less expensive to educate her than to pay the unemployment benefit in case of dismissal.

This example shows that companies would be interested in educational programs and it would have a real effect on firms’ willingness to maintain the existing workers, even the ageing ones. Going through such courses would definitely increase the competitiveness of older people compared to other market participants and increase the incentives for companies to send to courses exactly the elder employees, not the younger ones. Yet, given the Latvian market conditions this is a less feasible solution. First of all, it is impossible to educate everybody who is willing to participate in this program. Secondly, it could appear to be really expensive to the government to sponsor all desired to educate their employees, as nowadays government can not provide even free of charge education in universities.

Finally, the problem of age discrimination is indeed important, but in Latvian society there are many other urgent problems to be solved and if this issue can be addressed by tax allowances which imply lesser spending (meaning more budget money left for other issues) that we believe this solution is more plausible in the given situation. Conclusions In this report we have discussed the current situation of the age discrimination in hiring the elderly. We have shown that due to alarming demographic situation and lack of workforce the problem requires immediate attention, especially given the relatively high unemployment rates in this age group. In a given situation the main clash is between the economic benefit and human values. Currently, the social aspect of the problem is considered less important; yet if we take a deeper look at this problem, the principle of non-discrimination should be considered superior in decision making.

So far, the theoretically right solutions seems hard to implement in practice. Thus, by using economic modelling, we have tried to come up with a suggestion that would make the morally right decision also the most feasible from a rational strategist point of view. The tax allowance that we propose should help one of the most vulnerable social groups become stronger and more active players in the labour market. We argued that the government expenditure could be reduced by such policy, since it would be less costly than the current payment of unemployment benefits and, in addition to this, some taxes from the newly employed people would flow in.

For the companies our policy would provide more diversified labour, more attractiveness for the foreign investors and they would help to change the current trend of too early social discarding of the elderly. Although this policy is far from perfect, we consider it to be the best option in the current situation. Works cited Crane, Andrew and Dirk Matten. “Business Ethics. ” New York: Oxford University Press Inc. , 2004. Dedels, Olegs. Personal interview. 20 Oct. 2006. European Comission. “Latvian National Report on Adequate and Sustainable Pensions. ” 2006. 17 Oct. 2006 < http://ec. europa. eu/employment_social/social_protection/docs/2005/lv_en. pdf> Igasaki, Paul. “Is Age Discrimination [Baby] Booming? ” Imdiversity, n/d, 20 Oct. 2006 Kant, Immanuel. Ethical Philosophy. ” Indianapolis/ Cambridge: Hackett Publishing Company, Inc. , 1983. 54-55 KPMG. “Mission Statement. ” 2006. 19 Oct. 2006 Kitovs, Andrejs. Personal Interview. 20 Oct. 2006 LNO, “Vocational Education and Training and the Labour Market in Latvia. ” 2006. 18 Oct. 2006 Lursoft Statistics. “Remaining Foreign Direct Investment at end of year” 10 Oct. 2006. 21Oct. 2006 Nussbaum, J. F. and Coupland, J. , eds. “Handbook of Communication and Aging Rsearch”. Mahwah: Lawrence Erlbaum Associates, Inc. 1995. 468-469 Secretariat of the Special Tasks Minister for Social Integration. “Cultural Diversity and Tolerance in Latvia. ” Riga: 2003. 9 Oct. 2006 State Employment Agency. “Services for Employers. ” 2005. 21 Oct. 2006 “Statistical Yearbook of Latvia 2005. ” Central Statistical Bureau of Latvia, CD-ROM, 2005 Appendix A Economic modelling of the effects of suggested tax allowance |Employer Cost Analysis: |Average |Per person who is 50+ |Per person who is >25 | |Average wage (2006 06) Ls (old+10%, young-5%) |213 |233. 65 |202. 35 | |Social tax (24. 09%) Ls |51. 3117 |56. 286285 |48. 46115 | |Average health care costs (old+20%, young-5%) |20. 4 |24. 48 |16. 32 | |Costs of an average employee, Ls |284. 7117 |314. 416285 |267. 416115 | |  |  |  |  | |Average number of sick days |5 |6 |4 | |Average payment per sick day |4. 8 |4. 08 |4. 08 | |Average health care costs |20. 4 |24. 48 |16. 32 | |  |  |  |  | |Tax allowance (9% of costs) |0. 09 |28. 29746565 |  | |314. 416285 – x = 284. 7117 |  |  |  | |x = 29. 70 or 9. 5% from total wage or 53% of social tax |  |  |  | | |  |  |  | |Costs of an average employee with tax allowance |284. 7117 |286. 11881935 |267. 416115 | |Government |Tax deduction |Unemployment benefit |Total payouts | |Per person |28. 29 |70. 86 |  | |Currently unemployment benefit recipients (34534000) | – |2,447,079,240. 00 |2,447,079,240. 0 | |If all current recipients (34534000) were employed |976,966,860. 00 | – |976,966,860. 00 | |If 25% current recipients (8633500) get employed |244,241,715. 00 |1,835,309,430. 00 |2,079,551,145. 00 | |If 10% current recipients (3453400) get employed |97,696,686. 00 |2,202,371,316. 00 |2,300,068,002. 00 | |If 5% current recipients (1726700) get employed |48,848,343. 00 |2,324,725,278. 00 |2,373,573,621. 00 | |If 1% current recipients (345340) get employed |9,769,668. 60 |2,422,608,447. 60 |2,432,378,116. 20 | 50+ Year Old Employee Receipts |Employed |Unemployed |  | |Assumed average wage (average 2005 + 5%) |233. 65 |70. 86 |average unemployment benefit | |Social tax (9. 00%) Ls |21. 0285 | – |  | |Assumed average receipt for sick days (average 2005 + 15%) |24. 48 | – |  | |Total Receipts |279. 1585 |70. 86 |  | Appendix B Cultural Diversity and Tolerance in Latvia. Data, Facts, Opinions.

Riga 2003. [pic] Appendix C FDI dynamics. |Year | |FDI at end of year | | | |1991 | |9,953,097 | | | |1992 | |285,955,171 | | | |1993 | |359,662,684 | | | |1994 | |208,889,307 | | | |1995 | |283,719,469 | | |1996 | |375,819,226 | | | |1997 | |539,391,777 | | | |1998 | |663,747,609 | | | |1999 | |798,758,395 | | | |2000 | |897,536,917 | | | |2001 | |1,073,913,132 | | | 2002 | |1,146,807,781 | | | |2003 | |1,295,237,612 | | | |2004 | |1,343,597,711 | | | |2005 | |1,409,373,352 | | | Remaining Foreign Direct Investment at end of year. Lursoft Statistics. 21. 10. 2006. 10. 10. 2006. http://www. lursoft. lv/stat/ur_stat_153. html Appendix D Rates of economic activity, employment and jobseekers in 2004 [pic]


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