Thread: Why Immigration Can't Save Social Security

Why Immigration Can’t Save Social Security

By Andrew G. Biggs Tuesday, April 13, 2010

The logic of saving Social Security through immigration, which makes sense at first glance, falls apart when you inspect the details.

In a new article for the Christian Science Monitor, former Labor Secretary Robert Reich argues that higher immigration could help save Social Security and Medicare. This is an increasingly familiar argument advanced by Reich and others. And on its face this makes sense: if these programs face insolvency because the population is aging, then importing more young people can help fix the problem.
http://www.csmonitor.com/Money/Robert-R ... icare-woes

But this argument is wrong. (Moreover, Reich should know it’s wrong, since when we shared a panel on a recent television program he made the claim and I explained why it falls short.)

Since the trust fund return is around 3 percent, typical immigrants received more in benefits than they paid in taxes.

Here’s the problem explained in a little greater detail, using two charts from an article in the International Migration Review by my former Social Security Administration colleagues Howard Iams and Lee Cohen (I should note that while I’m using their charts, I have no idea of their position on the issue).

Iams and Cohen discuss the characteristics of immigrants over the past few decades and how they’ve been treated by the Social Security program. While they touch on a number of issues, I will focus on the rates of return received by immigrants relative to native-born individuals.

The first chart looks at nonimmigrant Americans born in the late Baby Boom years. The vertical axis in the chart represents the percentage of the population, while the horizontal axis represents the rate of return paid by Social Security. The bars show the percentage of native-born individuals receiving a given rate of return. The median rate of return for this group was slightly less than 2.9 percent. Since the program’s trust fund generates an interest rate of around 3 percent, these folks were about neutral with regard to the system’s financing—they paid taxes about equal to the benefits they received. Some received higher returns and others received lower ones, based on their earnings levels, longevity, and other factors, but you have a fairly typical “bell curveâ€

Robert Reich's Blog

Immigration: Could it solve Social Security, Medicare woes?

To keep Social Security and Medicare from running out of money, the US will have to raise taxes, lower benefits, or cut other spending. Or it could boost immigration.


Immigrants, among thousands of others, take the oath of allegiance to the US Constitution as they take the final step to becoming a naturalized citizen during a ceremony in Los Angeles March 31. Allowing more immigration is one way to solve the long-term funding woes of Social Security and Medicare.
Danny Moloshok/Reuters/File


By Robert Reich, Guest blogger / April 11, 2010

I was born in 1946, just when the boomer wave began. Bill Clinton was born that year, too. So was George W. So was Laura Bush. And Ken Starr (remember him?) And then, the next year, Hillary Clinton. And soon Newt Gingrich (known as “Newtyâ€

And an echo from Canada -

Strong immigration needed to fix pension system: Conference Board

Published on April 13th, 2010
Published on April 13th, 2010

TORONTO - Canada will have to increase the number of immigrants allowed into the country by about 100,000 per year in order to boost productivity and help pay for pensions, the Conference Board of Canada's chief economist said Tuesday.

The government will have to implement a very active immigration policy to grow the workforce, increase the number of workers making pension contributions and help offset the effects of an exodus of baby boomers from the labour market, Glen Hodgson told an audience at the Board's 2010 Summit on the Future of Pensions.

Hodgson predicted slow labour force growth in the coming decades, meaning there will be fewer workers contributing to pension plans but more retirees drawing from them.

"We're a much older country, we'll have fewer workers coming in to feed the system... that's going to suck the life out of our economy. Slower labour force growth means slower economic growth," he said.

Governments and the business world are struggling to head off a potential crisis borne of a rapidly aging workforce that is not putting aside enough for retirement. Federal Finance Minister Jim Flaherty is currently on a cross-country tour to talk to Canadians about how best to reform the pension system.

As an older population and smaller families become the norm, immigrants - about 250,000 are currently allowed to enter every year - will be the only source of population growth in Canada at some time around 2030, Hodgson said.

While strong immigration alone will not reverse Canada's aging trend, it will help keep population growth stable around one per cent per year.

Hodgson said governments will need to implement policies that boost productivity, including developing an integrated immigration policy, investing in a more skilled workforce, and increasing the labour force by encouraging older people to work longer.

"There may be some sort of informal market developing, where people formally retire and then informally find a way to (keep working)," Hodgson said.

The average retirement age in Canada is exceptionally low, he said. But Canada should aim to avoid measures such as those taken in Japan to raise the age at which workers can access government-sponsored retirement plans, Hodgson said.

While the recession impaired Canada's growth potential, a survey conducted by the board earlier this year found that the economic downturn did not significantly affect the age at which Canadians plan to retire, Hodgson added. Only one person in three said the recession made them think about delaying retirement.

"We can't rely on the recession as an excuse for prolonged retirement... we can't rely on the backlash from the recession as a way to keep our economy growing," Hodgson warned delegates at the think-tank's annual pension summit.

Pension plans have been beset by years of funding problems and were further savaged by the recession. Concern about retirement income has soared recently, in part because savings took a big hit with the downturn in financial markets last year but also because fewer companies offer defined-benefit plans that pay a set amount on retirement.

http://www.amherstdaily.com/Canada—-World/Business/2010-04-13/article-1002433/Strong-immigration-needed-to-fix-pension-system:-Conference-Board/1

Good posts!