April 26, 2005: Immigration No Solution For An Aging Society (Study Finds Little Impact On Social Security, Working Proportion Of Population
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Immigration No Solution for an Aging Society
Study Finds Little Impact on Social Security, Working Proportion of Population
WASHINGTON (April 26, 2005) — It has become common in public discussion to assert that immigration can reverse the aging trends in American society and infuse the Social Security system with new revenue. A new study from the Center for Immigration Studies finds this is not the case. The study, based on an analysis of Census Bureau and Social Security Administration data, finds that the age and fertility differences with natives, though real, simply are not large enough to significantly change the nations age structure, either now or in the future. The full report, titled Immigration in an Aging Society: Workers, Birth Rates, and Social Security, is on line at http://www.cis.org/articles/2005/back505.html .
Among the findings:
* In 2000 the average age of an immigrant was 39, which is actually about four years older than the average age of a native-born American.
* Even focusing only on recent immigration reveals little impact on aging. Excluding all 22 million immigrants who arrived after 1980 from the 2000 Census increases the average age in the United States by only about four months.
* In 2000 66.2 percent of the population was of working-age (15 to 64). Excluding post-1980 immigrants it is 64.6 percent.
* Looking at the full impact of post-1980 immigrants reveals that if they, and all their U.S.-born children, are not counted, the working-age share would have been 65.9 percent in 2000, almost exactly the same as the 66.2 percent when they are all included.
* Immigration also does not explain the relatively high U.S. fertility rate. In 2000 the U.S. fertility rate was 2.1 children per woman (compared to 1.4 for Europe), but if all immigrants are excluded, the U.S. rate would still have been 2.0.
* Looking to the future, the Census Bureau projects that if net immigration averaged 100,000 to 200,000 annually, the working age share would be 58.7 percent in 2060, while with net immigration of roughly 900,000 to one million, it would be 59.5 percent.
* Census projections are buttressed by Social Security Administration (SSA) estimates showing that, over the next 75 years, net annual legal immigration of 800,000 a year versus 350,000 would create a benefit equal to a fraction of one percent (0.77 percent) of the programs projected expenditures.
* It is not clear that even this tiny benefit exists, because SSA assumes legal immigrants will have earnings and resulting tax payments as high as natives from the moment they arrive, which is contrary to a large body of research.
Estimating the Impact on Aging: To estimate the current impact of recent immigration we exclude immigrants who arrived in the country in the last 20 years from the 2000 Census. We then recalculate the average age as well as the share of the population who are of working age — 15 to 64. Analysis of this kind is possible because the Census asks respondents if they are immigrants and what year they came to America. To estimate the impact of immigration on fertility — children born per woman — we use the June Current Population Survey (CPS) collected by the Census Bureau, which asks about recent births. The Survey also asks all persons if they are immigrants. Prior research indicates that some 90 percent of illegal aliens respond to the Census and CPS, so our analysis measures the impact of both legal and illegal immigration. As for projecting the impact of immigration into the future, we rely on U.S. Census Bureau projections that vary the level of immigration and report the working-age share of the population.
Estimating the Impact on Social Security: The Social Security Administration (SSA) has prepared estimates assuming different levels of legal immigration over the next 75 years (illegal immigration levels are held constant in SSA projections). Even the small benefits that SSA projects from immigration are almost certainly overstated because they assume legal immigrants will have earnings and resulting tax payments as high as natives from the moment they arrive, which is contrary to a very large body of research that has examined this very question. Lower earnings matter because Social Security tax payments are levied as a percentage of earnings. SSA recognizes this weakness in its immigration projections, but has not found a way to correct the problem. Moreover SSA projections do not take into account the fact that legal immigrants are more than twice as likely to receive the Earned Income Tax Credit, a cash payment to low-income workers. The Credit was specifically designed to refund all or part of Social Security taxes paid by low-wage workers; as the IRS states, the Credit was partly created to offset the burden of Social Security taxes on such workers.
Even assuming that SSA projections are correct, the impact from immigration is very modest. For example, SSA estimates show that a 41 percent reduction from 800,000 to 470,000 a year in legal immigration would increase the deficit by an amount equal to just 0.4 percent of the programs 75-year projected expenditures. Compared to the programs projected funding deficit, a change of this kind would have an impact equal to 2.5 or 3.6 percent, depending on how the shortfall is defined. For the average earner making $33,000, reducing immigration in this way would require a tax increase of $21 a year. While reducing immigration by 41 percent would be a very significant change, it would not have a significant impact on Social Security. And, again, even this very modest impact ignores the fact that SSA projections almost certainly overstate the benefit from immigration.
Policy Implications: The argument that immigration can have a significant impact on the aging of our society seems plausible — immigrants tend to arrive in America relatively young and they also tend to have more children than natives. But an evaluation of the actual data shows that the difference between immigrants and natives is not sufficiently large for immigration to be of any real help in changing the nations age structure. The debate over immigration should focus on other areas where it actually has a significant effect.
For more information, contact Steven Camarota at (202) 466-8185 or sac@cis.org
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The Center for Immigration Studies is an independent research institute which examines the impact of immigration on the United States.
