Immigration, Social Security, and Housing Markets

Dean Baker reports:

Census Bureau Trashes Social Security Trustees Immigration Assumptions, Beat the Press: [Census Bureau Trashes Social Security Trustees Immigration Assumptions] could have been the headline of an article reporting on a new set of projections for immigration from the Census Bureau. According to the article, immigration will rise from its current rate of 1.3 million a year to more than 2 million a year by the middle of the century.

By contrast, the Social Security trustees intermediate scenario assumes that immigration will fall from its current rate to just over 1 million a year by the middle of the century. Even the low cost scenario assumes immigration of only 1.3 million a year by the middle of the century.

A more rapid pace of immigration improves the financial situation of Social Security. If the Census projections prove correct, then close to 30 percent of the projected Social Security shortfall would be eliminated. …

Speaking of immigration:

Greenspan’s Greater Foreign Fool Theory, by Paul Kedrosky: While I agree that it makes sense for the U.S. to increase immigration of skilled workers, I laughed out loud at ex-Fed chair Alan Greenspan’s other rationale letting more people into the U.S.:

“The most effective initiative, though politically difficult, would be a major expansion in quotas for skilled immigrants.” The only sustainable way to increase demand for vacant houses is to spur the formation of new households. Admitting more skilled immigrants, who tend to earn enough to buy homes, would accomplish that while paying other dividends to the U.S. economy.

He estimates the number of new households in the U.S. is increasing at an annual rate of about 800,000, of whom about one-third are immigrants. “Perhaps 150,000 of those are loosely classified as skilled,” he says. “A double or tripling of this number would markedly accelerate the absorption of unsold housing inventory for sale — and hence help stabilize prices.”

Awesome. Why wait around for sovereign wealth funds to bail the U.S. out when you can simply invite foreigners in and suggest they buy real estate? Alan’s soo-oooo clever. [via WSJ]


Originally published at Economist’s View and reproduced here with the author’s permission.

3 Responses to "Immigration, Social Security, and Housing Markets"

  1. Andrew Biggs   August 20, 2008 at 11:23 am

    Two quick comments on Social Security:First, while Census does project a higher immigration rate, they also project longer life expectancies. It’s hard to say exactly how things net out, but Census does project a higher percentage of the population being age 65+ in 2050 than does SSA. (see http://andrewgbiggs.blogspot.com/2008/08/new-census-projections-of-aging.html)Second, SSA’s estimates of the effect of immigration on Social Security financing assume that immigrants have the same earnings as native born; this implies that those who stay through retirement receive a lower ratio of benefits to taxes, and those who return home before retirement leave a greater portion of their taxes ‘stranded’ in the U.S. So the true effect of increased immigration on system financing may be smaller than the Trustees Report projects.

  2. Peter Schaeffer   August 22, 2008 at 3:40 pm

    The St. Louis Fed published a paper that bears on this subject. The title is “Is the United States Bankrupt?” (http://research.stlouisfed.org/publications/review/06/07/Kotlikoff.pdf). The author (Laurence J. Kotlikoff of Boston University) looks at the relationship between immigration and the future finances of the U.S. I quote”CAN IMMIGRATION,PRODUCTIVITY GROWTH, OR CAPITAL DEEPENING SAVE THE DAY?”Many members of the public as well as officials of the government presume that expanding immigration can cure what they take to be fundamentally a demographic problem. They are wrong on two counts. First, at heart, ours is not a demographic problem. Were there no fiscal policy in place promising, on average, $21,000 (and growing!) in Social Security, Medicare, and Medicaid benefits to each American age 65 and older, our having a much larger share of oldsters in the United States would be of little economic concern. Second, it is mistake to think that immigration can significantly alleviate the nation’s fiscal problem. The reality is that immigrants aren’t cheap. They require public goods and services. And they become eligible for transfer payments. While most immigrants pay taxes, these taxes barely cover the extra costs they engender. This, at least, is the conclusion reached by Auerbach and Oreopoulos (2000) in a careful generational accounting analysis of this issue.”It turns out that the standard Social Security immigration sensitivity analysis contains a large flaw. The analysis assumes that immigrants have skills and earnings equal to natives. Obviously, this is not the case and the gap has been growing for decades. Of course, the analysis also includes the SS taxes paid by the last cohort of immigrants (in the final years of the 75 year projection period), but not the costs they will eventually impose.The National Academy of Sciences report in the 1990s (and many other studies since) have shown that low skill immigrants are a major net burden on taxpayers. No one should be surprised by this. Native poor people are clearly a net burden on taxpayers. Why should imported poor people be any different?

  3. Anonymous   August 24, 2008 at 1:12 pm

    How is immigration a plus – if the person is getting paid “under the table” and sending our U.S. dollars back home to “their home country”.Immigration works only IF the person wants to be part of the U.S. and live and work and pay into our system and retire here.Also – alot of the illegals here in Calif. tend to have more people per house than any of us would dream of. Consequently, they park their cars on the lawns, or across other people’s driveways etc etc.Who were the builders building for – when they built all the great big huge houses that cost more than any of us can realistically afford??????????????? Why didn’t they just build Boarding Houses with adequate parking??????