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Immigration Bolsters Social Security

Article by Matthew Denhart February 13, 2013 //   5 minute read

Amid the immigration debate, it is common to hear that immigrants are a drain on American programs like Social Security. But when immigrants are considered as a whole, this is simply not true.

Social Security relies on the earnings of current workers to fund the pensions of retirees. As America’s large “baby boom” generation reaches retirement age, the ratio of workers to retirees will shrink. According to data from the Social Security Administration, in 1965, there were 4.0 workers for every Social Security beneficiary. From the mid 1980s through 2007, the ratio held steady between 3.3 and 3.4 workers per beneficiary. But by 2010 the ratio fell to 2.9, and the imbalance is expected to worsen in coming years.

With more retired people depending on fewer workers to support them, the long-term solvency of the program is at risk. Immigrants can help, indeed, they are net-payers into Social Security and help fund the program for the rest of us. According to a 2008 study by Paul Van der Water, “an increase in net-immigration of 300,000 persons would eliminate about one-tenth of Social Security’s 75-year deficit.” 

Two main factors explain this reality. First, immigrants are much more likely than natives to be of working age. Data from the 2010 American Community Survey show that 71.7% of immigrants are between the ages of 25 and 64 (working age), compared to only 50.1% of native-born Americans. Since immigrants also join the labor force and are employed at high rates, they help stabilize the worker to beneficiary ratio.

Second, immigrants’ significantly higher fertility rates vis-à-vis natives is also advantageous. In the period 2009-10, immigrant had a fertility rate of 70.3 births per thousand women, compared to only 51.5 births per thousand native women. Increasing the fertility rate helps future generations of retirees since when it is their turn to retire, there will be more workers to support them.

But what about illegal immigrants, aren’t they a huge drain on Social Security’s resources? Again, the answer is “no.” In fact, illegal immigrants are a huge boon for the system because many pay into the system through payroll taxes, but they are not able to draw Social Security benefits.

Van der Water estimates that in 2007 illegal immigrants provided a net-benefit of some $12 billion to the Social Security fund. There are legitimate reasons to be concerned about high rates of illegal immigration — national security, a breakdown in the rule of law, etc — but Social Security solvency is not one of them.

To be sure, not all immigrants are net-payers into Social Security. Legal immigrants with low levels of education (i.e., those with less than a high school diploma) tend to have low earnings. Since Social Security benefits are calculated on a progressive scale, these folks often receive more in benefits than they contribute in tax payments.

The good news though is that the share of poorly educated immigrants is shrinking. Census Bureau data show that among immigrants arriving in the U.S. since 2000, 30.9% have less than a high school diploma. Although this is still high, it is down from a rate of 33.2% among immigrants who arrived in the 1990s.

Furthermore, the share of immigrants at the top of the education spectrum has grown: 12.9% of immigrants arriving this century have a graduate or professional degree compared to 10.5% of those who arrived in the 1990s. If this trend persists, Social Security will benefit.

Too often immigrants are a scapegoat, blamed for problems that are not of their making. Social Security certainly faces serious challenges, but immigrants are not to blame. As policy makers search for ways to save the program, their reforms should reflect the truth that immigrants are part of the solution, not part of the problem.