Social Security, The Dependency Ratio, And Immigration

  • Forbes | by: Elizabeth Bauer |
  • 06/22/2018
Since the release of the most recent Social Security Trustees' Report earlier this month, there's been a recognition that 2034 will be here before we know it, and that, subsequent to the depletion of the Trust Fund, when benefits are cut by a quarter, we'll all regret not having done something sooner.  To be sure, my own cynical view is that the Trust Fund mechanism, however "real" it may be, is not what really matters, but rather that the boost in tax receipts from Boomers could have allowed us to build up real assets, or to at any rate, be in a position of a lower federal debt, that we'll end up with a "Social Security Fix" along the lines of the "doc fix" to pay out benefits at their promised level regardless of Trust Fund balances, and that the greater worry is the Old Age Dependency Ratio, that is, that the combination of decreasing fertility and increasing longevity moving the ratio of working-age adults able to fund the living and medical expenses of the elderly off-kilter.  We've just started on a trajectory from one retiree for every 5 workers to one retiree for every 3 workers -- and, what's more, this is based on a standardized definition in which "workers" are all adults between the ages of 15 - 64, where, in practice, a significant fraction of this group are still in school, out of the workforce raising children, and so on.

Now, there are a number of proposed "fixes" for this problem, and various countries that are far more worried than the U.S. about this issue are trying to accomplish such changes as greater labor force participation (e.g., more working moms, less travel time to college degrees), more automation/robotics (e.g., as caregivers in nursing homes), and boosts in the country's fertility rate.  And when Germany was faced with the crisis of skyrocketing numbers of migrants coming to the country in 2015, many pundits and politicians saw this as another means of solving its significantly more severe old age dependency crisis, given that the same forecasts of future populations also show a ratio of one retiree for not quite every two workers.  To be sure, initial reports were of a highly-skilled workforce of middle-class displaced Syrians, and this is now proving not to be the case, but at the same time, the birth rate in Germany is recovering due to the impact of foreign-born women.

All of which leads to the question of whether, in fact, as MarketWatch columnist Caroline Baum puts it, "immigration is ‘pure gravy’ for federal finances" and "more high-skilled immigrants could help solve Social Security’s shortfall" in the title and subtitle of an article yesterday.  Emphasizing that high-skilled immigration is key, she writes:

Increased immigration alone — even a program focused on admitting more high-skilled workers — can’t fix Social Security’s impending insolvency. But it would help.

Extrapolating from the assumptions in the trustees’ annual report, a 30% annual increase in immigration would eliminate 10% of the Social Security shortfall, according to Charles Blahous, who was a public trustee for Social Security and Medicare from 2010 through 2015 and is currently a senior research strategist at Mercatus.

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