29 Sep Social Security, The Dependency Ratio And Immigration
By Elizabeth Bauer
Since the release of the most recent Social Security Trustees’ Report in June 2018, 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.
But here’s the problem: immigration isn’t just about changing this ratio. It’s not just about wages and taxes and costs for education and healthcare and ESL lessons. It’s not just about GDP growth. It’s about whether our country continues along its path of division or finds a way to work together for the common good.
After all, the conventional wisdom regarding benefits for the elderly is that we as a country will always keep the spigot flowing because, in the first place, they have time on their hands to vote and to call their representatives and senators, and because, in the second place, even in the absence of the strong elder-revering culture of Asian countries such as Japan or Korea, we as a country will still consider it an obligation to care for those who are unable to care for themselves, seeing our own parents or grandparents in need. But as the numbers of the elderly grow, their needs will increasingly compete with other government funding priorities, especially as young adults and families begin looking to the government to provide free or heavily-subsidized university education, parental leave, and childcare and perceiving this as the norm by looking overseas at European countries which do provide these benefits. Will the next generation of young adults be as willing to accept the conventional wisdom that the elderly come first, if it is even true now in the first place?
And here’s the trouble with seeing immigration as an easy fix: this only works if we can rid ourselves of the us-vs.-them mentality. This thought process should have been long discarded as the Hispanic population in the US is not something that is a very recent development. It began before the 20th century, and with the immigration law swinging back and forth during that time, there is a possibility that the current generation of Hispanic Americans have ancestral ties to to different countries. Online repositories such as Genealogy Bank could provide the inquisitive minds an answer about their lineage. However, it must be noted that the concept of immigration, especially in the case of Hispanic Americans has garnered attention from not only the country, but also the world. With conflicting political views on either sides of the table. it is easy to understand the reasoning behind the ideology of many Americans against the growing rise in the immigrant population. To understand this better, let us consider the latest census data. As reported by Brookings, the ethnic/racial make-up of the United States is forecast to be “minority-majority” in the year 2045; that is, in that year, the non-Hispanic white population, as defined by the Census Bureau, will form less than half the total population of the country. However, because of the relatively young age and higher birthrates of the nonwhite and immigrant populations, there will be “tipping points” for younger ages much sooner. In the year 2020, less than half the population of under-18s will be non-Hispanic white; in the year 2027, the same is true for those in their 20s; in the year 2033, for thirty-somethings; and 2041 for forty-somethings. This means that, in the year 2034 when (per the current forecast) Congress will be (if they dither now) trying to come up with a fix, there won’t just be an age but a racial/ethnic divide, with the seniors whose benefits are at stake predominantly white but young adults and parents of young children nonwhite. Will the younger generation still feel a duty to care for their elders, or will that sense of duty be, if not eliminated, then reduced by a feeling, however much or little it may be articulated, that their elders are not these people worrying about benefit cuts at all? And, conversely, a cohort of (predominantly-white) elderly folk making voting and lobbying decisions may look at the balance between spending on the young and old differently as well and see the issue of education vs. Medicare spending in terms of hardened battle lines rather than needs of equal importance.
By no means am I saying that we should stop immigration because “they” (the newly-arrived immigrants, or nonwhite Americans in general) will not take care of “us”(white and/or native-born Americans) in our old age. But at the same time, we can’t take it for granted that all we need to do is boost the number of bodies living in the United States to solve our retirement crisis.
This article first appeared in Forbes: https://www.forbes.com/sites/ebauer/2018/06/22/social-security-the-depedency-ratio-and-immigration/#2168988662af