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Social Security Benefits of Immigrants and U.S. Born

In: Issues in the Economics of Immigration

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  • Alan L. Gustman
  • Thomas L. Steinmeier

Abstract

For each year of work under the Social Security System, immigrants realize higher benefits than U.S. born, even when their earnings are identical in all years the immigrant has been in the U.S.. Two features of the social security benefit calculation are responsible: the social security benefit formula transfers benefits toward those with low lifetime covered earnings, and all years an immigrant spends outside the US are treated as years of zero income. Immigrants with high earnings who have worked in the U.S. for only a 10-20 years benefit most from these procedures. If instead earnings were averaged only over the years an immigrant resides in the U.S., and benefits prorated immigrants would receive the same return on their social security taxes as US born who have the same earnings in each year. It is difficult to justify the current procedures determining benefits for immigrants on the basis of income or wealth differences between US and foreign born. Among HHRS respondents, mean total wealth of immigrants is 92% of the mean total wealth of US born, while the mean income of immigrants exceeds the mean income of US born by 3%. But income and wealth are less evenly distributed among foreign born than US born. Depending on whether the appropriate period for calculating benefits is taken to be 35 or 40 years, prorating would reduce the present value of benefit payments to the cohort of immigrants born from 1932-1941 (91% of the HRS cohort) by $7.5 billion or $15 billion respectively. The 1932-1941 cohort represents 1/7 of all foreign born who are now 25-64. We also ask whether, from a selfish financial viewpoint, US born participants would have preferred to have immigrants from the HRS cohort included in social security. The answer is yes. Despite their better deal, most immigrants in the HRS cohort will pay more in taxes than they will receive in benefits, although just barely.

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This chapter was published in:

  • George J. Borjas, 2000. "Issues in the Economics of Immigration," NBER Books, National Bureau of Economic Research, Inc, number borj00-1, July.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6059.

    Handle: RePEc:nbr:nberch:6059

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    References

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    1. Olivia S. Mitchell & Jan Olson & Thomas Steinmeier, . "Construction of the Earnings and Benefits File (EBF) for Use with the Health and Retirement Survey," Pension Research Council Working Papers 98-19, Wharton School Pension Research Council, University of Pennsylvania.
    2. George J. Borjas, 1992. "National Origin and the Skills of Immigrants in the Postwar Period," NBER Chapters, in: Immigration and the Workforce: Economic Consequences for the United States and Source Areas, pages 17-48 National Bureau of Economic Research, Inc.
    3. Gustman, Alan L & Steinmeier, Thomas L, 1985. "The 1983 Social Security Reforms and Labor Supply Adjustments of Older Individuals in the Long Run," Journal of Labor Economics, University of Chicago Press, vol. 3(2), pages 237-53, April.
    4. Alan L. Gustman & Olivia S. Mitchell & Thomas L. Steinmeier, 1994. "Retirement Research Using the Health and Retirement Survey," NBER Working Papers 4813, National Bureau of Economic Research, Inc.
    5. Alan L. Gustman & Olivia S. Mitchell & Andrew A. Samwick & Thomas L. Steinmeier, . "Pension and Social Security Wealth in the Health and Retirement Study," Pension Research Council Working Papers 97-3, Wharton School Pension Research Council, University of Pennsylvania.
    6. Alan L. Gustman & F. Thomas Juster, 1995. "Income and Wealth of Older American Households: Modeling Issues for Public Policy Analysis," NBER Working Papers 4996, National Bureau of Economic Research, Inc.
    7. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
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    Cited by:
    1. Martin Feldstein & Jeffrey B Liebman, 2002. "The Distributional Effects of an Investment-Based Social Security System," Working Papers 02-08, Center for Economic Studies, U.S. Census Bureau.
    2. Jeffrey B. Liebman, 2002. "Redistribution in the Current U.S. Social Security System," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 11-48 National Bureau of Economic Research, Inc.
    3. Stephen Drinkwater & Paul Levine & Emanuela Lotti & Joseph Pearlman, 2003. "The Economic Impact of Migration: A Survey," School of Economics Discussion Papers 0103, School of Economics, University of Surrey.
    4. Sari Pekkala Kerr & William R. Kerr, 2011. "Economic Impacts of Immigration: A Survey," NBER Working Papers 16736, National Bureau of Economic Research, Inc.
    5. Pervi Sevak & Lucie Schmidt, 2008. "Immigrant-Native Fertility and Mortality Differentials in the United States," Working Papers wp181, University of Michigan, Michigan Retirement Research Center.
    6. Dobra, Alexandra, 2009. "Identifying the key issues focusing on the costs and benefits of immigration in developed countries," MPRA Paper 16806, University Library of Munich, Germany.
    7. Dobra, Alexandra, 2009. "Principal concerns concentrating on the costs and benefits of immigration in developed countries," MPRA Paper 16817, University Library of Munich, Germany.
    8. Axel Börsch-Supan, 2002. "Mehr Zuwanderung? Zur Rolle des Auslands bei der Stabilisierung der gesetzlichen Rentenversicherung in Deutschland," MEA discussion paper series 02022, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.

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