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Effects of Legal and Unauthorized Immigration on the US Social Security System

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  • Selcuk Eren
  • Hugo Benitez-Silva
  • Eva Carceles-Poveda
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    Abstract

    Immigration is having an increasingly important effect on the social insurance system in the United States. On the one hand, eligible legal immigrants have the right to eventually receive pension benefits but also rely on other aspects of the social insurance system such as health care, disability, unemployment insurance, and welfare programs, while most of their savings have direct positive effects on the domestic economy. On the other hand, most undocumented immigrants contribute to the system through taxed wages but are not eligible for these programs unless they attain legal status, and a large proportion of their savings translates into remittances that have no direct effects on the domestic economy. Moreover, a significant percentage of immigrants migrate back to their countries of origin after a relatively short period of time, and their savings while in the United States are predominantly in the form of remittances. Therefore, any analysis that tries to understand the impact of immigrant workers on the overall system has to take into account the decisions and events these individuals face throughout their lives, as well as the use of the government programs they are entitled to. We propose a life-cycle Overlapping Generations (OLG) model in a general equilibrium framework of legal and undocumented immigrants' decisions regarding consumption, savings, labor supply, and program participation to analyze their role in the financial sustainability of the system. Our analysis of the effects of potential policy changes, such as giving some undocumented immigrants legal status, shows increases in capital stock, output, consumption, labor productivity, and overall welfare. The effects are relatively small in percentage terms but considerable given the size of our economy.

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    Bibliographic Info

    Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_689.

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    Date of creation: Oct 2011
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    Handle: RePEc:lev:wrkpap:wp_689

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    Related research

    Keywords: Legal and Undocumented Immigration; Social Security; Remittances; Life-cycle Models; OLG Models; General Equilibrium Models;

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    References

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    1. John Bailey Jones & Eric French, 2010. "The Effects of Health Insurance and Self-Insurance on Retirement Behavior," Discussion Papers 10-10, University at Albany, SUNY, Department of Economics.
    2. Wilbert van der Klaauw & Kenneth I. Wolpin, 2005. "Social Security and the Retirement and Savings Behavior of Low Income Households," PIER Working Paper Archive 05-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    3. Timothy Miller & Ronald Lee, 2000. "Immigration, Social Security, and Broader Fiscal Impacts," American Economic Review, American Economic Association, vol. 90(2), pages 350-354, May.
    4. Edith Sand & Assaf Razin, 2007. "The Role of Immigration in Sustaining the Social Security System: A Political Economy Approach," CESifo Working Paper Series 1979, CESifo Group Munich.
    5. John Rust & Christopher Phelan, 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Public Economics 9406005, EconWPA, revised 06 Jul 1994.
    6. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2010. "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States: 1967-2006," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 15-51, January.
    7. Pedro Silos, 2005. "Housing, portfolio choice, and the macroeconomy," Working Paper 2005-21, Federal Reserve Bank of Atlanta.
    8. Rachel M. Friedberg & Jennifer Hunt, 1995. "The Impact of Immigrants on Host Country Wages, Employment and Growth," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 23-44, Spring.
    9. Holger Bonin & Bernd Raffelhüschen & Jan Walliser, 2000. "Can Immigration Alleviate the Demographic Burden?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(1), pages 1-, September.
    10. M. Dolores Collado & IÒigo Iturbe-Ormaetxe & Guadalupe Valera, 2004. "Quantifying the Impact of Immigration on the Spanish Welfare State," International Tax and Public Finance, Springer, vol. 11(3), pages 335-353, 05.
    11. Alexander Kemnitz, 2003. "Immigration, Unemployment and Pensions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(1), pages 31-48, 03.
    12. Fedor Iskhakov, 2010. "Structural dynamic model of retirement with latent health indicator," Econometrics Journal, Royal Economic Society, vol. 13(3), pages S126-S161, October.
    13. Stuart J. Wilson, 2003. "A Dynamic General Equilibrium Analysis of Migration and Capital Formation: The Case of Canada," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 455-481, April.
    14. Luisa Fuster & Gueorgui Kambourov & Andres Erosa, 2011. "A Theory of Labor Supply Late in the Life Cycle: Social Security and Disability Insurance," 2011 Meeting Papers 106, Society for Economic Dynamics.
    15. Hans M. Amman & David A. Kendrick, . "Computational Economics," Online economics textbooks, SUNY-Oswego, Department of Economics, number comp1, Spring.
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