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Effects of Legal and Unauthorized Immigration on the U.S. Social Security System

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  • Hugo Benítez-Silva

    (SUNY-Stony Brook)

  • Eva Cárceles-Poveda

    (SUNY-Stony Brook)

  • Selçuk Eren

    (Levy Economics Institute of Bard College)

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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 they are not eligible for these programs unless they attain legal status, and a large proportion of their savings translates into remittances, which 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 US 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 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 University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp250.

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    Length: 42 pages
    Date of creation: Sep 2011
    Date of revision:
    Handle: RePEc:mrr:papers:wp250

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    References

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    1. Eric French, 2004. "The Effects of Health, Wealth and Wages on Labor Supply and Retirement Behavior," 2004 Meeting Papers 96, Society for Economic Dynamics.
    2. van der Klaauw, Wilbert & Wolpin, Kenneth I., 2008. "Social security and the retirement and savings behavior of low-income households," Journal of Econometrics, Elsevier, vol. 145(1-2), pages 21-42, July.
    3. Rachel M. Friedberg & J. Hunt, 1995. "The Impact of Immigrants on Host Country Wages, Employment and Growth," Working Papers 95-5, Brown University, Department of Economics.
    4. 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.
    5. repec:att:wimass:9430 is not listed on IDEAS
    6. M. Dolores Collado & Iñigo Iturbe Ormaetxe & Guadalupe Valera, 2002. "Quantifying The Impact Of Immigration On The Spanish Welfare State," Working Papers. Serie AD 2002-04, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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    11. Fedor Iskhakov, 2010. "Structural dynamic model of retirement with latent health indicator," Econometrics Journal, Royal Economic Society, vol. 13(3), pages S126-S161, October.
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    13. 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.
    14. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
    15. Hans M. Amman & David A. Kendrick, . "Computational Economics," Online economics textbooks, SUNY-Oswego, Department of Economics, number comp1, Spring.
    16. Cespedes, Nikita, 2011. "A Quantitative General Equilibrium Approach to Migration, Remittances and Brain Drain," Working Papers 2011-007, Banco Central de Reserva del Perú.
    17. 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.
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