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Estimating the impact of immigrants on the host country social security system when return migration is an endogenous choice

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Author Info
Kirdar, Murat G.

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Abstract

In this paper, I examine the impact of immigrants on the social security system in Germany when return migration is an endogenous choice. For this purpose, I develop a dynamic stochastic model of joint return migration and saving decisions that accounts for uncertainty in future employment and income and estimate this model using a longitudinal dataset on immigrants from five different source countries. I find that immigrants make positive net contributions to both the pension and unemployment insurance systems in Germany regardless of their country of origin and age-at-entry. Moreover, the magnitudes of the net contributions are remarkable for certain groups. Return migration plays a critical role in generating these positive net contributions. In a counterfactual, I examine how much exogenous modeling of the return decision, which has been the practice of the literature so far, changes immigrants’ net contributions. Such a restriction causes a serious misestimation of net contributions. I also examine the impact of a counterfactual policy experiment in which financial bonuses are provided conditional on return to certain unemployed immigrants. Such a policy turns out to be ineffective in a number of dimensions.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7803.

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Date of creation: Mar 2008
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Handle: RePEc:pra:mprapa:7803

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Related research
Keywords: Immigrant Workers Life Cycle Models and Saving Social Security and Public Pensions Unemployment Insurance Public Policy

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Find related papers by JEL classification:
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
J61 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Geographic Labor Mobility; Immigrant Workers
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

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  16. LaLonde, Robert J & Topel, Robert H, 1991. "Immigrants in the American Labor Market: Quality, Assimilation, and Distributional Effects," American Economic Review, American Economic Association, vol. 81(2), pages 297-302, May.
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  19. Kumcu, M. Ercan, 1989. "The savings behavior of migrant workers : Turkish workers in W. Germany," Journal of Development Economics, Elsevier, vol. 30(2), pages 273-286, April. [Downloadable!] (restricted)
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