Abstract
Immigration has been popularised in the economics literature as a tool that could be used to balance troubled PAYG pension systems. Pivotal research by Razin and Sadka shows that unskilled immigration can overcome the pension problem and, further, boost the general welfare in the host economy. However, a large strand of current economics research is engaged in identifying mechanisms through which unskilled immigration, while solving the pension problem, is causing undesired shifts in general welfare. This work shows that recurring unskilled immigration will not only reduce the general welfare but may also be challenging the pension system by reducing the pension benefits themselves. Further interpreting the actual data, it is suggested that immigration policies are designed either based on public finances only or in a political environment of gerontocracy.
Similar content being viewed by others
Notes
Certainly, the assumed perfect substitutability of skilled and unskilled workers causes obvious limitations in the model. However, there are two main reasons for this assumption: First, the current assumption makes the comparison of the results with the main body of the literature straightforward (as the assumption is the most common), and second, the empirical literature on the topic has not yet identified the exact relationship (e.g. Okkerse 2008).
The Bismarckian factor (Cremer and Pestieau 1998) is a measure of the actuarial fairness of a pension systems. It takes values between 0 and 1, with 0 characterising a purely redistributive (demogrant, Beveridgean) pension system and 1—a strictly actuarially fair (earnings related, Bismarckian) pension system. In the present stylised model, the Bismarckian factor can be presented as τ er/(τ er + τ d).
This result could be used to explain the extra mobility restrictions that the UK employs for immigrants from the new EU member states—Bulgaria, Croatia and Romania.
The result is surely bounded by many modelling assumptions, such as the absence of altruism towards future population or the absence of the possibility for the future population to reverse the results (such as the repetitive voting considered in Razin et al. (2011)).
References
Algan Y, Dustmann C, Glitz A, Manning A (2010) The economic situation of first and second-generation immigrants in France, Germany and the United Kingdom. Econ J 120:F4–F30
Blake D, Mayhew L (2006) On the sustainability of the UK state pension system in the light of population ageing and declining fertility. Econ J 116:F286–F305
Casarico A, Devillanova C (2003) Social security and migration with endogenous skill upgrading. J Public Econ 87:773–797
Chojnicki X, Docquier F, Ragot L (2011) Should the US have locked heaven’s door? Reassessing the benefits of postwar immigration. J Popul E 24:317–359
Cigno A (2010) How to avoid a pension crisis: a question of intelligent system design. CESifo Econ Stud 56:21–37
Cigno A (2006) A constitutional theory of the family. J Popul Econ 19:259–283
Cipriani GP (2014) Population aging and PAYG pensions in the OLG model. J Popul Econ 27:251–256
Cremer H, Gahvari F, Pestieau P (2011) Fertility, human capital accumulation, and the pension system. J Pub Econ 95:1272–1279
Cremer H, Pestieau P (1998) Social insurance, majority voting and labor mobility. J Pub Econ 68:397–420
Eichhorst W, Gerard M, Kendzia M J, Mayrhuber C, Ruestler G, Url T (2011) Pension systems in the EU—contingent liabilities and assets in the public and private sector. IZA Research Rept No42
Fanti L, Gori L (2013) Fertility-related pensions and cyclical instability. J Popul E 26:1209–1232
Fanti L, Gori L (2012) Fertility and PAYG pensions in the overlapping generations model. J Popul Econ 25:955–961
Fanti L, Gori L (2010) Increasing PAYG pension benefits and reducing contribution rates. Econ Lett 107:81–84
Hainmueller J, Hiscox M J (2010) Attitudes toward highly skilled and low-skilled immigration: evidence from a survey experiment. Am Polit Sci Rev 104:61–84
Jinno M (2011) Assimilation, immigration, and the welfare state. FinanzArchiv 67:46–63
Kemnitz A (2008) Can immigrant employment alleviate the demographic burden? The role of union centralization. Econ Lett 99:123–126
Kemnitz A (2003) Immigration, unemployment and pensions. Scand J Econ 105:31–47
Krieger T, Traub S (2013) The Bismarckian factor: a measure of intra-generational redistribution in international pension systems. CESifo DICE Report 1(2013)
Krieger T (2004) Fertility rates and skill distribution in Razin and Sadka’s migration-pension model: a note. J Popul Econ 17:177–182
Lacomba J A, Lagos F (2010) Immigration and pension benefits in the host country. Econ 77:283–295
Lee R, Miller T (2000) Immigration, social security, and broader fiscal impacts. Am Econ Rev 90:350–354
Muysken J, Cörvers F, Ziesemer T (2011) Immigration can alleviate the ageing problem. Netspar Discuss Pap DP07/2011-058
Okkerse L (2008) How to measure labour market effects of immigration: a review. J Econ Surv 22:1–30
Razin A, Sadka E (2000) Unskilled migration: a burden or a boon for the welfare state? Scand J Econ 102:463–479
Razin A, Sadka E (1999) Migration and pension with international capital mobility. J Public Econ 74:141–150
Razin A, Sadka E, Suwankiri B (2011) Migration and the welfare state, MIT Press, Cambridge
Schou P (2006) Immigration, integration and fiscal sustainability. J Popul Econ 19:671–689
Serrano F, Ferreiro J (2011) Public pensions’ sustainability and population ageing: is immigration the solution? Int Labour Rev 150:63–79
Song Z, Storesletten K, Zilibotti F (2012) Rotten parents and disciplined children: a politico-economic theory of public expenditure and debt. Econom 80:2785–2803
Storesletten K (2000) Sustaining fiscal policy through immigration. J Polit Econ 108:300–323
Übelmesser S (2004) Unfunded pension system: ageing and migration. Elsevier, Amsterdam
Acknowledgements
This paper has benefited from comments by Byeongju Jeong, Randall K. Filer, Sergey Slobodyan, Jan Kmenta and Andrea Downing as well as the editor—Alessandro Cigno—and two anonymous referees. Any error remaining is the sole responsibility of the author.
Author information
Authors and Affiliations
Corresponding author
Additional information
Responsible editor: Alessandro Cigno
Rights and permissions
About this article
Cite this article
Aslanyan, G. The migration challenge for PAYG. J Popul Econ 27, 1023–1038 (2014). https://doi.org/10.1007/s00148-014-0516-x
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00148-014-0516-x