The Bigger Picture
Published on May 13th 2010 in Metro Éireann By Charles Laffiteau
Today I want to discuss what is for many, a very emotional issue; Illegal Immigrants!
This is a matter that has been receiving a great deal of media attention in the states lately, due to a new law that was just passed in the great state of Arizona, but I also know it is a touchy subject for some people here in Ireland as well as much of western Europe. So although the facts and figures I will be using in this column are based on my own research of this topic in America, they are nonetheless applicable to legal immigrants as well as to other developed countries such as Ireland, where it is an equally emotional subject within certain segments of the general population.
America is a nation of immigrants. Virtually every single person you meet in the states is either an immigrant or the descendant of immigrants. In 2008, 1,046,539 of our legal immigrants became U.S. citizens, a record number. Out of a total 2010 population of approximately 310 million people, an estimated 40 million, about 13%, are either legal or illegal immigrants and of that total, an estimated 12 million are in America illegally, roughly 30%. So how does that affect legal US citizens?
Well for starters, even though legal and illegal immigrants make up 13% of our population, they account for almost 16% of our nation’s workforce. So given my country’s current 10% unemployment rate, it would seem one could easily argue that they are obviously taking jobs away from American citizens, right? Or if we could just rid ourselves of those 12 million illegal immigrants, we wouldn’t have an unemployment problem, right? Wrong!
They reason why immigrants are over-represented as a percentage of America’s workforce is because our population of native-born American citizens is aging! The truth is, legal and illegal immigrants, along with their children, are responsible for 58 percent of America’s population growth over the past 30 years.
Fertility and birth rates for the native citizen populations in America and all of the wealthier developed countries of the world have been declining for the past thirty years. In every country they are below the replacement rate of 2.1 children per couple and in many countries the population has already begun to fall as a result. Therefore, our low U.S. citizen fertility rates coupled with retiring baby boomers, means the only likely source of growth in America’s ‘prime age’ workforce of 25 to 55 year olds for the foreseeable future. Legal or illegal; we need them!
We need them primarily because we need working age immigrants to pay taxes to the government so it can pay for the Social Security benefits record numbers of retiring baby boomers will soon be drawing. If you are already retired you need them too because without their taxes, your benefits will be cut! If you are under the illusion that all of those deductions from your pay checks were being deposited in a government bank account that you will draw down after you retire, think again!
That money has already been used to pay benefits in return for a government bond, a glorified government IOU. Social welfare systems in the US and Europe were all designed this way. The money they take in each year is then paid out to current pensioners based on the assumption that as the population grows; the size of the tax paying workforce will grow too. This provides the government the additional money they will need to provide pensions for an increasing number of pensioners.
So what happens if the working age population doesn’t grow? Well regardless of whether it stays level or begins to decline, the government faces some hard choices! Assuming that cutting the amount it pays current and future pensioners is not an option, if the number of pensioners increases but the size of the workforce remains the same, or if the number of pensioners stays the same but the size of the working age population declines, then the government can no longer balance its books.
In this situation the government has only three choices. The first one I call Greece! The government borrows the money by selling bonds, which are just fancy government IOUs, with a promise to pay the money back later, but at a higher rate of interest because it has a poor record of balancing its books. The government assumes that it will be able to afford this costly option thanks to some future surplus of tax revenues. This surplus is generated by raising retirement ages to decrease the amount it pays out in benefits, increasing workforce taxes or some combination of the two.
The second choice I call Germany. The government also borrows the money by issuing bonds; with a promise to pay the money back later with less interest. The government assumes that it will be able to afford this less costly interest rate option because it has a good record of balancing its books and will also need a smaller future surplus of tax revenues to do so. The smaller surplus it needs is generated by raising the retirement age so that it can lower or keep the total number of pensioners the same and by maintaining or slightly increasing taxes.
The third choice I call America. Here the government also borrows the money by issuing bonds; with a promise to pay the money back later with less interest. The smaller surplus of tax revenues it needs to balance the books is generated by raising the retirement age so that it can slow down the increase in its number of pensioners, and by increasing the size of its tax paying workforce by adding more immigrants.
But all developed countries need more immigrants because there are other assumptions that the world’s pension systems are based on. When these assumptions are also off the mark, the problem of financing pensions doesn’t get better; it gets worse! I will discuss them in detail next week.