Economics, Entitlements

5 questions and answers on the SSA immigration memo

Image Credit: Shutterstock

Image Credit: Shutterstock

Social Security’s actuaries have released a preliminary analysis of how the immigration reform plan would affect the program’s finances. Advocates for the plan are touting it as helping save Social Security. Is that that whole story?

1. Why does immigration reform seem to benefit Social Security?

Mostly because the memo measures Social Security’s finances over a short, 10-year window, in which new immigrants are paying taxes but largely prohibited from collecting benefits. Afterward, they will start collecting benefits. Counting only the first 10 years obviously doesn’t tell the full story. This is the same accounting problem conservatives spotted with Obamacare, and they shouldn’t ignore it here.

2. Will immigration reform help fix Social Security over the long term?

The SSA memo indicates that a positive long-term effect is likely, and it’s possible that’s correct. But I suspect the gains will be smaller than SSA projects. Here’s why: Under current law, an average-wage worker will pay more into Social Security than he will collect in benefits. A lower-wage worker will pay less into Social Security than he’ll collect in benefits. That’s obviously an important difference for Social Security’s finances. Immigrants have below-average wages and thus will collect more from Social Security than they’ll pay in. No one really disputes that.

But SSA doesn’t model this. As far as I know, the SSA model assumes that immigrants have the same earnings as native-born workers. It also assumes that immigrants’ kids have averages wages, when in reality most seem to have below average wages and thus also would be net collectors. Immigrants also have higher fertility, which means more kids and more taxpayers.

When I’ve estimated the effects of higher immigration using the Policy Simulation Group’s microsimulation models, which do model immigrants’ earnings separately from natives, about one-third of the solvency gain from immigration is lost. And that’s before the effects of amnesty, which would almost certainly be a loss for the program.

How does all this balance out? The answer is that we don’t really know, and the SSA memo doesn’t tell us.

3. Does the SSA memo say that immigration reform would create over three million jobs?

Sargent says, “The most important finding, for the purposes of the debate, is that the Gang of Eight immigration reform proposal would create 3.22 million jobs by 2024…” In reality, the actuaries do no modeling of the economy or the job market. They simply assume that new immigrants will find jobs and pay taxes; if the immigration reform brought in twice as many immigrants, SSA would assume they find jobs, too. Their memo doesn’t say that immigration reform creates new jobs and certainly doesn’t say that immigration reform will create new jobs for native-born Americans. The extra jobs assumed by the actuaries all belong to immigrants.

4. Does the SSA memo say that immigration reform will increase GDP by 1.6% over 10 years?

Yes, it does. But that is merely an extrapolation of the assumption that more workers mean a larger economy. Moreover, even this figure is based on the assumption that immigrants earn the same wages as native-born workers, which is untrue. The best bet is that adding low-wage workers will reduce GDP per capita, the measure of overall economic well-being.

Moreover, this is before any “dynamic” effects of immigration. For instance, CBO’s 2007 analysis assumed that immigration would lower the overall wage level by around 0.4% and reduce the wages of workers with less than a high school diploma by ten times that amount. Immigrants who are already – that is, the ones who waited on line and did the right thing – would see even larger pay reductions. The reality is that new immigration is likely to lower wages for native-born workers, not increase it. SSA didn’t even attempt to model these aspects of immigration.

5. Does the SSA memo say that immigration reform will “prevent 2 million illegals from coming to the US?” 

Yes and no. SSA estimates how the legislation as written would affect legal and illegal immigration and thus Social Security’s finances. SSA doesn’t, and obviously can’t, make any independent judgment on, for instance, how well the bill’s immigration enforcement provisions will work.

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