The Economics of Immigration Reform
U.S. immigration policy has been a divisive political and moral issue for decades. The Catholic Church’s call for justice for immigrants — from Pope Francis and Los Angeles Archbishop José Gomez to the sponsoring religious orders of Loyola Marymount University — has been consistently clear and strong. We asked Michael A. Genovese, professor of political science, to shed another light on the subject, reflecting on the economic importance of U.S. immigration reform.—The Editor
I am going to make the case for a more open U.S. immigration policy. I am not making a moral argument (although I could); rather, we need to take a hard-nosed look at our economic future and the role immigration might play in it. Controlled, accelerated immigration is the only solution to a deeply threatening problem that, if left unattended, will endanger our national security, propel us into a debilitating economic depression and unhinge the social fabric of the republic.
We baby boomers are getting older, we are retiring, we have not saved enough for retirement, and our entitlement commitments to Social Security, Medicare and Medicaid will eventually bankrupt the nation. Thus, the United States will not have enough money to pay for national defense or care for the elderly, and we will be asking the millennial generation (those born after 1980) to pay the bill.
THE SCOPE OF THE PROBLEM
With an aging population, there will be too few workers to contribute to their care. In coming years, the proportion of the U.S. population older than 65 will rise considerably from less than 10 percent in 1970 to about 20 percent in 2030. The median age has risen from 28.1 in 1970 to 37.2 in 2010. Today, roughly one in eight people in the United States is older than 65. By 2030, it will be about one in five. This would not be a problem if we were reproducing at a higher rate, but we are not.
A long-term analysis by the Congressional Budget Office reports that as 77 million baby boomers retire, the cost of Social Security, Medicare, Medicaid and debt interest will add $10 trillion to the deficit in the next 10 years. Today, the federal debt is close to $18 trillion. Another $100 trillion more in debt will be added over the next 20 years.
The human capital of tomorrow will be today’s millennials, who will be squeezed financially by baby boomers who will retire, age, and drain precious financial and medical resources. This inter-generational conflict will be exacerbated by the fact that most current workers over the age of 35 are not saving enough for their retirement.
Today, one in five people in their 20s to early 30s lives at home with their parents, up from only 10 percent a quarter century ago. Additionally, 60 percent of these young people still receive financial assistance from their parents.
The massive debt we are leaving behind will tie the hands of future policy makers, limiting future options. If, as we often say, “the children are our future,” we clearly do not see this reflected in the federal budget. We continue to spend more on our older population and less on our children. According to the U.S. Congressional Budget Office, in 1990, entitlement spending (Social Security, Medicare and Medicaid) totaled 6.7 percent of gross domestic spending. In 2010, it had risen to 10 percent. By 2038, it is estimated to rise to 14.3 percent. What is left for tomorrow’s generation?
The impending “gray tsunami” will come into full view when today’s boomers more fully collect Social Security and Medicare benefits around 2030. By then, those two programs will consume about half the federal budget. Unless we act soon, Social Security and Medicare will be broke by 2040. The ratio of workers to retirees — 20 to 1 when Social Security was created — will be roughly 2 to 1, the lowest point ever recorded.
When Social Security was established in 1935, the average life expectancy in the U.S. was 62 years. Today it is 78. Plus, in 1940, about 150 workers supported each Social Security recipient. Today, fewer than three workers support one retired person.
An overwhelming number of retirees will outlive their money. With each passing year, more baby boomers will retire, and most of them are ill prepared financially for retirement. Medical improvements will keep them alive longer and at high financial cost. Social Security and Medicare will not nearly be enough to bridge the retirement cost gap.
WHO WILL PAY
Amazing but true: 45 percent of all U.S. households with people still in the workforce have nothing saved for their retirement! Those between 50 to 64 years of age have less than $28,000 saved for retirement. It is estimated that we are $6.8 trillion short of what we will need for retirement.
A retirement crisis is coming, and by 2040, we will be buried by its needs. Roughly 60 percent of middle-class who will soon retire will outlive their retirement nest eggs. Many will rely only on Social Security, although Social Security was never intended as the sole source of retirement income. On average, Social Security will pay about $15,000 per year to an individual, $22,000 to a couple. Hardly enough to live on when medical and other costs will gobble up that money very quickly. It could be an era of grumpy old men.
In addition, most Americans can no longer afford to retire. In 2012, more than seven million people over 65 were still employed, up 67 percent from 2002. Seniors staying in jobs longer may mean that millennials will have to wait for good jobs to open up. Today, only 13 percent of workers feel confident they have saved enough for retirement.
We are witnessing the rise of post-mature states: countries with large proportions of seniors. But our problem could be largely solved by one rather simple yet political step: more immigration, that is, controlled sustained immigration.
If we are to avoid an economic collapse and the threat to our ability to provide security to our people, we must attract, value and nurture greater, though controlled, immigration into the United States.
By allowing more skilled and unskilled workers into the country, we fulfill two needs. First, we add to the population paying into Social Security. Second, by encouraging the most educated engineers and scientists from other countries who get advanced degrees in U.S. universities to stay here and start businesses, we grow the entrepreneurial pool and add jobs. More workers, more jobs — a win-win situation.
We must act now to ensure a better future for our nation. It may be harsh medicine for some to swallow, but to my critics I ask: Do you really have a better way that can solve this potentially devastating crisis that is at our doorstep?
By Chris Zepeda-Millán ’04
Undocumented immigrants, in addition to being critical to vital sectors of our economy (e.g., agriculture, service, construction, etc.), pay about $13 billion a year into our entitlement system, according to the U.S. Social Security Administration. In fact, over the course of the past 10 years, they’ve collectively contributed over $100 billion, paying for the Medicaid and Social Security of retiring baby boomers. Moreover, as USC demographer Dowell Myers has illustrated in his latest book, “Immigrants and Boomers: Forging a New Social Contract for the Future of America,” immigrants today are not only taking care of retiring Americans, but they’re also helping to save our housing market by purchasing the homes of boomers who downsize as they retire and their children leave home for good. Thus, only by increasing the number of visas for immigrant workers and their families will we be able to sustain the costs of the quickly approaching — and potentially economically catastrophic — mass retirement of the baby boomer generation.
In addition to the economic benefits of immigration reform, there are several reasons why we, as LMU alumni and/or Catholics, should support the legalization of undocumented immigrants (most of whom are Catholic). For one, the Pope says so; in fact, the past few Popes have said so. If the Bible’s telling us that Jesus, Mary and Joseph were themselves migrants fleeing poverty and persecution isn’t enough of a reason, those interested in a more detailed articulation of the American Catholic Church’s rationale for immigration should read the U.S. Catholic Bishops’ 2003 pastoral letter, “Strangers No Longer: Together on the Journey of Hope.”
Not only are there economic and moral reasons to support fair and humane immigration reform, there are broad social reasons as well. The fact of the matter is that our country’s visa limits are based not on any logical or pragmatic rationale, but on arbitrary and partisan political negotiations that took place over a half century ago. In addition, studies have consistently demonstrated that today’s immigrants are more family-orientated, have lower divorce rates, are more religious and commit fewer crimes than the average U.S.-born American. So if we want to promote family values and safe communities, as we Americans and/or Catholics claim, then research suggests that more — not fewer—immigrants is the way to go. The issue of immigration reform provides a unique opportunity for us to take care of our elderly and ensure our country’s economic prosperity, all while putting our university’s mission into practice.
Chris Zepeda-Millán ’04 is a political scientist and assistant professor in the Department of Ethnic Studies at UC Berkeley.