A Fresh Look at Immigration for an Aging Society
As the economy has risen to the top of the national agenda, immigration has dropped as a voter concern. However, a new paper from the non-partisan Reform Institute illustrates how the two issues are intertwined. While the present economic crisis requires attention and action, an even greater economic challenge, posed by the aging of our society, lies directly ahead. As we seek to recover from the current recession, the onset of the aging effects may hold back our recovery, due to a mounting fiscal deficit, workforce shortages, and weakened housing demand. Old Promises and New Blood: How Immigration Reform Can Help America Prosper in the Face of Baby Boomer Retirement highlights the essential role that immigration will play in the coming decades to strengthen the resilience of America’s economy against the impending demographic tsunami. The report details how two major forces – the aging of the baby boomers and the settlement and advancement of foreign-born residents – will shape our economic future. An aging society imperils three basic promises that are at the heart of America’s economic success: a secure retirement for seniors; an ample and capable workforce for employers; and a vibrant housing market for families. The infusion of new blood that immigration represents will be critical to mitigating the harmful consequences of the three perils to long-term growth and prosperity. “While it is not currently a concern for most Americans, the rising senior ratio represents a defining challenge for the United States,” according to Dr. Dowell Myers, the author of the paper and a prominent demographer at the University of Southern California. “As the baby boomers retire, Americans will experience the effects through mounting entitlement expenditures and national debt, a depleted workforce, and a housing market saturated with houses for sale. Confronting the effects of an aging society must be a major focus of public policy, garnering at least as much attention as issues such as global warming. How we as a society deal with immigration will significantly affect the severity of the phenomenon’s consequences.” The senior ratio is the number of residents ages 65 and older divided by all persons of prime working age, 25 to 64. This ratio has remained relatively steady in recent decades and currently stands at about 24 seniors per 100 working age adults. However, with the first baby boomers set to reach age 65 in 2011, the ratio is poised to soar in the next couple of decades, reaching 41 seniors per 100 working age residents. With the leading edge of this monumental demographic shift just around the corner, it is imperative to comprehend the implications and how immigration can assuage the detrimental effects.
Peril 1: The Entitlement Crisis and Fiscal Debt The predicament of Social Security due to the retirement of the boomers has received a great deal of attention in recent years, but a graying population will have an even deeper impact on Medicare. The explosion in entitlement expenditures due to the retirement of a significant portion of the population will produce an unsustainable strain on an already over-extended federal budget. Entitlement spending is forecast to climb from 38 percent of federal revenue in 2008 to 65 percent by 2032. The report states the situation, “Effectively, this budget outlook foresees only undesirable alternatives: curbing all government spending on necessary functions like defense, education, or transportation; engaging in ever heavier borrowing and debt repayment; or raising taxes.” Immigrants and their offspring add to the tax base and offset a significant portion of entitlement spending through payroll taxes.
Peril 2: The Workforce Crisis Baby boomers leaving the workforce en masse through retirement will cause workforce growth to virtually stagnate, which will severely hamper overall economic growth. There are simply not enough native-born workers to replace the retirees. Occupations such as nursing will be particularly hard hit. A “deep and debilitating workforce deficit” is forecast beginning in the next decade. Foreign-born workers already account for a sizeable share of workforce growth. Future U.S. workforce growth could turn negative without the continued contributions of immigrants. Even in cases where immigrants are low on education, their children, educated in the U.S., possess skills needed by the market.
Peril 3: The Coming Home Sellers Crisis Just as the U.S. recovers from the current housing quandary, it is likely to face a deeper and longer-lasting crisis owing to the mounting senior ratio. In the coming decades a glut in the housing market could arise as older Americans put up their homes for sale and there are too few younger Americans available to purchase them. Contrary to popular perception, immigrants own homes in large numbers and represent a bloc key to easing future weakness in the housing market.
The study concludes with data indicating that immigration has been declining in most states in recent years and advising that it is time for Americans to revisit common misperceptions concerning immigrants. We must consider the benefits and costs of immigration in light of the three perils associated with an aging society. Old Promises and New Blood is the latest effort on the part of the Reform Institute to inform the often heated immigration debate and fix our dysfunctional immigration system in a manner that balances security with satisfying the long-term needs of our workforce and economy. “This paper compellingly lays out the contributions that immigration can and must make to the future growth and competitiveness of our economy and its resilience in the face of colossal challenges,” stated Reform Institute Executive Director Cecilia Martinez. The paper is available on the Institute’s website at http://www.reforminstitute.org/uploads/publications/Old_Promises_New_Blood_Final_11-21-08.pdf. Information regarding the Reform Institute’s efforts on comprehensive immigration reform is also available at http://www.reforminstitute.org/Default.aspx?cid=5.
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