Illegals Help the Elderly, but Hurt Teens?

One of the surprising nuggets from the Treasury Dept.'s report on the state of Social Security yesterday was that the fiscal outlook for the old-age entitlement program was actually brighter.

And the source of the improvement was an unlikely one: illegal immigrants.

This from the American Enterprise Institute (emphases mine):

"The 2008 report also details an improved financial outlook for the Social Security program: the Trustees conclude that the seventy-five-year outlook has actually improved. Smaller Social Security deficits in the years after 2041 will reduce the long-term shortfall from 1.95 percent of future wages, as announced in the 2007 Trustees report, to 1.70 percent of future wages.

This improvement came about principally because of improvements in how the Social Security actuaries estimate the effects of immigration on the program. Current methods do a better job of tracking immigrants who work and pay taxes, but leave the country prior to collecting retirement benefits. These individuals tend to benefit the program's finances."

These benefits are a result of three characteristics of working illegals: they're typically younger, have more children, and are more likely to leave the U.S. before retirement age. So as far as the Social Security system is concerned, illegals put more money in than they take out.

This doesn't change the fact that Social Security will become insolvent within the next 75 years, but adds to the view that it's not as big a problem as certain people have made it out to be.

But while immigration, both legal and illegal, may ease the pains of the Social Security system, it does seem to have a negative effect on another demographic: working teens.

Recent research by Christopher Smith, a PhD candidate at M.I.T., finds that almost half of the decline in teen summer employment between 1990 and 2005 can be attributed to low-skilled immigration. (He found little labor market impact on the rest of the population.)

The following chart shows the negative relationship between the share of low-skill immigrants in a metropolitan area and the youth employment rate:

High school-aged youth from black, poor, and urban families are hardest hit by the employment gains of low-skilled immigrants, Smith concludes.

But it's not clear that this is necessarily all bad.

The response by poor and urban teens to competition from low-skilled immigrants has been to stay in school longer, which helps their pay in the long run. And if future research shows that the overall benefit from this is greater than the loss of income from fewer low-skilled job opportunities, low-skilled immigration might actually be, on balance, a good thing.

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