Immigration, Social Security, and Housing Markets

Dean Baker reports:

Census Bureau Trashes Social Security Trustees Immigration Assumptions, Beat the Press: [Census Bureau Trashes Social Security Trustees Immigration Assumptions] could have been the headline of an article reporting on a new set of projections for immigration from the Census Bureau. According to the article, immigration will rise from its current rate of 1.3 million a year to more than 2 million a year by the middle of the century.

By contrast, the Social Security trustees intermediate scenario assumes that immigration will fall from its current rate to just over 1 million a year by the middle of the century. Even the low cost scenario assumes immigration of only 1.3 million a year by the middle of the century.

A more rapid pace of immigration improves the financial situation of Social Security. If the Census projections prove correct, then close to 30 percent of the projected Social Security shortfall would be eliminated. ...

Speaking of immigration:

Greenspan's Greater Foreign Fool Theory, by Paul Kedrosky: While I agree that it makes sense for the U.S. to increase immigration of skilled workers, I laughed out loud at ex-Fed chair Alan Greenspan's other rationale letting more people into the U.S.:

"The most effective initiative, though politically difficult, would be a major expansion in quotas for skilled immigrants." The only sustainable way to increase demand for vacant houses is to spur the formation of new households. Admitting more skilled immigrants, who tend to earn enough to buy homes, would accomplish that while paying other dividends to the U.S. economy.

He estimates the number of new households in the U.S. is increasing at an annual rate of about 800,000, of whom about one-third are immigrants. "Perhaps 150,000 of those are loosely classified as skilled," he says. "A double or tripling of this number would markedly accelerate the absorption of unsold housing inventory for sale -- and hence help stabilize prices."

Awesome. Why wait around for sovereign wealth funds to bail the U.S. out when you can simply invite foreigners in and suggest they buy real estate? Alan's soo-oooo clever. [via WSJ]

Comments

[SanFranciscoJim]

Hey, we've got empty houses, they've got extra people, why not bring in some more immigrants?

[Robert Oak]

That has to be the most absurd comment from Greenspan.

Let's see,
hhhhhmmmmm....it never seems to pass Greenspan's mind of the millions of US citizens being foreclosed on, declaring bankruptcy, exposed to predatory lending, being laid off, under employed, exposed to offshore outsourcing, age discrimination, flat wages....

Maybe if he focused on US citizens, making sure they had stable, good paying jobs, ya know wages?

Gee maybe *that* would solve the Housing Crisis!

Didn't all of those Americans want the American Dream? Oh yeah they did and they were royally screwed through no fault of their own in most cases.

[Who?]

Who are the immigrants going to borrow the money from to buy the homes? There is plenty of current domestic demand for small, affordable homes in low crime neighborhoods. Unfortunately, the only product being offered in many ares is over priced McMansions, or high crime ghettos. Afford-ability of product is the problem in many areas, not lack of domestic demand. Crime is the problem in many other areas, clean it up.

The problem can't be solved by giving foreign savers an even worse deal than they now get. Negative interest rates (after the falling dollar is factored in due to our higher inflation) and high default rates just don't attract much foreign savings. Foreign savers are not going to be thrilled at the prospect of loaning 1/2 M to near minimum wage immigrants, with no real hope of being paid back an equivalent purchasing power.

You can't just keep lowering mortgage interest rates so the bottom half can bid McMansion prices ever higher. We really need some affordable homes for the bottom half, not a more exotic program to rip off foreign savers. High violent/property crime areas desperately need effective police action.

The best long term solution is to allow low cost homes to be built (including manufactured homes), and clean up the violent/property crime.

[save_the_rustbelt]

We are not producing decent jobs fast enough for our own population.

[btg]

There was an item on CNBC the other day - a house in Detroit selling for the total price of - $1.00 !!!

Of course, it had been vandalised and stripped. Why not let in some legal Mexican immigrants, as long as they agree to buy a $1.00 house and fix it up! Or would that make Lou Dobbs cry in his beer?

[save_the_rustbelt]

"Of course, it had been vandalised and stripped. Why not let in some legal Mexican immigrants, as long as they agree to buy a $1.00 house and fix it up! Or would that make Lou Dobbs cry in his beer?"

Michigan has the highest unemployment rate in the country. So which job should the Mexican take?

[Cyrille]

Why, drug dealers of course! Shows good American entrepreneurial spirit.

[Real Person from the Real World]

WIth high unemployment knocking those of us born here out of our homes, I guess we need to import more people legally, to take the good paying jobs US corporations won't train us for, and buy our vacant homes while we dig a hole somewhere, and jump in (why not, none of us can afford health care, we might as well be euthanized so all the libertarians of the ownership society who survive, don't have to pay anything out of their pockets).

[Kathy]

Immigrants will use Social security too. And most of them have very low wages so they will probably take out more than they put in. The problem is that for the out-of-touchers, immigration, which is exploding now, should go on forever without limit. That is impossible. The country will be destroyed, so no one has to worry about Social Security. There have been 8 past amnesties. The problems grows worse daily.

[Bruce Webb]

In regards to immigration it is not just the Census Bureau that is suggesting changes. The recent release of the Social Security Advisory Board's Technical Report on Assumptions and Methods suggests changes on the same order. The problem they see is that under current methodology the Trustees have to make projections on a current law basis, specifically the Immigration Act of 1990, which has the effect of handcuffing the projections to a outdated set of assumptions in that Act, rather than allowing a more realistic adaptation of immigration to actual labor force needs going forwards.

[david]

Actually Kathy it has been proven that immigrants pay more into SS than they take out. A lot leave the US before collecting SS. A lot live shorter lives. Etc.

As far as AG- admittedly in SF a few more H1Bs would sop up a little marginal bit of housing supply. But I don't think there's any way that AG's notion could have a big impact nationwide.

[Bruce Webb]

"Immigrants will use Social security too. And most of them have very low wages so they will probably take out more than they put in."

Hmm. Well no. At least according to the SSA's Office of the Chief Actuaries new analysis as reported in the 2008 Report of the Trustees of Social Security. The projected payroll gap for fully funding Social Security benefits fell from 1.95% in 2007 to 1.7% in 2008 and all of that change (and a little more) is explained by a new analysis of how immigrants actually draw or don't draw on those benefits. The specific discussion is at Section IV.B7: Reasons for Changes in Actuarial Balance from Last Years Report

Immigrant bashing is easy. Actually computing their impact on such things as social service spending and social security is hard. Let's not take the easy 'Welfare Cadillac Queen' method of analysis as our touchstone here. In any event the idea that lower income workers take more out of Social Security than they put in is a gross overexagerration of the progressivity of the system. Generally speaking what you get out of Social Security is determined precisely by what you put in adjusted by changes in real wages over your lifetime. To the extent that Social Security can be said to have a problem it is mostly defined as a decline in worker/retiree ratio, something that can be best addressed by adopting some more realistic immigration assumptions/policies.

[cm]

Kathy: Yeah, but as presumably you are importing mostly young people, they, and their potentially future imported family, are not using retirement benefits now. Tomorrow, well that's tomorrow's problem.

Actually I'm not sure this has anything to do with the retirement systems. It's probably just another rationalization to supply new legally encumbered "fresh blood" to employers.

[Lee A. Arnold]

Bruce, is today the 73rd anniversary of FDR's signing of the act?

[MalibuRenter]

At least in Southern CA, the housing bust appears to be aggravated by a number of low wage immigrants leaving. A large portion of those were illegals in the construction industry. That's one of the reasons why there isn't as much unemployment in construction as expected, and why there hasn't been nearly the pressure on rents that people expected due to foreclosures of homeowners.

[Bruce Webb]

TPM: Obama And Dems Celebrate 73rd Anniversary Of Social Security With Hit On McCain; By Greg Sargent - August 14, 2008, 10:22AM
Lee it would appear so.

[John V]

I disagree with Greenspan in the sense that it should be a policy to "fill vacant houses somehow".

From my view, the full-360-view reason as to why houses are vacant is that housing prices were distorted and inflated by his very own bad monetary policy which aided in creating false demand for housing. Housing in my opinion will bottom, more or less, when they go back down to pre-2004 prices. At that point, houses will start selling more easily again. It may also create the desire for new construction.

When looking at it this way, yes, it's bad for people who overpaid but attempting to induce the market to somehow justify and maintain some of the inflated cushion in the high prices is not only pointless but but bad for buyers....and, for it's worth if it matters to you (and it matters to me), it simply shows that the economy is trying to move along with over-valued houses.

[John V]

Beyond that disagreement with Greenspan over housing policy, I'm with him on a more immigration policy but not because of housing but rather simply because I'm generally an open borders person for its own sake.

[don]

The long run issue for immigration is, does the U.S. have increasing returns to scale? I seriously doubt it. And if it doesn't, then greater immigration translates into lower standards of living.
The Economist has long praised looseness of U.S. immigration (the bulk of which is illegal), arguing that it is responsible for higher U.S. growth over Europe or Japan. True. But a look at growth in income per capita shows the U.S. merely at a par with the Europeans and lagging Japan in recent years.

[Peter Schaeffer]

Bruce Webb,

"Immigrants will use Social security too. And most of them have very low wages so they will probably take out more than they put in."

Actually that is true and the SS report simply fails to take into account the lower earnings of immigrants. The SSTR model assumes equal earnings for natives and immigrants. The SSTR model also fails to reflect the impact of the EITC. The EITC returns Social Security taxes to low income workers. Given their low earnings, immigrants are disproportionare users of the EITC.

From "Immigration in an Aging Society" (http://www.cis.org/articles/2005/back505.html)

"Legal immigrants are poorer than natives on average, resulting in lower tax payments. There is a large body of research showing that legal immigrants take many years after arrival to close the earnings gap with natives, by which time they are on average older than natives.32 This means they have lower lifetime earnings and Social Security payments because Social Security taxes are levied as a percentage of earned income. Studies that have actually looked at legal immigrant Social Security taxes support this conclusion. A 1998 study by the Urban Institute, which is generally regarded as asupporter of high immigration, found that legal immigrants in New York State paid only 85 percent as much in Social Security taxes as natives on average"

"And SSA is assuming that those earnings are the same as natives from the moment of arrival, which is almost certainty incorrect. In addition, because Social Security is redistributive, the lower average income of legal immigrants means that they will tend to have a more negative long-term impact on the system that is not considered if immigrants are treated as average taxpayers from the moment they arrive."

[Barkley Rosser]

I find it weird that this discussion brought out a bunch of notorious immigrant bashers. Signs that social security is not in as bad shape as the official projectiions say, and which people like Bruce Webb and I have been saying for a long time? Nah, time to freak out over immigrants. Gag.

[Arne (not anne)]

Peter,

I did find where writers linked EITC to SS by saying that it benefits those taxpayers that cannot really afford to pay payroll taxes, but there is no connection from an accounting or programatic perspective.

I find it hard to trust as a source anyone who feels a need to treat the trust fund and interest on it as worthy of separate accounting from payroll taxes.

Nonetheless, immigration is not a long term solution to SS funding shortfall. It helps as long as it adds to an ever increasing population of workers. If immigration is modeled as a constant number, eventually the shortfall catches up.

[ken melvin]

If the labor for the latest housing boom had been union construction workers, 'twould've been better all around. No doubt 'twould've lifted many an American citizen out of poverty, kept more than a few from falling into poverty, 'twould've helped distribute the obscene profits a bit better, too, and the hoose might of lasted as long a twenty years without major problems instead of the less than eight years it’ll be now afore all the problem of shoddy workmanship start to surface.

how And Berkeley Rosser - Illegal immigration may look fair and all good from your perspective, fit well into your models and it may be that some of those who've spoken out here are bashers, but, from the ground I walk on and the reality that I and others perceive, illegal immigrants pose a real theat to real Americans. If a foreign army had invaded and taken away jobs, the nation would have declared war; heck, we’ve even been known to go to war if foreigners restrict trade or even try to claim their own rights in their own countries. What difference taking by force and taking by lower wages? Is it really that America is for the taking by those who will work for less? Let me guess Prof. Rosser, you were getting ready to tell us all about you support uniions.

[Barkley Rosser]

ken,

I am not aware particularly of problems with shoddy workmanship by immigrant workers. Do you have a source on that?

I said nothing about illegal immigration, although most of the "real Americans" you refer to are descended from at least some people who either came in when there were no rules or laws about immigration (even though unions have always tended to be less than happy about immigration) or had some irregularity in regard to their legal status. Were all of your immigrant ancestors "documented" and going through all kinds of waiting periods and tough tests to become citizens?

Also, immigrants, whether legal or illegal, also increase aggregate demand by their purchases. There is not a "lump of labor" (or to be more precise, of jobs) where they "take them away from real Americans." Their entry actually increases the number of jobs in the economy (although they may lower wages in some sectors).

Finally, the latest pool of recruits for unions in some sectors are, you guessed it, immigrants (although pretty much only legal ones).

[cm]

Barkley Rosser: One general problem with illegal, i.e. "undocumented", labor arrangements (BTW a concept correlated with but distinct from illegal immigration) as with all illegal or sub-legal activities is that there are no official, "quotable" data, and at best estimates.

And as we all know absence of facts is the best breeding ground for rumors and speculation.

I'd say the quality of the labor is not primarily a matter of legal vs. illegal, but more one of licensed/properly trained vs. not, verifiable reputation, and whether a diligent job pays better than a "quick" job.

There are enough presumably-legal store attendants, temp staffers, and other people in low-paid commodity occupations, and also enough in well-paid occupations, whose ambition in their respective jobs seems to be to get "passing grades". Maybe not pleasant but often understandable.

I'm often under the impression that people want to pay cheap but expect premium quality, and are offended when they are not treated as premium customers. (Or don't have a minimal of what things must look like on the other side of the exchange, when they are dealing with hired help that they didn't select themselves.)

[cm]

One other popular game in low-leverage job situations is understaffing and overburdening the staff (i.e. assigning unrealistic workloads). The inevitable consequence is that either a substantial portion of the work is not done, or it is done as a "quick" job that passes muster for a short enough while, until it has to be reassigned for doing over. The likewise inevitable impression for outsiders is one of a low work ethic.

[Differing Cohort Sizes]

"Nonetheless, immigration is not a long term solution to SS funding shortfall. It helps as long as it adds to an ever increasing population of workers. If immigration is modeled as a constant number, eventually the shortfall catches up."

Varying immigration policy to compensate for changes in domestic cohort sizes can moderate the adjustments. The large baby boom cohort is followed by a much smaller demographic group. Increasing immigration temporarily to smooth over this difference in domestic cohort sizes might moderate the necessary adjustments.

Long term, population size is likely to stabilize, as the earth has a limited carrying capacity. Immigration could not be a long term solution, but in the short run it could help smooth out variations caused by cohort size mismatches.

[ken melvin]

Prof. Rosser,

Documented? Well it would help reduce the problem, no doubt. Little makeup covers a multitude of sins. For housing, caulking works well. No inspectors, someone looking the other way, doing things when no one’s looking, ... all were used. Seems there was a lot more construction than inspectors. Across in Oakland, CA, they had to vacate huge new condo complexes and redo the windows and other flashing. Plumbing with copper tubing pulled like wire by laborers isn’t really plumbing, but, surprisingly, it did last about ten years - statues nine years now. And then, of course, there’s the mold and mildew that start showing up.

As to your query in re as to who’s vested: Suppose if one’s family members fought in the Revolutionary, Civil, WWI, WWII, … or even Korean or Vietnam they’d have some claim. Let’s give them claim if they help build the factories, cities, and housing stock, OK?

But that wasn’t really what was at point, was it? It was about the effect of cheap illegal labor on American workers; the selling of America to those willing to work for less.

Increased aggregate demand you say. I say, when will economist rise up in defense of America’ s working class? Obviously America is willing to go to war for her investor class, her elite, but when will the nation, a nation that has gone war for oil, fueling stations, bananas, … go to war for its working class? When will it even protect the poor devils with existing law?

Isn’t hatred to speak to reality, I harbor no ill will to anyone, …I would have to be blind not to see. What is it to ignore reality?

[Real Person from the Real World]

There is always the *underground* undocumented economy (not undocumented workers).

Immigration problems come at 2 ends: illegals who take crap jobs, and top end (some are commodity jobs, but well paid) in the tech sector.

Most of these top tier people come from top tier people over there. I have seen "poor" students from "over there", who come from well-to-do families "over there" using government subsidized social services here in the US along with impoverished illegals, because their income here is explicitly low. Some even eschew US health care for higher wages, and go home for cheap socialized health care.

Bottom line, people take advantage of what they can, and sometimes can get away with it.

[cm]

ken melvin: You should exercise more fairness and give credit for all the mundane and "supporting" activities without which no feat of heroism is possible, and which don't result in lasting material installations. E.g. the people who cleaned the bathrooms that all those building your factories and cities were, ahem, using, or who made sure their paychecks were disbursed on time.

[cm]

It appears the "illegal labor" "problem" is largely an escape valve for a dysfunctional socioeconomic paradigm. It is very clear that using people of weak legal status for all kinds of low-key service labor allows many of the "better to do" or even the barely-middle class to maintain a "dignified" and seemingly-affordable lifestyle, as well as keeping business models profitable that otherwise wouldn't work, and in good part rampant illegal employment/businesses are tolerated (while maybe not quite openly encouraged) precisely to accommodate that.

Where would we get at when people would have to do their own lawns, clean their own house, babysit their own kids, during the little time left over after "working hard" and "adding value" to "the economy"?

There is a similar phenomenon in illegal prostitution, gambling, etc. A certain amount of it will be tolerated as long as it doesn't become too flagrant or too visible in the "respectable" parts of town, or where "respectable" people go. Every once in a while there are busts just to show "we are doing something" and to show "who's the boss".

[ken melvin]

So the working class, be they illegal immigrant or not, are but cannon fodder for the economy as for the wars? What kind of democracy this?

[Barkley Rosser]

ken,

Are you aware of all the immigrants who are fighting in the US military so that they can become citizens? Indeed, citizen immigrants have a much higher rate of military service than your so-called "real Americans." All this talk of "cannon fodder" is just so much insulting horse puckey. I suggest you crawl back under the rock you came out from under.

[John V]

Ken Melvin,

Your exchanges here with others like Rosser along with many I've read in the past reveal a deep difference that's ever present and very real...yet goes almost unnoticed and ignored by the Greater Left:

The difference is the very, very deep conceptual divide over the nature of societal goals and government between true Modern Liberals with a still-present sense of the goals and ideals of their Classical Liberal forerunners vs. Modern National Communitarian Social Democrats.

The differences are actually striking....and they are not too unlike the differences between Traditional Conservatives and many Libertarians.

The Social Democrats in my paragraph above, like you, are far more ready to contradict themselves with extremely illiberal thinking in an effort to defend some perceived ideal of social democratic institutions on the grounds of valuing societal, nationalistic and democratic notions over the welfare of the unique individual. They are more divisive and hostile toward true individual liberty. These people, in my opinion, tended to be more for Hillary. In short, they are far more likely, than true Modern Liberals, to find it acceptable to hurt individual freedom in the name of some "social group goodness" forged from from some narrow, self-induced sense of society or country being more worth defending than the people who are hurt along the way.

Attacking open immigration, with "national community" or "club" fervor, as a danger to what they perceive to be a greater good in some protection of the viability and health of some social welfare programs or the gains from force of some narrow winners in the social democratic process is an example that brings out the difference between the two groups.

This strangely illiberal and misguided sense of priorities is also present in R Feinman's "Standing in line as a civic duty".

PK is guilty of this as well while, for example, Mark Thoma is not...at least as far as I've seen.

[ken melvin]

Herr Doktor Doktor,

Being a bit evasive, but defending the indefensible is eh, eh, ...

[ken melvin]

Thank you John V. Categorized at last; thank god I'm categorized at last. I think that you are indeed on to something that's going on though I don’t think you have the form quite right nor that it is all quite as simple as you portray. And, though it can be associated, it is separate the issue of the effects of illegal immigration. So, though I think it off topic, shall I respond? A qui.

Have you heard of Andy Stern? Much could be gleaned from a study of Andy Stern; which leads directly to the ‘progressives’; and, as much as I like Howard Dean, damn him, why is he abetting this takeover?

[John V]

Ken,

OK

(?)

[ken melvin]

I defer to GBS: I don't need someone to tell me what I think; I know what I think. Little difference between being hidebound and being inside the box.

[cm]

John V: I'm not sure what you are talking about. A lot of individual freedoms and individuals' welfares are hurt and impinged upon in the names of "profit", "economy", "entrepreneurship", "security", etc.

It is a perennial feature of those who think they belong to or have a good shot at belonging to the club of those who have "arrived" to see any attempt at equity, whether actually happening or just verbally suggested, as an encroachment on their "liberty" to keep their past or future spoils.

I don't know whether you actually belong to that club or have such aspirations, no offense intended.

[John V]

cm,

Sorry, but you're getting my point.

[John V]

cm,

Sorry, but you're not getting my point.

[Immigration Lawyers]

Good post and advantage for skilled workers underpaid.

[michael says bring the immigrants in]

let's open 10 million immigration spots with pathways to permanent residency not citizenship. focus on those heads of households / individuals
- w/ post-college education in subject matters the usa needs
examples: nursing, green building/energy backgrounds, doctors, etc

- minimum requirements on wealth
- if they establish a business
==============================================
get local governments to:
- donate more properties to charities
- change zoning laws to allow for dual use zoning business / residential in low occupance neighborhoods
- tear down more abandoned homes and expand park system

recognize that states like michigan and ohio are economically dead and will never recover and demolish all abandoned properties. condense cities by abandoning areas of town and reverting them to urban forest land and agriculture.