Are immigrants really a threat to public finances?

The net contribution of immigrants to the budget has generally been negative since 1979, but this deficit remains small, within plus or minus 0.5% of GDP.

This article written Lionel Rago, University of Paris Nanterre – University of Paris Lumiere and Isabelle Bencidoun, CEPII, republished from The Conversation under a Creative Commons license. You can read the original article published on March 27th.

Immigrants can be seen as a threat to public finances due to the social benefits they receive. But that means forgetting that they also contribute to this through the taxes and fees they pay. Lionel Ragot, Scientific Advisor to CEPII and Professor of Economics at the University of Paris Nanterre, explains to us, in response to questions from Isabelle Bencidune, Economist and Assistant Director of CEPII, why immigrants are neither a burden nor a godsend. public finances.

We sometimes hear that immigrants are drawn to the generosity of our social safety net. Is it so?

First of all, it should be emphasized that the flow of immigrants to France in relation to its permanent population is one of the lowest among developed countries. With an immigration rate of 0.4% in 2018, our country receives half as many immigrants as Germany, and even three times as many as Sweden. Therefore, we are far from the massive and uncontrolled flows that would pour into French territory every year, attracted by a higher standard of living and generous social protection.

It then turns out that the immigrant population has experienced, like the native population, an increase in skill levels over the past forty years, with a subsequent decrease in the weight of the low-skilled (degree below bachelor’s) and an increase in the weight of the medium and highly skilled, to the point that the proportion of highly skilled (a diploma higher than or equal to bac +3) among immigrants (21.7%) in 2020 is slightly higher than among natives (20.1%).

Thus, the segment of the population that can apply for social assistance has significantly decreased. However, it is equally true that while the share of low-skilled people has declined sharply for both populations, it has remained at a significantly higher level in the immigrant population (57.3% compared to 48.9% in 2020).

But if immigrants are on average less skilled than natives, that means they receive more social benefits and contribute less to government revenue. Therefore, this should increase the government deficit, right?

The level of qualification is indeed one of the important characteristics that, with age, determine the net contribution of an individual to public finances, namely the difference between all the contributions that he pays in the form of mandatory fees to public authorities (income tax, VAT, social security contributions, CSG etc.) and all the benefits that he derives from them (social benefits, education costs, health care, old-age pensions, etc.).

A low-skilled person (FQ in Chart 1 below), whether a local resident or an immigrant, has a positive net contribution, but significantly less than that of a highly skilled person (HQ in Chart 1) during their working life (between 20 and 60 years) . years). Subsequently, after retirement, the net contribution becomes negative (as in youth) for both categories of persons.

Public opinion is well aware of these skill differences, and given that immigrants are on average less skilled than natives, it concludes that the immigrant population as a whole is putting pressure on public finances.

But if, on average, between the ages of 20 and 60, an immigrant indeed pays less mandatory contributions and receives more various public goods than a native, this does not mean that the impact on public finances of immigrants is generally worse than that of natives. It all depends on the age structure of the two populations.

However, compared to natives, immigrants are concentrated in working age from 20 to 60 years (Diagram 2), i.e. at an age when the net contribution is positive, even if it is lower than that of natives. This effect of a favorable age structure largely offsets an unfavorable skill structure.

Thus, our latest study of the French data highlights the generally negative net contribution of immigrants to the budget between 1979 and 2011, but very low in magnitude, in the range of plus or minus 0.5% of GDP. As a result, throughout this period, immigration to France never determined the size and evolution of the basic budget balance. It should be noted that such fiscal neutrality of immigrants is typical not only for France, but also for most OECD countries.

Are we to infer from this demographic of the immigrant population that this could be a solution to France’s aging population, in particular to finance pensions?

By instantly rejuvenating the French population, a more ambitious migration policy (with an unchanged age structure of migration flows) will effectively have a positive impact on the old-age and health insurance accounts (hardest hit by demographic aging).

A highly qualified person with a significantly higher net budgetary contribution, we then understand the recommendations for a more selective migration policy (in favor of the most qualified).

However, a more ambitious migration policy is not a solution to the problem of demographic aging. It can reduce the tax burden, as we have just seen, but in no way can it stop this aging process.

Because in order to maintain a constant dependency ratio (the ratio of persons over 65 years old and persons aged 16-64 years), the population would have to double every 40 years due to migration flows, which would lead to an increase in the share of immigrants in the population by 2050 by more than 50% (compared to 10% in 2020). Indeed, if the additional influx of younger immigrants does have the initially desired effect on the dependency ratio, these immigrants will also eventually age, which will subsequently require even more migratory flow to keep this ratio to n from increasing.

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