Life Cycle Deficit of Immigrants Versus Natives

Tanja Istenič, University of Ljubljana, Faculty of Economics
Jože Sambt, University of Ljubljana, Faculty of Economics
Persida Cica Tofoska, University of Ljubljana, Faculty of Economics

Since the Second World War Europe has been an immigrant destination, however, recently the immigration and its socio-economic aspects have been in the centre of European Union leaders’ agenda. The immigration in the EU is a continuous process of receiving newcomers with different motives. The positive and negative aspects of immigration and potential economic opportunities have been widely studied in the literature. In light of the population aging in the developed countries the immigration is perceived as having a positive but limited influence on mitigating population ageing. At the same time immigration has an ambiguous impact on wages, growth, sustainability of the fiscal system and other economic aspects. In this paper we apply National Transfer Accounts (NTA) methodology to calculate the complete set of NTA results for immigrants and natives in five EU countries. The NTA methodology shows how much people consume and produce at different ages and how the difference between those two categories (i.e. ‘the life cycle deficit’) is financed. It can be through public transfers (public health, education, pensions), private transfers (for example, parents financing the consumption of their children) or asset‑based reallocation (for example, loan, dividends, imputed rents). We find that immigrants are facing longer periods of life cycle deficit which is mainly due to the lower labour income. Also, despite the fact that in the EU the public transfers play the most important role of financing the life cycle deficit in old age, we discover that in three of the analysed countries the asset-based reallocations are very important flow for financing the immigrants’ deficit. In light of the ongoing population ageing we believe that the asset-based reallocation is very important topic to be further investigated.

ExtendedAbstract

In recent years the immigration and its socio-economicaspects got into the focus of world leaders’ agenda, especially of the EuropeanUnion. Although lately the emphasis is given to the possible new refugee waveof immigrants, the immigration in EU is a continuous process of receivingnewcomers with different motives. The majority of studies concerned witheconomics of immigration have investigated the impact of immigrants on thelevel of wages, their inclusion in labour force as well as the wage differences(gaps) between immigrants and natives. Our study includes into analysis allforms of income of immigrants but also extends to the consumption side. We for the first time present the National Transfer Accounts (NTA) resultsseparately for immigrants and natives; whereas due to heavy data requirements,this has been done only for five EU countries.

By applying the NTA methodology, we estimate averagesof labour income and consumption by age for both natives and immigrants. Theestimations were performed based on the latest available, comparable andcomprehensive data with an aim to understand how the economic flows across agediffer for immigrants and natives. By allocating all categories of income andconsumption by age, we identify the age periods of economic dependency forchildren and elderly in which labour income falls short of consumption. Inaddition, we extend the analysis to the manner of financing the life cycledeficit, particularly in the period of old age.

The results show that in all countries and almost atall ages the labour income of immigrants is lower than the natives. Bothimmigrants and natives start to enter the labour market at the same age but thelabour income of immigrants grows at lower pace and never reaches the maximumlevel of the natives. This is in line with the previous studies and statisticaldata for slow labour market integration in the first years of residence in thehost country and lower incomes of immigrants, especially in the first years ofemployment. 

Table1 Labour Income and Consumption

Sources: EU-SILC 2011; HBS 2010; Eurostat database;various other sources; authors’ own calculations

By subtracting the labour income from theconsumptions, we calculate the lifecycle deficit (LCD) at each age. The averageconsumption of immigrants has the same age pattern as for the natives in allfive countries, but being at the lower level. The difference arises due to thelower private consumption, in particular in the category ‘other consumption’excluding education and health. Thus, lower income of immigrants translates intolower consumption compared to natives. However, the level of public consumptionis about the same in all five countries.

Due to the lower labour income which cannot be offsetby the lower consumption, immigrants experience shorter age span of negative LCD(where labour income exceeds consumption) than the natives. The economicindependence of immigrants starts about 3 to 6 years later and finishes atabout the same age as natives.

Table 1. Negative LCD i.e. Period of economicindependency

Sources: EU-SILC 2011; HBS 2010; Eurostat database;various other sources; authors’ own calculations

 

Finally, based on the obtained results we focus on theway how the lifecycle deficit in the older age is financed. Although the elderlyin analysed countries generally rely on public transfers, in Cyprus, Irelandand Sweden the immigrants tend to finance the deficit more extensively throughthe asset-based reallocations than natives who rely much more on the publictransfers.

Our study shows that higher labour income reduces andshortens the life cycle deficits, and provides higher level of consumptionwhich is an important determinant of the individual’s well‑being. Similarlevels of public consumption for both immigrants and natives indicateoffsetting function of the public sector. Higher labour income of immigrantswould therefore also (further) reduce the fiscal pressure of population ageingon young and future generations.

 

Presented in Session 1089: International Migration and Migrant Populations