Social Security needs immigrants

Trustees for the combined Social Security trust funds have just warned Congress that the funds are running out of money faster than expected. Revenues from payroll taxes in 2017 were lower than predicted, and spending on old-age and survivor benefits and Medicare higher.

As former trustee Charles Blahous reported recently in these pages, spending now exceeds revenues and has begun eating into principal, a turning point that as recently as last year wasn’t expected until 2022. The Medicare fund is now due to run dry in 2026. The depletion is exacerbated by the lack of actual money in the funds; real money has been exchanged for Treasury IOUs.

These dire predictions bear heavily on another issue bedeviling Congress at the moment: immigration reform. Without working-age immigrants steadily expanding the American labor force, the trust funds would be going broke even faster than they are now. Yet Congress, under pressure from President Trump and other nativists in the Republican Party, is focused on curtailing rather than expanding the supply of immigrant labor.

This is totally irrational, and not only because it will hasten the day when Congress will have to take painful measures to keep entitlements flowing. The U.S. has a labor shortage already. The Labor Department reported last week that job openings now exceed the number of people listed as unemployed. Only 3.8% of the workforce is unemployed, just under the 4% that is usually regarded—because of temporary joblessness, or “float”—as full employment.

Immigration accounts for more than half of U.S. population growth, and a Pew Research report last year showed that working-age immigrants will be vital to the future expansion of the labor force. Labor is a factor of production even in an advanced economy that invests heavily in plant and equipment. Without an expanding labor supply, it is hard to achieve economic growth, which is essential to finance a welfare state like ours.

Manufacturers can invest in robots to substitute for some human workers, but the service sector employs far more workers in the U.S., and it isn’t easy to invent a robot that can do the job of a doctor or teacher. The American Medical Association has estimated that 27% of doctors practicing in the U.S. are foreign born. More to the point, robots don’t pay the payroll taxes that support Social Security and Medicare.

Despite the major economic stimulus provided by last year’s tax reform, the American labor force hasn’t expanded. According to the Bureau of Labor Statistics, only 62.7% of working-age Americans had jobs in May, unchanged from the previous year. That’s almost 5 percentage points below the most recent peak level of participation, 67.3% in 2000.

To be sure, the Trump administration’s tax and regulatory reforms have led to an expansion of employment, but not by much. Roughly 155,474,000 Americans had jobs in May—an increase of only 1.7% from a year earlier, less than the rate of economic growth. The rise in employment wasn’t enough to satisfy increased demand for labor.

Numerous theories have been suggested to explain the low workforce-participation rate. One factor may be the retirement of the large baby boom generation—which, not incidentally, also adds to entitlement costs.

Government statisticians often blame that hard-to-control trend for the labor-participation dip, but less apologetic researchers also note the government’s over generosity in granting disability insurance. The number of workers receiving federal disability benefits has soared to about 10 million in 2010 from about four million in 1990, though standards have since been tightened and the increase in awards has leveled off. At any rate, the trust funds are now bearing a heavier disability burden. And certainly an elaborate safety net for the unemployed reduces the incentive for work.

Faced with these disturbing trends, President Trump nonetheless announced last August his support for legislation that would cut legal immigration in half within a decade. This would be done mainly by curtailing the ability of American citizens and legal residents to bring family members into the country. In short, the goal was to reduce the workforce even more than was happening already, for the professed purpose of protecting American jobs.

To the credit of congressional Republicans, this draconian policy remains in limbo. The more active debate in Congress is how to legalize the status of the million or so “Dreamers”: grown-ups who were brought to America illegally as children. There is strong public sentiment, on humanitarian grounds, for not shipping them back to countries they have never known, and it seems likely that Congress will work out a path for them to remain in the U.S.

Retaining the Dreamers, however, wouldn’t be enough to ensure that the U.S., with its low population growth, has a sufficient workforce to support the economic growth it needs to maintain the welfare state. The situation described by the Social Security trustees isn’t going away. To the contrary, addressing it is becoming more urgent, and more rather than less liberal immigration policies are one way to do that.