Estimating the Impact of Immigrants on the Host Country Social Security System When Return Migration Is an Endogenous Choice*

Abstract

This article estimates immigrants’ fiscal impact on the German pension insurance and unemployment insurance systems when return migration is an endogenous choice. For this purpose, it develops a dynamic stochastic model of joint return migration and saving decisions and estimates it using longitudinal data on immigrants from five countries. The results indicate that exogenous return migration—which has been the practice of the literature so far—underestimates the state coffers’ net gain substantially; e.g., the unemployment insurance system’s net gain from Turks arriving after age 30 falls by an amount that is roughly equal to their annual earnings at arrival.

The Economics of Temporary Migrations

“…Nevertheless, because he assumes that outmigration is random, even across age groups, Storesletten ignores selection and abstracts from temporary immigrants having different career paths than permanent immigrants. Kırdar (2012), in contrast, endogenizes outmigration in a dynamic structural model more similar to that outlined in Section 3, which he estimates using data from the GSOEP. By quantifying the effect of immigration on host countries' insurance systems, he…”

“…There are few similar models developed elsewhere (e.g., Deléchat, 2001;Colussi, 2003;Bellemare, 2007;van Baalen and Müller, 2008;Thom, 2010;Rendon and Cuecuecha, 2010;Kırdar, 2012;Lessem, 2013;Nakajima, 2014a,b) that address aspects of temporary migration. Using this model, we first identify and graphically simulate the possible triggers of temporary migration and then, while referencing pertinent studies, develop the implications of return plans for some economic behaviors, including human capital investment, labor supply, and savings.…”

Source country characteristics and immigrants’ optimal migration duration decision

“…Finally, return migration behavior has important implications for the host country as well. For instance, Kırdar (2012) finds that immigrants' net contributions to the German social security system are substantially influenced by their return migration behavior. This paper examines how purchasing power parity (ppp) and relative wages between the host and source countries influence immigrants' optimal migration duration in the host country.…”

Temporary Emigration and Welfare: The Case of Low‐skilled Labor

“…The distributive share of capital is set at , per year, and . Although views differ on what is the empirically relevant degree of concavity of the utility function, with most estimates of θ ranging from 0.5 to 1.5 (see, e.g., Hansen and Singleton, ; Epstein and Zin, 1991; Keane and Wolpin, ; Vissing‐Jorgensen, ; Favero, ; Kirdar, ), values of θ in the range between 0.9 and 1.0 tend to generate the most realistic patterns of saving behavior of temporary migrants (see Djajić, ).…”