Do immigrants really threaten public finances?

Immigrants can be seen as a threat to public finances due to the social benefits they receive. But this is forgetting that they too contribute, through the taxes and fees they pay. Lionel Ragot, scientific consultant at CEPII and professor of economics at the University of Paris Nanterre, explains, answering the questions of Isabelle Bensidoun, economist and assistant to the director of CEPII, why immigrants are neither a burden nor a godsend. Public finance.

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We sometimes hear that immigrants are attracted to the generosity of our social protection system. Is that so?

First of all, it should be emphasized that the flow of immigrants to France is, in proportion to the resident population, among the lowest among developed countries. With an immigration rate of 0.4% in 2018, our country proportionally welcomes half of the immigrants compared to Germany and even triple that of Sweden. We are therefore far from the massive and uncontrolled flows that would break 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 that of the natives, an improvement in qualification levels over the last forty years, with a consequent decrease in the weight of the low-skilled (diploma lower than the baccalaureate) and an increase in the weight of medium and highly qualified, to the point that the share of highly qualified (diploma higher than or equal to bac + 3) among immigrants (21.7%) in 2020 is slightly higher than that of natives (20.1%).

The segment of the population most inclined to resort to social assistance has therefore been significantly reduced. However, it is true that, while the share of low-skilled people has fallen 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, this implies that they benefit more from social benefits and contribute less to public revenues. Therefore, this should widen the public deficit, right?

The level of qualification is in fact one of the important characteristics, with age, to determine the net contribution of an individual to public finances, or the difference between all the contributions he pays in the form of mandatory taxes to public administrations (income tax, VAT, social security contributions, CSG, etc.) and all the resulting benefits (social benefits, expenses for education, health, pensions, etc.).

A low-skilled individual (FQ in graph 1 below), native or immigrant, has a positive net contribution, but significantly less than that of a highly skilled individual (HQ in graph 1) during his working life (between 20 and 60 years) . Subsequently, once retirement is reached, the net contribution becomes negative (as when one is young) for both categories of individuals.

Public opinion is very aware of these differences linked to the level of qualification and, bearing in mind that immigrants are on average less skilled than natives, it concludes that the immigrant population as a whole weighs on public finances.

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But if, between the ages of 20 and 60, an immigrant on average actually pays fewer compulsory contributions and receives more public benefits than a native, it does not mean that the impact on the public finances of immigrants as a whole is worse than that of natives. It all depends on the age structure of the two populations.

Compared to natives, however, immigrants are concentrated in working age, between 20 and 60 years (Graph 2), ie at an age in which the net contribution is positive, even if lower than that of natives. This favorable effect of the age structure largely compensates for the unfavorable structure of qualifications.

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Our latest study of French data therefore highlights a generally negative net contribution of immigrants to the budget between 1979 and 2011, but of a very low magnitude, in a range between plus or minus 0.5% of GDP. Consequently, throughout this period, immigration to France never determined the size and evolution of the primary budget balance. It should be noted that this fiscal neutrality of immigrants is not specific to France, but is found in most OECD countries.

Should we deduce from this demographic specificity of the immigrant population that it could be a solution to the aging of the French population, in particular for the financing of pensions?

By instantly rejuvenating the French population, a more ambitious migration policy (with an unchanged age structure of migratory flows) would have positive effects on the accounts of old-age insurance and health insurance (the most affected by demographic aging).

A highly skilled individual with a significantly higher net budget contribution, we therefore understand the recommendations for a more selective migration policy (in favor of the most skilled).

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

Because to keep the dependency ratio constant (the ratio between those over 65 and those aged 16 to 64), the population would have to double every 40 years through migratory flows, which in 2050 would lead to a greater share of immigrants in the population. by 50% (compared to 10% in 2020). Indeed, if an additional flow of younger immigrants actually produces the desired effect initially on the dependency ratio, these immigrants also end up aging, which would later require even greater migratory flows for this n ratio not to increase.

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By Lionel Ragot, Scientific Advisor of the CEPII, Professor of Economics, University of Paris Nanterre – University of Paris Lumières and Isabelle BensidounAssistant to the Director, CEPII.

This article is published as part of the CEPII series “The International Economy in Campaign” at CEPII-The Conversation partnership.