Essays on population aging and the political economy of immigration

• Essays zur Bevölkerungsalterung und zur Politischen Ökonomie der Zuwanderung

Calahorrano Peña, Lena Teresa; Lorz, Oliver (Thesis advisor)

Aachen : Publikationsserver der RWTH Aachen University (2011, 2012)
Dissertation / PhD Thesis

Aachen, Techn. Hochsch., Diss., 2011

Abstract

The dissertation starts from the observation that in all industrialized countries but also in many developing countries populations are aging. Although population aging is global, demographic structures differ widely between regions. Population aging poses a strain on social security systems. In particular it challenges the financial viability of unfunded pension systems in the more developed countries since the number of contributors declines relative to the number of beneficiaries. Along with pension systems and labor market reform, immigration can contribute to counteract this negative fiscal consequence of demographic change. Still, the demand for migrants seems to be limited. The question arises whether demographic change in industrialized countries induces more liberal immigration policies. An increase in the population share of old individuals is likely to increase those individuals’ political weight. Therefore, a key question analyzed in this dissertation is how young and old individuals differ with respect to their immigration preferences. The dissertation further models the translation of immigration preferences into policies. It is divided into four essays which are centered around one common political economy perspective. The first two essays set up theoretical models of immigration policy in an aging country. The government’s objective function corresponds to the weighted sum of all its voters’ utilities. To capture the heterogeneous interests of individuals at different stages of their life cycle, an overlapping generations approach is employed. The economy produces a homogenous good, employing labor and capital. In each period the young individuals supply one unit of labor and receive a wage income that they allocate to consumption and savings. The old individuals supply their savings as capital in production and receive a return which they consume. Immigrants are assumed to be young. Immigration therefore increases labor supply, reducing the return on labor and increasing the return on capital. Consequently, the young native individuals oppose immigration in the benchmark model, whereas the old individuals favor free immigration. Maximizing the government’s objective function yields an interior solution with limited immigration. Aging enhances the old generation’s political weight and thereby increases equilibrium immigration. Whereas the first essay makes the simplifying assumption that immigrants have the same number of offspring as natives, the second essay allows for a higher number of offspring among immigrants. Permanent immigration then alters the political equilibrium: Immigration in one period increases the share of young individuals (opposing immigration) in the next period. The third essay also sets up a theoretical political-economy model, with several assumptions corresponding to the ones in the first two essays. It is novel in modeling the interplay between policies which determine international labor and capital flows in a two-country setting. Capital flows are assumed to be limited by the possibility of expropriation in the younger (developing) country. The mere possibility of expropriation reduces capital flows, even though expropriation does not actually take place in equilibrium. For the old individuals in the older (industrialized) country, investing their savings in a younger country may substitute immigration. However, emigration may reduce expropriation incentives in the developing country, which enhances capital flows. The reason is that wages increase as labor supply declines. This also increases the wage loss resulting from expropriation of foreign productive capital. The fourth essay is an empirical investigation of immigration attitudes which focuses on the impact of age. It investigates the question whether opposition to immigration declines over the life-cycle, as would be expected as a result of the factor price effects of immigration. Non-economic factors or increasing pension contributions in the light of demographic change (resulting in a situation where contributors to pension systems benefit from immigration) may explain previous findings that opposition to immigration increases with age. However, these findings may also be due to a confusion of cohort and life-cycle effects. In order to separate these, the same individuals’ immigration attitudes have to be observed at different points in time. The fourth essay uses data from the German Socio-Economic Panel, a large representative longitudinal survey which has captured individuals’ concerns about different subjects, including immigration to Germany, since 1999. The impact of individual age and birth year on attitudes toward immigration is estimated in multiple regressions. Immigration concerns are found to decrease over the life-cycle relative to other concerns. Meanwhile, older cohorts are found to be more concerned about immigration than about other issues, relative to younger cohorts.

Institutions

• International Economics Unit [814320]