Is Canada immigrant friendly

The German pension system is not friendly to immigrants

Those born abroad are less likely to have a job than a native. And when he is gainfully employed, he earns less - even with comparable training and professional experience. This disadvantage of immigrants in the labor market is documented in many studies. Since the first major waves of immigration to Germany and other European countries in the post-war period are now 40 to 50 years ago, another question increasingly arises: What is the financial situation of immigrants after the end of their working lives?

So far there are only a few studies on this. Without exception, these show that immigrants are financially worse off than natives, even when they are retired. However, the extent of the differences varies greatly depending on the country and study. For Germany, Tatjana Mika and Ingrid Tucci determined that the old-age pensions of nationals of Turkey and the successor states of Yugoslavia in 2003 were on average almost 20 percent lower than those of German nationals. For Canada - a country whose immigration policy is often cited as a positive example - analyzes by Patrik Marier and Suzanne Skinner for 2004 showed an income gap of almost 50 percent for men in the age group 65+.

"A first clear result of our study is that immigrants in almost all of the sixteen countries examined have significantly lower pension incomes."

Due to different income concepts, age limits and definitions of the group of immigrants, these results can hardly be compared with one another. This also makes it difficult to determine to what extent institutional framework conditions influence the income disadvantages of older migrants. What role does access to social benefits play? Does the type of pension system have an impact on immigrant pension incomes? Or is immigration policy crucial?

To investigate these questions, I evaluated data from the European Union Statistics on Income and Living Conditions (EU-SILC) for the years 2004 to 2012 together with Bram Lancee (University of Utrecht) and Jonas Radl (University of Carlos III Madrid). For the first time, our study presents internationally comparable data on the financial situation of older immigrants. We focus on men who are 65 years of age or older and were born in countries that do not belong to the EU. A further differentiation by country of origin is not possible for reasons of data protection. Unfortunately, in the case of German data, we cannot even differentiate between immigrants from EU and non-EU countries due to strict data protection guidelines. Germany is therefore not one of the 16 Western European countries that we are looking at. In the following, however, I venture a few assumptions about the effects of the German pension system.

Our analyzes focus on the “pension income gap” between immigrants and locals, i.e. the relative difference in old-age income that includes pension payments from state and company pension schemes (the results are similar if we also take into account benefits from private pension schemes, capital income and means-tested benefits ).

A first clear result of our study is that immigrants in almost all of the sixteen countries examined have significantly lower pension incomes. The pension income of immigrants is on average 20 percent lower than that of natives. If it is adjusted for differences in the level of education and in the socio-economic status of the last professional activity, the pension income gap tends to be even larger: on average, it is then around 26 percent. This is because in many countries older immigrants tend to be better educated than native men.

"Against this background, the German pension system appears to be comparatively little immigrant-friendly."

This pattern is particularly pronounced in the southern European countries, where the level of education of the locals in the considered age group is often still very low due to the late expansion of education. In Portugal, for example, over 80 percent of local men over 65 do not have a higher secondary qualification (which in Germany corresponds to an Abitur or completed vocational training). Another possible reason is that immigrants with low qualifications are more likely to return to their country of origin in old age.

Figure: Differences in pension income between immigrants and locals © WZB

The figure shows how the pension income gap differs between the 16 countries. So-called 90 percent confidence intervals illustrate the statistical uncertainty. Because of the limited number of cases, this is sometimes quite high. Nevertheless, there are apparently clear country differences in the size of the income disadvantages. The income gap is largest in Finland, Belgium, Luxembourg and Spain. Here it is over 30 percent before and after adjusting for differences in educational level and socio-economic status. It is smallest in Portugal, Ireland, Denmark and France, where according to our calculations it is (in some cases well) below 16 percent.

In a second step, we examine the extent to which these differences are related to socio-political and other institutional factors. The pension system turns out to be the most important factor. In countries with pension systems that redistribute more heavily - that is, provide higher replacement rates for people with low lifetime incomes - the pension income gap tends to be smaller. The lower incomes of immigrants during working life are less detrimental to pension income in progressive (redistributive) pension systems.

Another factor are regulations that “punish” short and discontinuous employment histories. Examples of such regulations are long minimum contribution periods or clauses that partially link the pension amount to the length of the contribution periods (and not exclusively to the amount of the contributions paid). Since immigrants often only enter the labor market of the destination country when they are adults, some of them leave the destination country again in the meantime and are also exposed to a higher risk of unemployment, such regulations tend to have their disadvantageous effects.

"We find empirical evidence that the income disadvantages of immigrants are smaller in those countries that make long-term residence more dependent on the fulfillment of linguistic and economic criteria."

Against this background, the German pension system appears to be comparatively unfriendly to immigrants. The strong focus on the so-called equivalence principle - every euro paid in should in principle justify an equally high additional pension entitlement - means that there is only very limited redistribution within the statutory pension insurance. Even with the (implicit) punishment of short and interrupted employment, there are regulations that are likely to have a detrimental effect on immigrants. The minimum contribution periods for the acquisition of claims from the statutory pension insurance are comparatively short (five years for the regular old-age pension). However, there were and are special types of pensions that favor people with long employment careers, for example pensions for long-term and particularly long-term insured persons. Many immigrants are in fact excluded from these regulations.

A connection to the pension income gap can be demonstrated for at least one other factor: We find empirical evidence that the income disadvantages of immigrants are smaller in countries that make long-term right of residence more dependent on the fulfillment of linguistic and economic criteria. This is hardly surprising in that the aim of such a strict immigration policy is explicitly to attract and select immigrants with better job market opportunities. The finding shows that immigration policy has long-term effects that should definitely be taken into account in international comparisons. However, it should not be rashly concluded that a strict immigration policy is the key to reducing ethnic inequalities in working and retirement age: it is true that immigrants in countries with liberal immigration policies are more likely to achieve lower labor and pension incomes than natives. In their countries of origin, however, they would probably have often been even worse off.

Conversely, a strict immigration policy ensures that people with good job market opportunities are given access to the destination country; the income gap is thus limited. Obviously, this does not solve the difficulties of people with poorer labor market opportunities: Their disadvantage is only visible elsewhere - in the respective countries of origin or in other destination countries with more liberal immigration policies.

Our findings on other possible influencing factors are less clear. The social science literature argues, for example, that strict labor market regulation and, in particular, strong protection against dismissal reduce the employment opportunities of immigrants. Under such conditions, employers are less willing to take risks in recruiting; recruiting immigrants is often perceived as risky. However, we do not find any evidence that differences in the strength of dismissal protection in the 1980s had an impact on the size of the pension income gap in the 2000s. Neither do we find any evidence to support the assumption that generous social transfers to households of core working age reduce the incentives to integrate into the target country's labor market and thus lead to immigrants being left behind in terms of earned income and, in the long term, also in terms of retirement income.

"The size of the pension income gap is related to the redistribution and" punishment "of short and atypical careers in the pension system."

After all, our analyzes show certain - but not necessarily in total - indications that regulations that restrict immigrants' access to social benefits go hand in hand with a larger income gap. Such a connection is unquestionably highly plausible, especially for access to the pension system. There is much to suggest that we are only failing to achieve clearer results because the available data sources do not allow sufficient differentiation between different types of services and the strength of the access barriers.

Our study is a first step towards better understanding the material situation of older immigrants. As the main results, we can state two points: Immigrants in retirement age are financially worse off than natives in almost all Western European countries. The size of the pension income gap is related to the redistribution and “punishment” of short and atypical careers in the pension system.

Obviously, more research is needed. An important factor about which we know comparatively little is the return migration of older immigrants. Previous studies indicate that in Western Europe the propensity to return is highest among immigrants with low education and low incomes. The income gap would therefore likely be even larger if we could also take into account the pension incomes of immigrants who return to their country of origin after retirement. Also, little is known about whether immigrants 'and natives' savings and pension decisions differ systematically and to what extent older immigrants can fall back on assets. After all, we lack systematic information on relevant social and immigration policy factors. In addition to the aforementioned barriers to access to social benefits, this also applies in particular to any bilateral or multilateral agreements on the mutual recognition and portability of pension entitlements. In many European countries, older immigrants are a growing population. The need to fill these research gaps is therefore evident.

literature

Heisig, Jan P. / Lancee, Bram / Radl, Jonas: “Ethnic Inequality in Retirement Income. A Comparative Analysis of Immigrant-Native Gaps in Western Europe ". In peer review, manuscript can be requested from the first author.

Marier, Patrik / Skinner, Suzanne: "The Impact of Gender and Immigration on Pension Outcomes in Canada". In: Canadian Public Policy, 2008, Vol. 34, No. 4, pp. 59-78.

Mika, Tatjana / Tucci, Ingrid: “Retirement income for immigrants. Statutory pension and household income for resettlers and immigrants from Turkey and the former Yugoslavia in comparison to the German population ”. DIW Research Notes 18. Berlin: German Institute for Economic Research 2006.

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