The Kids Who Could Save Social Security

Last Updated Jul 20, 2010 12:32 PM EDT

As USA Today informs us this morning, no one believes in Social Security any more. More than half of retirees think their benefits will be cut sooner or later and three-quarters of adults under 34 don't think they will ever collect a penny from the program.

Come, now. Social Security is a political creation, and it won't go away as long as it enjoys the support of 70% of the U.S. adult population, as per this survey from the (admittedly not unbiased) National Committee to Preserve Social Security and Medicare. The program has a guaranteed built-in support base from its 52 million beneficiaries (and their kids, who don't want grandma and grandpa living at their homes).

Still, Social Security needs some fiscal help. One way to look at it: It's a retirement savings plan in which you deposit not money, but children who grow up to pay Social Security taxes. Problem is, the baby boomers didn't deposit enough kids into the system. According to Social Security's trustees, a combination of benefit cuts and tax hikes of about 25% is necessary to bring things back into balance. The only way to make that reckoning less painful is to conjure up more workers or to make the existing ones more productive, so they earn more taxable wages.

Turns out, there is a way to accomplish both goals: Open the gates to immigration, particularly of highly educated workers (many of them getting educated right now at U.S. universities). At the simplest level, that adds more wage earners to the Social Security revenue pot; but it also may be the best way to increase job growth and productivity overall. "There's a strong case that almost all the job growth in the U.S. economy comes from startups," says Edward Alden, a fellow at the Council of Foreign Relations, "and immigrants are much more entrepreneurial than native-born Americans."

Darrell West, a Brookings Institution scholar discusses just how much more entrepreneurial in his book, Brain Gain. The numbers speak for themselves:
  • Foreign-born Americans accounted for 25% of technology and engineering startups between 1995 and 2005. In Silicon Valley in particular, immigrants founded more than half the tech companies. By 2005, tech companies founded by immigrants employed 450,000 American workers.
  • Today, foreign born workers hold 65% of Ph. D.s in computer science. That matters because technology accounted for most of the surge in productivity over the past two decades and figures to continue to be the source of productivity gains in the future. Productivity gains would allow fewer workers to support more retirees in the future.
  • Far from stealing jobs from native-born American workers, immigrants could help fill severe shortages in industries such as computer sciences, bio-enginering and medicine. It makes no sense for the U.S. to educate the world's brightest in these areas and then send them back home to compete against us.
Rather than welcoming highly skilled immigrants, however, U.S. policy since September 2001 has done all it could to keep them out. In 2004, Congress allowed the number of H1-B visas-the special permits for high-skilled workers-to drop from 115,000 per year to 65,000. That's turning our back on 50,000 potential scientists, engineers and physicians a year.

"There's no question in my mind that over the past decade the U.S. has become a less attractive place for highly educated immigrants," emails AnnaLee Saxenian, dean of the School of Information at Berkeley and an expert on Silicon Valley. "After World War II, the U.S. was seen by foreign-born scientist and engineers as not only one of the most technologically advanced nations but also the most open and immigrant-friendly place in the world. Today, we have squandered that advantage by creating bureaucratic hurdles that make it impossible to get visas in a timely fashion, and also by creating in the post 9/11 world an environment of hostility towards outsiders."

At a time when unemployment is running 9.5%, it isn't hard to understand the emotional underpinnings of such a policy. It's why, for example, the TARP bill and the stimulus package of 2009 both insisted that recipients of government aide hire Americans first. Senators Chuck Schumer and Lindsay Graham would fast track green cards for graduates of U.S. universities, and the military has begun recruiting foreign born students at top colleges with promises of citizenship. But both are swimming against a tide of suspicion and fear.

The sad thing is, says Adolfo Laurenti, an economist at Chicago's Mesirow Financial, and himself an immigrant from Italy, Social Security's funding problems are relatively easy to fix (compared to, say, Medicare's). "We know what levers we have to pull," he says. "We can lessen the pain by increasing the workforce through immigration. Except that we're doing the exact opposite."

More on CBS MoneyWatch.com

Shouldn't we just privatize Social Security?
Social Security Strategies: Double Dipping
Social Security Strategies: How are Benefits Calculated?
  • Eric Schurenberg

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