Last week Mayor Michael Bloomberg traveled to Mexico City, Tepoztlan, and Toluca to view their premier anti-poverty program, named Oportunidades. Bloomberg is launching a similar conditional cash-transfer system in New York, aimed at keeping lower income kids in school by providing aid to their families.
In Mexico, this program began under the Zedillo administration in the mid 1990s as Progresa, and was continued and expanded under President Fox (renamed Oportunidades in 2002) and continues now under President Calderon. With proof of school attendance and regular doctor’s visits, families (specifically mothers) receive cash benefits – roughly US$18 a month. This program reaches some 5 million households and an estimated 25 million individuals. In fact, it is now the largest anti-poverty program in Mexico. It has achieved some success, as studies attribute a 5% decline in poverty rates to the program. This type of conditional cash transfer program is popular in other parts of Latin America as well. Brazil’s Bolsa Familia are prominent examples with similar formats.
The goal of Oportunidades – and presumably its offshoot in New York – is not just to alleviate immediate poverty but also to increase the education and health of today’s youngsters and tomorrow’s adults. In the words of development economists, it is to increase “human capital,†better enabling these individuals and Mexico in general to compete in a globalizing world.
But this larger goal will depend on broader reforms to the economy and particularly to Mexico’s education system. While kids may stay in school due to Oportunidades, without educational reform their time will not be used effectively. And, these anti-poverty programs can not solve the underlying and severe economic inequality and limited domestic opportunities for the working and lower classes. This type of anti-poverty program is only a first step. The more important and harder step for Mexico will be to overhaul its education system and to open up its economy – providing real skills and greater opportunities to individuals within the working and lower classes.
The importance of demography for U.S. immigration is finally getting its due. Recent Congressional testimony by Dowell Myers highlights the effects of baby boomer retirement on the U.S. labor market, and the importance of legal migration given these shifts. A recent study by Mitra Toosi at the Bureau of Labor Statistics develops projections for the U.S. labor market in more detail. She adds the interesting fact that not only will baby boomers retire, but women’s participation rates in the workforce have stabilized (at near 60%). That means that unlike in the past, there isn’t a large untapped “surplus” of native Americans to meet growing labor demands.
These calculations contradict many of the responders to my recent op-ed, who question that U.S. demographic shifts will increase our future demand (and need) for immigrants. Often these comments come from self-identified baby boomers that say they don’t plan on retiring at 65.
That may be true. But I doubt the vast majority of them plan to be working at 80. If in fact the baby boomers overwhelmingly decide to postpone retirement, it will only delay, not put an end to, these future labor needs.
The overall trend, as these studies show, is a shrinking workforce and growing dependent population. While immigration can’t solve all of the challenges of this demographic shift, it will be a necessary part of our future if the U.S. economy is to continue to grow, and if many of the amenities we now enjoy in the United States are to remain available.
Following up on my op-ed in the Los Angeles Times, I talked with Lou Dobbs last night (see transcript) about the issues of demographic change and immigration in the United States. In my appearance and in earlier shows, Lou lays out various numbers regarding legal immigration - saying that 2 million people come into the country each year. But looking at the reports from the Department of Homeland Security (DHS), this 2 million figure is total visas - many of which are for the same person year after year. These are not all new additions to the annual workforce or population. But even if they were, these 880,000 for 2005 (see Table 3 of the DHS report on Temporary Admissions of Nonimmigrants), this is only 0.5% of our current workforce of nearly 150 million people.
The DHS also releases numbers on U.S. legal permanent residents. In 2006 they totaled roughly 1.2 million people (see Table 1). But here too, the vast majority are not new to the United States - new arrivals each year from 2004-2006 averaged roughly 400,000. Thinking again about the workforce, this is about 0.3% of the total.
Finally, Lou focuses on illegal immigration to the United States, saying that 1.5 million to 2 million illegal immigrants come in every year. In depth studies - using U.S. census data as well as other sources - instead estimate these flows as 500,000 a year (see this Pew Hispanic Center study). The DHS estimates a lower 400,000 unauthorized migrants each year (see DHS study).
Migration to the United States is an important subject, and one that should be discussed broadly. But in these discussions, we need to make a serious effort to be as accurate as possible about the numbers we use when defining the issue.
I wrote an op-ed for the Los Angeles Times yesterday that has received a fairly strong response (you can find it here).
Many responders - understandably - concentrate on the current effects of illegal immigration: the problem of undocumented migrants for U.S. security, the pressures on schools and other services in areas with heavy migration, and the effects of these new entrants to the labor market on the opportunities for lower skilled Americans.
All of these issues are incredibly important, and are key elements of the national debate on immigration now occurring. But as we discuss these immediate issues, we also need to be considering the medium to longer term dynamics of the labor markets on both sides of the U.S.-Mexican border. There are huge demographic shifts occurring in both of our countries, which will have significant repercussions for labor supply and labor demand, and for immigration, in the coming years.
The U.S. population is rapidly aging, and the first baby boomers are reaching retirement age. Over the next two decades, many will leave the workforce. Many will also need increased health care and living assistance – creating new jobs. The next U.S. generation – Generation X – is much smaller. With fewer native Americans entering an expanding job market (assuming our economy continues to grow), migrants will be needed to fill jobs.
Mexico too has an aging population. While in the 1990s one million new workers entered the working population each year, that number has recently fallen to 500,000. While still a challenge, the Mexican economy will better be able to absorb this smaller number going forward. In the coming ten to twenty years, significant labor surpluses among the young (those most likely to migrate) will decline.
The point is that labor supply and labor demand between our two countries is not a static relationship. It is in fact changing right now. As the nation debates immigration reform, we need to consider these dynamics, and their medium and long term effects. Otherwise, we will potentially be yet again fundamentally revising our immigration policy in just ten or twenty years, as the effects of current demographic shifts materialize.
Mexico finally passed a reform of its public sector workers’ social security system, the ISSSTE system. This system covers 3 million people, or roughly 10% of the insured population in Mexico.
Calderon, unlike Fox or even Zedillo before him, was able to cobble together a coalition of support with for the initiative, including many members of the PRI as well as the deputies of the New Alliance party, headed by former PRI heavy weight and powerful leader of the teacher’s union Elba Ester Gordillo. Gordillo was a key figure in the success of this reform as teachers comprise half of ISSSTE’s clientele.
The successful reform represents nothing new in terms of design. All the main elements of the new system - including the creation of individual worker savings accounts, of a publicly managed pension fund manager (named the PENSIONISSSTE), and the payment of recognition bonds for previous contributions to the ISSSTE system – were elaborated years ago by the Finance Ministry. What the current success (versus previous failures) shows is Calderon’s political acumen negotiating with Congress as well as the close working relationship he has with many in the PRI. This bodes well for future reforms, in particular the “Reform of the State†that is now on the table.
In the short term, the ISSSTE reform will not significantly affect Mexico’s finances. If anything, it makes apparent the medium to long-term state obligations to public workers. All those currently in the ISSSTE system will be given generous bonds for previous contributions, guaranteeing high retirement pensions under the new individual system. But in the long term, this reform will link future benefits to the amount of individual savings and accumulation. This change will encourage future public employees to work longer in order to accumulate the funds necessary for an adequate pension. The current average 54 year old retirement age will undoubtedly increase – even without the new minimum ages also incorporated into the law. Now, with this reform finally behind the government, perhaps the Mexican government can address the real retirement problem – which is the half of Mexico’s population remaining outside of any social security system.