Geoscience Reference
In-Depth Information
1.80
1.70
1.60
1.50
1.40
1.30
1.20
1.10
1.00
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2065
2070
65
66
67
68
69
Fig. 11.14
Retirement age changes (65 through 69) and Chicago Per Capita gross regional
product
wage and interest rates since wages fall and interest rates increase. Smaller wages
under the increasing retirement age scenario reduces the income of young poor
generations who significantly rely on labor income. On the contrary, higher interest
rate increases the capital income of the middle-aged rich populations who holds
large accumulated assets thanks to the reduced social security tax payment.
By affecting the social security tax rate, the increasing retirement age influences
the allocation of consumption over the lifetime, and this reallocation may cause
either increase or decrease in welfare. The welfare benefits changes depending on an
increase in retirement ages. All individuals over the whole age cohorts appear to
favor the increasing retirement age. Furthermore, younger generations gain more
than old generations who have already retired. For younger generations, they benefit
from the longer payrolls with smaller taxes until far in the future, whereas for the
older generations welfare gains are limited since all the benefits are generated from
increasing capital income arising from the increases in the interest rate.
What happens when immigration is also considered? According to the simula-
tion, the optimal immigration occurs at the share of immigrants in the neighborhood
of 0.6 %. However, beyond this point, like pension reforms, an increase in
immigrants generates welfare cost. Now, it is a question why the optimal share of
immigration does not occur at zero percent, since immigration distorts the local
labor market by reducing the wage. The main reason is because immigrants
significantly contribute to reducing the social security payroll tax. However, this
benefit does not imply that an increase in the share of immigrants necessarily result
in more welfare benefits. The main reason for this prediction is attributable to the
difference of the immigration policies between federal and local government.
Increasing the immigration share from zero percent to 0.6 %, both regions (Chicago
and the Rest of the US) admit the same share of immigrants, so that the social
security tax rate is substantially lowered since it is determined at the national level.
Beyond the 0.6 %, only Chicago region adopts more new immigrants. However, the
