Social Security and Migration with Endogenous Skill Composition

The paper investigates the impact of international migration on public pay-as-you-go pension systems. It first develops a theoretical framework to analyse the effects of migration on the labour market. The model allows for heterogeneity across individuals and for migration to affect both the wages and the educational choice in the recipient country. It then explicitly focuses on social security, under alternative migration scenarios. The analysis shows that migration helps the financial sustainability of the social security scheme, by reducing the elderly dependency ratio. However, it also highlights the complex inter and intragenerational redistributive conflicts caused by the interaction between migration and pension schemes. Migration influences the preferences of residents on social security: it is shown that migration polarises the preferences over the social security scheme and it can undermine the support to it. Social security affects the attitudes of residents towards migration: namely, it decreases the opposition to migration, by working as an insurance device for the unskilled workers