Welfare state profits from migration

Foreign-born individuals currently living in Germany are responsible for a considerable boon to the country's social security coffers. This is the conclusion of a study conducted by the Centre for European Economic Research (ZEW) on behalf of the Bertelsmann Stiftung. The 6.6 million residents without a German passport ensured a surplus of € 22 billion in 2012. Every foreigner pays an annual average of € 3,300 more in taxes and social security than he or she receives in government benefits. This per capita surplus has risen by more than 50 percent in the past decade. Continuing this trend will require improved education policies and well-managed immigration.

Yet according to a survey conducted by the Bertelsmann Stiftung in 2012, two-thirds of Germans are convinced that immigration will burden the country's social welfare system. The present study refutes this view, showing that already in 2004, the country's social security funds bore an excess of € 2,000 per foreigner. The rise in these gains observed since then is attributed primarily to favorable developments in the labor market.

Migrants' contributions to public finances can increase even further if their education and skill levels are improved. The study draws on various scenarios for the future and calculates the impact of improved education and skill levels. If, for example, under-30 foreign-born individuals in Germany attain, on average, the same education level as their German counterparts and thereby earn more, this cohort would pay over their lifetime € 118,400 per capita more in taxes and contributions.

The pressures bearing down on German public finances – and as a result, German citizens – can be effectively relieved if future immigration is governed properly. "The better-qualified immigrants are, the greater their contribution to public coffers," says the study's author Holger Bonin from the ZEW. An annual minimum of 200,000 immigrants to Germany could result in a fiscal benefit of € 400 for each German citizen if 30 percent of these immigrants are highly skilled and 50 percent medium skilled.

This scenario seems realistic as the skill level of immigrants has risen significantly in recent years. According to the findings of the 2009 German microcensus, three-quarters of all recent immigrants were either highly or medium-skilled. In addition, a potential fiscal benefit of € 400 per citizen would spell relief for public finances. Germany's current level of state spending on everything from debt servicing to roads to civil administration services and defense is significantly higher than state revenues.

Calculations show that each German citizen will, by the end of his or her life, contribute € 3,100 to the long-term deficit. For foreigners, who are less well-integrated into the labor market, this figure is € 79,100. This can be explained by the historical experience of immigration in Germany says Jörg Dräger, member of the Bertelsmann Stiftung's executive board: "The first generation of immigrants contribute no less than similarly qualified Germans – but they simply have not achieved the average income levels of the German population."

A long-term stabilization of public finances can be achieved through skilled immigration. Aiming to facilitate and strengthen the positive trends of recent years, the Bertelsmann Stiftung advocates a reorientation of migration policy. "The crisis in Europe's southern countries has brought many highly skilled workers to Germany. But this will not continue indefinitely," says Dräger. Given the pressures placed on Germany's social welfare system, public finances and its labor market as a result of demographic change, the country must ensure its attractiveness to migrants well into the future.

Currently, Germany benefits heavily from the mobility of labor within the European Union, but needs to attract more international skilled workers from non-EU countries. In the last years the Bertelsmann Stiftung has recommended a "Black-Red-Gold Card" reform that involves the active recruitment of skilled foreign labor. It is also recommended that refugees, unable to return to their home country in the foreseeable future, be integrated more quickly into the labor market.

Please find the complete study (in German) on the right side.