The impact of immigration under the defined-benefit pension system: An analysis incorporating assimilation costs

BACKGROUND Recently, theoretical studies have started a discussion on how the influx of immigrants affects the finances of the host country. OBJECTIVE This paper investigates whether admission of unskilled immigrants, whose children incur assimilation costs in order to become skilled workers, positively influences the net benefits for native residents and immigrants under a defined-benefit pension system (DB system). This paper also compared the results under a DB system with those under a defined-contribution pension system (DC system). METHODS This paper theoretically calculates the net benefits for native residents and immigrants under a DB system and compares the values between under a DB system and under a DC system. RESULTS The study has three main findings. (1) Under a DB system, native residents do not always become net beneficiaries, even if the government admits an unlimited number of immigrants. This is unlike the analysis under the DC system. (2) The net benefits for native residents caused by permitting a small (large) number of immigrants under the DB system becomes higher (lower) than that under the DC system in certain practical situations. (3) Even if all residents who have the right to vote prefer to admit immigrants, there is a possibility that the net benefits for the native residents may be negative. CONCLUSIONS When admitting immigrants, the government must pay attention to the assimilation costs which offspring of immigrants have to pay and the future generation's right to vote because they are the main victims of the loss of benefits caused by the assimilation costs under DB system.