Saving public pensions: Labor migration effects on pension systems in European countries

Abstract

European countries have experienced population aging and consequent pressure on public pensions. Some European countries, therefore, have welcomed migrants, expecting that the inflow of people will ease the demographic and fiscal problems. It is important to ask if this policy approach has had the intended effects. This paper examines the effects of labor migration on public pension systems. Using error correction models (ECMs) with cross-country time-series data on European countries from 1981 to 2009, this analysis demonstrates that labor migration has deterred the reduction of public pension benefit levels and government expenditure on pension as well as the expansion of private pensions. This implies that labor migration eases the pressure on public pension systems. Migration contributory effects have been larger in countries with Bismarckian pension systems because those countries have experienced greater pressure on public pension systems than other countries.