Definition
Microsimulation of immigrant earnings is the set of methods for representing the foreign-born inside individual-level microsimulation models that project lifetime earnings and program outcomes — most notably the Social Security Administration's Modeling Income in the Near Term (MINT) model. Because immigrants follow systematically different earnings trajectories from natives — typically lower entry earnings but faster growth — the standard earnings-projection approaches must be modified to avoid mis-projecting immigrant retirement income and Social Security outcomes. Duleep and Dowhan (2008) specify these modifications.
Key Ideas
- Earnings growth, not level, is the sufficient statistic: immigrant retirement outcomes are better predicted by earnings growth than by the current earnings level, with entry earnings relative to native peers serving as the operative predictor of subsequent growth — operationalizing the inverse entry-earnings/growth relationship of the Immigrant Earnings Trajectory.
- Three approaches, each modified: the three standard microsimulation earnings methods — human capital, past-is-prologue, and donor (statistical-match) — must each be stratified by nativity, year of entry (pre/post-1980), and source-region development level (developed vs. developing country).
- Emigration matters and is selective: emigration follows exponential decay (y=d+ae−bx; ≈87% of it occurs within the first 10 years of residence). Developed-country immigrant men aged 15–39 emigrate at ≈33% over 10 years versus ≈8% for developing-country immigrants — a ≈4× gap that reshapes who remains in the long-run resident and beneficiary population.
- Data and the undocumented: inflows are projected from Office of Immigration Statistics (OIS) administrative data, adjusted for "beacons of change" (structural policy or demographic shifts that break past-is-prologue extrapolation); the undocumented are estimated by the residual method (census count minus legal stock) and linked to the Earnings Suspense File for wage-credit attribution, distinguishing transient from stayer populations.
- Projected program impacts (MINT): the foreign-born share of retirees rises from ≈10.7% to ≈14.4% by 2020; Hispanic Average Indexed Monthly Earnings (AIME) falls ≈17% below the native baseline and Asian AIME ≈25%; the share of retirees ineligible for Old-Age benefits rises from ≈4.3% to ≈10.3%.
Why It Matters
- Social Security projections: getting immigrant earnings right is increasingly material as the foreign-born share of the workforce and beneficiary pool grows; applying native earnings dynamics would misstate both benefit costs and benefit adequacy. See U.S. Immigration Demographics and SSA Mortality Forecasting.
- Operationalizing the trajectory: the method is the practical implementation of the Immigrant Earnings Trajectory and Immigrant Human Capital Investment Model findings — translating the inverse entry-earnings/growth relationship into a concrete projection rule.
- Distributional adequacy: the projections flag a widening benefit-adequacy gap (more immigrant retirees below the Old-Age eligibility threshold), a concern for old-age poverty among immigrant cohorts.
Open Questions
- Do entry-earnings-based growth rules remain valid for post-2000 cohorts admitted increasingly on high, immediately-transferable skills (H-1B, EB visas)?
- How sensitive are MINT immigrant projections to emigration-selectivity assumptions, given the ≈4× developed/developing emigration gap?
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