Two Perspectives on Demographic Change and the Future of the Social Contract

William Galston Reihan Salam

FEBRUARY 2016

The States of Change: Demographics and Democracy project is a collaboration of the Center for American Progress, the American Enterprise Institute, and the Brookings Institution. The project began in 2014 and has been generously funded by the William and Flora Hewlett Foundation. In year one, States of Change examined the changing demography of the nation and projected the racial and ethnic composition of every state to 2060. The detailed findings, available in thisreport , were discussed at the project’s February 2015 conference. In year two, the project’s leaders commissioned six papers on the policy implications of the demographic changes, two each from different political perspectives on the significance of the changes for the family, for the economy and workforce, and for the social contract. A second report, which will be released with the papers in February 2016, projects possible presidential election outcomes from 2016 to 2032 using data from the project’s first report. Demographic Change and the Future of the American Social Compact

William Galston, The Brookings Institution

he American social compact reflects our distinc- institutions are far more vibrant. Often these institu- Ttive political culture and institutional arrange- tions raise their own funds to deliver social services to ments. At the heart of that compact is what has become their members and surrounding neighborhoods. Some- known as the American Dream—opportunity for all times they contribute leadership and local knowledge coupled with steadily rising living standards from each to programs funded from external sources. Govern- generation to the next. Sprinkled through our national ment steps in when individuals and civil society have history are movements protesting arrangements that reached the limits of their ability and willingness to exclude particular groups from the American Dream assume responsibility for social problems. or hobble their chances of enjoying its fruits. The result The American social compact has a third distinc- has been an expanded, although still incomplete, zone tive feature: our system of federalism, in which some of inclusion in the promise of American life. subnational institutions enjoy independent rather For a people that embraces the characteristically than delegated authority. Unlike many other advanced American hope of ever-improving lives, each sustained democracies, in which most funds are collected and period of economic stagnation or decline comes as a administered at the national level, the United States rude shock, and public officials come under pressure to has multiple tiers of governance, each of which enjoys respond. The Progressive Era reforms represented one at least some autonomous ability to create and fund such response; the New Deal innovations another. The social programs. past decade, framed by the Great Recession and eco- The division of responsibility among the tiers varies nomic stagnation for most Americans, may have set the from one issue to the next. Social Security, the principal stage for another era of reform designed to secure the retirement-income program, is almost completely cen- American Dream for coming generations. tralized. Medicaid, which provides low-income Amer- Another distinctive feature of the American social icans with health care access, is divided between the compact is the understanding and allocation of respon- federal government and the states, whose participation sibility. In the United States, unlike many other is voluntary. That is why it was consequential when advanced economies, responsibility begins with the the Supreme Court ruled that state participation in the individual, and roughly speaking, social responsibil- Affordable Care Act’s (ACA) Medicaid expansion could ity begins where reasonable expectations of individual not be mandatory. responsibility end. Again unlike many other advanced By contrast, public education is highly decentral- economies, social responsibility does not necessarily ized. Of the nearly $600 billion spent on public edu- mean government responsibility. cation in 2013, the federal government provided only As Alexis de Tocqueville was probably the first but 9 percent, compared with 46 percent from the states surely not the last to notice, civil society in the United and 45 percent from localities. Not surprisingly, subna- States is more robust than in most European coun- tional jurisdictions often resist the imposition of federal tries, in part because our community-based religious standards and requirements in an area for which the

1 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

federal government provides such a small share of the the OECD countries as a whole. If our health care sys- needed funds. tem was financed in the same way as those of the rest Decentralized authority shapes the extent to which of the developed world, the gap between the size of our different Americans can participate in programs public sector as a share of GDP and theirs would disap- designed to bolster opportunity or security. For exam- pear. (To be sure, if more of our health care were in the ple, not only are some states much more prosperous public sector, it might well cost less—as it does every- than others, but also there are wealthy areas within where else.) poor states and vice versa. This often leads to clashes Third, many social programs are financed through in state legislatures between representatives of wealthy the back door in the form of subsidies (tax expendi- suburbs and those hailing from poorer inner cities or tures) through our complex income tax code. Accord- remote rural areas. ing to a 2010 OECD study of 10 advanced economies, Unless funds raised and disbursed at the state level the United States has the third-highest level of tax lean against unequal local capacities to fund public expenditures as a share of GDP and the second-highest schools, geographic patterns of wealth will overlay areas routed through the income tax. of opportunity. As states increasingly track the national For example, the United States has a substantial trend and polarize into red and blue, partisan control of wage subsidy—the earned income tax credit—that state government matters more and more. appears on our national accounts as reduced revenue rather than increased spending. In contrast, European countries typically help families with young children The American Social Compact: Policies through publicly funded child-care and home-visit and Programs programs. Meanwhile, the United States subsidizes a substantial share of family assistance through the Most Americans believe that the US public sector is Child and Dependent Care Tax Credit and an addi- substantially smaller than its European counterparts. tional amount through an employer-based program In fact, the gap, although not trivial, is relatively mod- that excludes up to $5,000 of wages and salaries from est. According to the Organisation for Economic Co- taxable income that workers can use to defray child and operation and Development (OECD), US government dependent-care expenses. expenditures totaled 39.0 percent of GDP in 2013, Viewed narrowly, the US social compact’s program- compared with 44.0 percent for Norway and 44.1 per- matic element can be divided into three broad cate- cent for Germany. Some OECD countries—France gories. The first are universal programs that are open and Sweden, for example—spent substantially more, to everyone, regardless of income or other differences. but others, such as Switzerland, spent less. Although Free, publicly provided K–12 education is the largest the United States is below average in public outlays and clearest example. among advanced industrialized nations, it is not a con- Second are means-tested programs whose eligibility spicuous outlier. criteria and benefit schedules reflect income differences. There are three reasons to believe otherwise. The Classic examples include Medicaid, the Supplemen- first is our system of federalism. Compared with most tal Nutrition Assistance Program (food stamps), and other OECD countries, the United States conducts income-related cash and in-kind work supports. a high proportion of its public activities below the The third category comprises social insurance pro- national level. So it is a mistake to compare our federal grams, funded partly or entirely by individual partic- government to the more centralized national govern- ipants, that principally benefit older Americans. These ments in Europe. programs are broadly based if not always universal, Second, even after the implementation of the ACA, and although their cost and benefit structure reflects private payments still account for nearly half our health income differences, all participants receive some bene- care expenditures, compared with only one-third for fits in return for their contributions.

2 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

More broadly conceived, the US social compact fastest-growing group of eligible voters risks consign- also includes public-sector activities that contribute ing the GOP to permanent minority status at the to economic growth, opportunity, and stability. Since national level. The 2016 presidential election could the New Deal, the federal government has been held underscore this possibility, even if Republicans select responsible for the economy, and it has responded with a Latino as their nominee. a blend of public investments and regulations. At the In the 1990s, California Governor Pete Wilson’s national level, accordingly, we see significant invest- anti-immigrant stance drove a permanent wedge ments in basic and applied research through agencies between the state’s Latino voters and the GOP. We do such as the National Science Foundation and National not know whether the recent rhetoric at the national Institutes of Health. The federal government and the level will prove equally durable. If so, it will be a long states both help fund pro-growth activities, such as century for the Republican Party. infrastructure and postsecondary education, and local- But Hispanics may resemble late-19th-century and ities often chip in to help support community colleges. early-20th-century Italians, who at first identified with Finally, the social compact includes a shared respon- a Democratic Party seen as more hospitable to ethnic sibility to address the consequences of natural and man- diversity, only to reverse course as they became more made catastrophes. The federal government helped prosperous and better integrated into the larger society. New Orleans rebuild after Hurricane Katrina and East The same could also prove true for Asians, whose share Coast states recover from Hurricane Sandy. More con- of the electorate will rival that of African Americans by troversially, the federal government stepped in to pro- 2060 and whose economic success has exemplified the tect the financial system from collapsing and triggering American Dream. a second worldwide Great Depression. The broader point is that the majority-minority distinction is too blunt to capture the demographically driven political dynamics of the next half century. The The Effects of Demographic and past half century mostly has been a black-and-white Political Change film; the next half century will have to be recorded in Technicolor. If the new, fast-growing minorities mirror Thanks to the States of Change project’s remarkable African American political preferences, it would be the work, we can speak more confidently and precisely death knell for a party that paints itself into an all-white about shifts in the racial and ethnic balance of the US corner. If not, charting demography’s impact on Amer- population, both nationally and state by state, between ican politics and public policy will require the analytical now and 2060. But demography is not destiny, at least equivalent of a Rubik’s cube. in politics. Sociological research underscores the difficulty of Within living memory, for example, Republicans reasoning straightforwardly from demographic change received a substantial share of the African American to political outcomes. In the long run, as Harvard’s vote. A lot of water has gone under the bridge since Robert Putnam finds, demographic diversity is an then. Still, it is possible that, after a wrenching inter- important social asset. It fosters creativity and innova- nal debate, a party chastened by a series of defeats tion, boosts economic growth, and helps aging societies in national elections would ditch the strategies and pay for their commitments to retirees. In the short to policies that have repelled African Americans in medium term, however, diversity weakens social soli- recent decades. darity and diminishes trust. Long-term political preferences among Lati- Specifically, people who live in ethnically heteroge- nos are even harder to project confidently. Repub- neous areas, such as San Francisco, are less likely to trust lican anti-immigrant rhetoric over the past decade others than are those who live in more homogeneous has sharply reduced Latino support for GOP can- places, such as South Dakota. They mistrust not only didates. The continuation of this trend among the people who do not look like them but also those who

3 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

do. And rising mistrust among individuals has political provided income and health security for older Ameri- consequences: lower confidence in local government, cans far more than programs for children and young leaders, and news media; lower confidence in their own adults. political influence; and lower levels of voter registration As the States of Change report shows, Americans coupled, however, with more interest in and knowledge 65 and older will grow rapidly as a share of our total about politics and a greater likelihood of participating population between now and 2060 (see Figure 1), in political activities other than voting, such as protests with the most rapid increase occurring in the next two and social movements.1 decades. (Longer trends appear in the appendix to this It seems unlikely that declining interpersonal trust paper.) Unless we reconsider our commitment to this will make it easier to maintain support for programs age group, which few in either political party advocate, that principally benefit members of racial and ethnic public outlays for programs that serve them are bound groups other than one’s own. As public schools become to expand as a share of our GDP. majority-minority, it is reasonable to worry that white At the same time, children will increasingly come taxpayers will become less willing to dig deep to educate from racial and ethnic groups (see Figures 2A and 2B) “other people’s children,” whose disadvantaged back- with lower household incomes and with greater needs grounds make it more expensive to provide them with on average than white Americans. This will intensify a high-quality education. Costly safety net programs pressures to rectify the long-standing asymmetry in our such as food stamps may well come under increas- social compact by expanding public programs for chil- ing political pressure. By contrast, support is likely to dren and the parents and professionals who care for remain strong for universal programs that deliver bene- them. We can see signs of this pressure in more than fits to everyone. In the United States, most of these pro- one presidential candidate’s policy proposal. grams serve retired and elderly Americans rather than As the swelling stream of nonwhite children reaches children and families. young adulthood, there is good reason to believe that increasing numbers will seek to continue their education beyond high school. Over the past half cen- An Aging Population and the tury, public support for postsecondary education has US Social Compact increased significantly. But as college costs have risen even faster in recent years, more young adults are being Along with racial and ethnic shifts, we can predict with left behind. Many are struggling under heavy loads of considerable confidence the changing balance among student-loan debt, while others are foregoing higher age groups in coming decades, and we can predict education altogether. this change’s impact on debates about the US social Recent studies have shown that these develop- compact. ments have hit racial and ethnic minorities especially A distinctive feature of the American social compact hard. As these groups become a steadily larger share is its disparate treatment of children and the elderly. of the electorate—another trend States of Change has Before the development of the modern state, families documented—they will almost certainly demand more were multigenerational economic units. Working-age public support for students attending postsecondary adults were expected to support parents, other rela- educational institutions. Here, too, we can see signs of tives who were too old to work, and young children. what is to come in the 2016 presidential candidates’ As longevity increased in the 20th century and children rhetoric and policy proposals. needed more education before entering the workforce, Between now and 2060, every age cohort in Amer- the economic burden on families intensified. ica will become increasingly diverse, but the pace of Many European nations responded by expanding change will vary across cohorts. As Figure 3 shows, social supports at both ends of the age spectrum. The the nonwhite share of eligible voters age 65 and older United States proceeded differently, expanding publicly will grow substantially. Today, about three-quarters of

4 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

Figure 1. Change in Percentage of Age Group, by Whole Population (2015–60)

8 7.6

2 1 Percentag e 0–17 18–29 30–39 40–49 0 50–64 65+

–2 –1.4 –1.5 –2 –4 –3.9 –6

Source: States of Change project data.

Figure 2A. Composition of Children (Ages 0–17), by White or Nonwhite (2015–60)

Percentag e 40

20 White Nonwhite 10

0 2015 2016 2020 2024 2025 2028 2030 2032 2035 2036 2040 2044 2045 2048 2050 2052 2055 2056 2060

Source: States of Change project data. eligible voters age 65 and older are white, compared to share of that cohort will rise to nearly 65 percent. In roughly 55 percent in 2060. short, in a few decades the composition of the two On the other hand, by the early 2020s, the majority cohorts that receive the lion’s share of direct finan- of children and adolescents under age 18 will already cial benefits from social compact programs will be be racial and ethnic minorities. By 2060, the nonwhite starkly different. Much depends on whether the oldest

5 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

Figure 2B. Composition of Children (Ages 0–17), by Race or Ethnicity (2015–60)

70 White Black Hispanic Asian/Other 60

30 Percentage

0 2015 2016 2020 2024 2025 2028 2030 2032 2035 2036 2040 2044 2045 2048 2050 2052 2055 2056 2060

Source: States of Change project data.

Figure 3. White/Nonwhite Composition of Eligible Voters, Age 65+ (2015–60)

8 Percentage 6

0 2015 2016 2020 2024 2025 2028 2030 2032 2035 2036 2040 2044 2045 2048 2050 2052 2055 2056 2060

White Nonwhite Source: States of Change project data.

Americans will be willing to help finance opportunity- In 2015, outlays for Social Security and Medi- enhancing programs for predominantly nonwhite care totaled 8.4 percent of GDP. By 2040, if cur- cohorts of children and young adults. rent policies continue, this figure will rise to 12.5 A glance at long-term fiscal projections shows percent (Figure 4). According to the Congressio- why this disquieting question cannot be avoided. nal Budget Office (CBO), basic demography—

6 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

Figure 4. Key Projections Under the CBO’s Extended Baseline

1 Percentage of Gross Domestic Produc t 0 2015 2020 2025 2030 2035 2040

Social Security Spending Discretionary Spending Medicare Spending Interest

Source: Congressional Budget Office,The 2015 Long-Term Budget Outlook, June 2015 the aging of the US population—accounts for most spending has risen steadily, discretionary programs as of this increase. Reining in excessive cost increases for a share of GDP are declining and are on track to con- medical care would help, but would not solve the prob- stitute the smallest share of the economy in the entire lem by itself.2 postwar period—5.1 percent of GDP—by 2025. Social Security and Medicare are “entitlements,” a The small slice of the economic pie would have to technical term for programs that do not require annual finance not only national defense but also most of the appropriations. Outlays for such programs depend on programs—research, infrastructure, and education, principally the number of eligible participants. For most among others—that help create long-term economic participants, eligibility is determined by age rather than growth and opportunity. conditions such as disability and family relationships. Few analysts believe we can sustain this track over By contrast, most programs that enhance opportu- the next decade, much less the next generation. If we are nity for children and young adults are “discretionary”— serious about growth and opportunity, not to mention that is, subject to the vagaries of the annual appropria- national security, we will need to invest more. That is tions process and, less frequently, to the ordeal of legis- why the CBO constructs an alternative fiscal scenario lation that reauthorizes spending. In theory, Congress that substantially relaxes the current restraints on discre- cannot appropriate funds for programs whose autho- tionary spending. The predictable result is that outlays rization to spend has lapsed. In practice, Congress can and the budget deficit increase substantially over the cur- and does do so, but this kind of spending is especially rent long-term baseline. The December 2015 omnibus vulnerable. appropriations bill moved significantly in that direction. This asymmetry between entitlements and discre- This matters in the long run. Since the onset of the tionary spending has shaped the budget battles that Great Recession, the national debt as a share of GDP have raged during the past five years. While entitlement has doubled and now stands at 74 percent. Although

7 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

Figure 5A. Percentage of US Population in Prime Working Years, Ages 25–54 (1980–2060)

43.5 43.6 43.6 43.2 43.3 43.0 42.9 42.7 42.4 42.2 41.8 Workforce 41.2 41.1

40.2 40.3 40 39.8 39.7 39.2 39.1 38.7 38.6 38.6 38.3 38.4 38.0 37.6 37.2 36.9 Percentage

30 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060

Source: States of Change project data. no one knows for sure how much is too much, bud- economy is on course to rise significantly over the next get experts broadly agree that the current level would two generations, and it poses the central questions that impede a strong and effective response to the next fis- will shape US public policy debate in the coming years: cal crisis. How much more are Americans willing to pay to sus- In addition, interest payments on the expanding tain the programs they say they want? Conversely, to debt have risen only modestly, because interest rates what extent are they prepared to accept cuts in social have remained at record lows for the past seven years. compact programs to mitigate—but not, I believe, As the Federal Reserve Board made clear with its recent eliminate—the tax increases that would be necessary to action to raise rates a quarter point, this unusual situa- fund those programs at current levels? tion may finally have ended. If interest rates rise grad- One standard response is to reject the question as ually toward more normal levels, as the CBO expects, posed. We have a fiscal squeeze, say the skeptics, only interest on the debt will increase from 1.3 percent of because economic growth has been abnormally slow GDP in 2015 to 3.0 percent in 2025 and 4.3 percent in since the end of the Great Recession in mid-2009. With 2040. If discretionary spending is allowed to rise from better economic policies, we can restore the annual eco- its unsustainably low track, the debt would increase still nomic growth rate to the 3.5 percent we enjoyed for more, as would interest payments.3 most of the postwar period—or even higher, as some This scenario is not an alarmist fantasy, but rather Republican presidential candidates have suggested. the central case projection based on what we know With faster growth, we can continue to fund the exist- about current programs and on reliable demographic ing social compact without raising taxes substantially projections. It suggests that government’s share of the above current levels.

8 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

Figure 445B. Percentage of US Population in Prime Working Years, Ages 25–54 (2015–60)

40 39.7 39.1 38.7 38.6 38.6 38.4 38.0 38 37.6 37.2 36.9

36 Percentage

30 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060

Workforce

Source: States of Change project data.

This sounds plausible, until we probe deeper. Eco- that the prime-working-years share of the population nomic growth is, roughly speaking, the product of will fall further—to 38.7 percent in 2025 and 36.9 per- two variables—the total number of hours worked in cent in 2060 (Figure 5B). the economy times output per hour (otherwise known This is a key consequence of an aging population, as productivity). For much of the postwar period, the and it affects the outlook for long-term growth. When US labor force expanded at a rapid rate, which acceler- the workforce was growing at 1.5 percent and produc- ated as members of the massive baby-boom generation tivity at 1.8 percent, sensible economic policy could entered their prime working years. produce annual growth in excess of 3 percent. With During the 1990s, the entire baby-boom generation workforce growth of only 0.5 percent, the same pro- was in this economic sweet spot, and the labor force ductivity increases would yield annual growth of a little expanded at a compound annual rate of 1.5 percent. more than 2 percent, which is why the CBO estimates Since then, as boomers have aged and entered retire- growth at just 2.2 percent between now and 2040. ment, labor force expansion has slowed substantially. Moreover, for reasons no one understands very well, Between 2015 and 2040, the CBO and US Department productivity gains have been substantially below his- of Labor agree, annual growth will average only 0.5 per- toric rates since the end of the Great Recession. Normal- cent, barely one-third the rate of the vibrant 1990s. izing productivity growth may prove to be challenging; Between 1980 and 1998, the share of the US pop- in any event, it is far from certain. As I have suggested ulation in prime working years rose from 38.3 percent elsewhere, adopting sustained full employment as a to a peak of 43.6 percent. Since then, it has fallen to core policy objective and closing the gap between wage 39.7 percent, and the end is nowhere in sight (Figure and productivity increases could boost demand enough 5A). Calculations based on States of Change data show to substantially increase productivity-enhancing private

9 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

Figure 6. Composition of Working-Age Population, by Race/Ethnicity (2015–60) 100

90 White Black Hispanic Asian/Other 80

Percentag e 40

0 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060

Source: States of Change project data. investments.4 On the other hand, some economists since. Tweaks to tax policy could incentivize older are skeptical that productivity in coming decades can Americans to work longer, perhaps part time, before regain the levels we enjoyed in the second half of the exiting the labor force. An all-hands-on-deck initiative 20th century, whatever policies we adopt.5 might reduce the number of high school dropouts and As Figure 6 shows, the US labor force’s ethnic and raise employment levels among young Americans ages racial composition is on course to change dramatically 18 to 24. between now and 2060. The white share of the labor Even if we did all this and it worked as hoped, we force will decline sharply, the African American share would achieve at best a one-time boost in the size of the will remain roughly stable, and the Latino and Asian labor force. We would not increase the pace of labor shares will surge. Maximizing both the quantity and force growth unless we dramatically expanded the flow quality of the US workforce over the next generation of immigrants. We did that in 1965, with consequences will require a broadly inclusive system of education that are reverberating through our society today. and training, as well as policies that reduce barriers to After falling sharply from the mid-1920s to the mid- labor force participation. For example, as long as Afri- 1960s, the share of foreign-born individuals in the US can American and Latino incarceration rates remain population has tripled over the past five decades, to elevated, their workforce participation is bound to nearly the level that triggered the nativist backlash early be depressed, unless we boost education and training in the 20th century, which led directly to highly restric- during incarceration and eliminate felony convictions tive legislation in 1924. Given the tone and temper of as permanent barriers to post-release employment. immigration debates during the past decade, the Amer- Another option is to expand the growth rate of the ican people are unlikely to endorse a more open policy workforce. We could do some things to nudge our soci- any time soon. ety in that direction. Better work and family policies The bottom line is that, although higher rates of eco- could boost female labor force participation, which nomic growth may relax the tension between spending peaked in the late 1990s and has been declining ever restraints and tax increases, we should not count on it.

10 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

Our choices will be stark. In 2040, according to the Perhaps reflecting these constraints, several Repub- CBO’s long-term estimates, current policy will put rev- lican presidential candidates have broached the possi- enues at 19.4 percent of GDP and spending at 25.3 bility of what Europeans call a value-added tax (VAT), percent, with the deficit at nearly 6 percent of GDP. although these candidates have not dared to call it that. And that estimate assumes discretionary spending will In the long run, I suspect, the United States will need to remain at its post–World War II low of 5.1 percent of move in this direction, not as a revenue-neutral replace- GDP for nearly two decades, which will not happen ment for some of the income tax but as a supplement because it would produce results that neither political to it. One intriguing possibility is to use a VAT to pay party could accept. for the general revenue portion of Medicare. By keying Discretionary spending of 6.5 percent is already too the VAT rate to Medicare costs, taxpayers will become low to adequately fund long-term investments, much more aware of per capita health care outlays that rise less sustain a strong national defense and pay for vital faster than inflation and of aggregate health care costs safety-net programs. A realistic assessment of defense that grow faster than the economy. In this scenario, and domestic needs would yield a deficit of about 8 Americans could make explicit decisions on a regular percent of GDP in 2040. basis between the consumption of health care and the A balanced budget is an ideological prescription, level of taxation through a VAT. not an economic necessity. Sound fiscal policy calls for debt that rises no faster than the economy grows. If we assume intelligent policies could raise the long-term Longevity and Economic Inequality growth rate from the current baseline of 2.2 percent to a more tolerable 3 percent, the longtime fiscal gap is on The US population is aging in a complex manner. the order of 5 percent of GDP. Whenever fertility rates decline, a society will end up Closing that gap with revenues alone would require with a decades-long bulge of elderly citizens before rees- a tax increase (from all sources) of more than one- tablishing a more normal balance. In the United States, quarter. If we excluded payroll taxes and focused exclu- as in most advanced societies, lower fertility is com- sively on individual and corporate income taxes, the bined with increased longevity. White men who were required increase would be more than 40 percent. If we 50 in 1940 could expect to live, on average, for another went down this road, US taxes would rise to European 22 years. By 1970, that figure had risen to 23.3 years; levels over the course of a single generation. That is by 2000, to 28.2 years—an increase of 6.2 years over what it would take to fund our current commitments. six decades. For white women, the gain was 7.3 years; Conversely, the spending cuts needed to keep the for nonwhite men, 5.1 years; and for nonwhite women, long-term deficit within prudent economic bounds 8.0 years. would require reducing outlays for entitlements by Looking at the population as a whole, average life almost one-third. It does not require deep analysis to see expectancy of Americans born in 1940 was 62.9 years, that neither of these polar scenarios is likely to be politi- and for Americans born in 2010, 78.7 years. The cally viable. After protracted conflict between and within increase for men during that period was 15.4 years, and the political parties, we will probably end up with a mix. for women, 15.8 years. On average, then, the number Right now, in comparison with other advanced of years Americans could expect to live in retirement economies, our revenue system is unbalanced. At the has risen substantially over the past 75 years.6 national level, we depend almost entirely on income Adding another level of complexity, recent research and payroll taxes, to the near exclusion of levies on con- has shown that the rise in longevity has been distrib- sumption. Although we could squeeze more revenue uted unevenly across class lines. For example, men in from individual and corporate taxes by closing egre- the bottom income quintile who were 50 years old in gious loopholes, both economics and politics suggest 1930 could expect to live for another 26.6 years, while that the increment would be modest. men in that quintile who were 50 in 1960 could expect

11 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

Figure 7. Estimated and Projected Life Expectancy at Age 50 for Males Born in 1930 and 1960, by Income Quintile (Years)

37.8 38.8 33.4 31.7 29.8 28.3 28.1 26.6 26.1 27.2

Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 1930 Cohort 1960 Cohort

Source: The Growing Gap in Life Expectancy by Income: Implications for Federal Programs and Policy Responses, National Academies Press, 2015, Figure S-1.

Figure 8. Estimated and Projected Life Expectancy at Age 50 for Females Born in 1930 and 1960, by Income Quintile

41.9

36.2 33.4 33.1 32.3 31.4 32.4 32.4 29.7 28.3

Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5

1930 Cohort 1960 Cohort

Source: The Growing Gap in Life Expectancy by Income: Implications for Federal Programs and Policy Responses, National Academies Press, 2015, Figure S-2. to live 26.1 years, an actual decline of 0.5 years (see Fig- from 31.7 to 38.8 years; for women, from 36.2 to 41.9 ure 7). For 50-year-old women in the bottom quintile, years (see Figure 8). Otherwise put, the gap between the the fall has been much sharper, from 32.3 years for the bottom and the top rose from 5.1 years to 12.2 years 1930 cohort to only 28.3 years for the 1960 cohort. for men and from 3.9 years to 13.6 years for women. In In contrast, in the top quintile, between the 1930 life expectancy, the penalty for being poor or working and 1960 cohorts of 50-year-old men, longevity rose class has risen substantially in recent decades.7

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Table 1. Present Value or Net Benefits at Age 50, Relative to Inclusive Wealth, Based on the Mortality Profile for Those Born in 1930 and Born in 1960

Earnings Quintile Born in 1930 (%) Born in 1960 (%) Percentage Point Change

Males Lowest 45.7 45.6 −0.1 2 34.9 36.8 1.9 3 26.9 33.3 6.4 4 20.0 28.9 8.8 Highest 14.4 21.4 6.9

Females Lowest 69.0 65.4 −3.6 2 56.6 54.8 −1.8 3 45.3 44.9 −0.4 4 34.7 33.5 −1.3 Highest 25.4 30.8 5.4

Source: The Growing Gap in Life Expectancy by Income: Implications for Federal Programs and Policy Responses, National Academies Press, 2015, Table S-3.

These trends substantially affect the distribution of A more innovative approach would index age-based benefits paid to aging and elderly Americans. Put sim- eligibility thresholds to income. One proposal would ply, as a share of an inclusive measure of wealth, benefits divide workers into three groups at age 55. The current for those at the bottom fall while benefits at the top rise thresholds would continue for workers with monthly significantly (Table 1). Women fare worse than men: as earnings at or below the average for all workers. Those a share of wealth, every quintile of women except the with income in the 50th to 75th percentile would top stands to lose ground.8 experience a modest increase in eligibility ages, while These findings, in turn, have important implications those at the top would see the minimum age for early for proposed reforms of major entitlement programs or normal retirement and eligibility for Medicare rise for retirees. For example, increasing Social Security’s more rapidly. early retirement age from 62 to 64 would have an espe- Many American progressives and European social cially negative impact on lower-income workers, many democrats have argued that increasing the progressiv- of whom have physically demanding jobs. Increasing ity of entitlement programs by tilting benefits away the Medicare eligibility age from 65 to 67, as some have from upper-income Americans would undermine the proposed, would have a regressive effect on the benefit political coalition that sustains these programs, wors- structure. ening the well-being of the least advantaged. But two As former CBO Director Douglas Elmendorf has major cross-national analyses of social policy in OECD argued, we should stabilize these programs without nations have cast doubt on this thesis.10 Countries that resorting to across-the-board cuts. For Social Security, target more, it turns out, do not redistribute less. There we should focus on “reducing benefits for high-income is as yet scant evidence that taking means into account beneficiaries and raising payroll taxes on workers with when determining benefit levels weakens support for high earnings.” In the same vein, he suggests expand- the social safety net. ing the means-tested elements of Medicare, such as To be sure, at some point the numbers will begin to income-related premiums for insurance covering doc- matter. For example, means-tested premiums for Part B tors and providers other than hospitals.9 of Medicare now affect only 6 percent of beneficiaries,

13 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

a figure that under current law will increase by only 0.5 them for college or careers will not be cheap. Neither percentage points per year. But if the law were revised will the supportive programs—including adequate tax to double the share immediately, as Elmendorf has sug- credits for child care—that these children and their par- gested, upper-income beneficiaries might start to push ents will require. If we care about our future, these are back. One expert calculates that to keep the Medicare investments we must make. But we are less likely to do payroll tax from soaring, at least the upper half of ben- so if these costs are just piled on top of regular costs in eficiaries would need to accept lower net benefits. That other areas. would mean either higher premiums or lower reim- bursement rates. From an economic standpoint, moreover, signifi- The American Social Compact: cantly increasing income-related criteria for enti- Seamless Garment or Patchwork Quilt? tlement benefits could generate higher cumulative marginal tax rates that reduce economic growth. Ded- When we consider the future of the American social icating the proceeds of a VAT to Medicare would mute compact, a key unknown is the allocation of responsi- these effects. Economist Lawrence Summers is said to bilities between the federal government and the states. have quipped that Democrats oppose a VAT because Social Security and Medicare are almost certain to it is regressive, and Republicans because it is a tax. remain centralized, as is the response to major disas- We will get a VAT when Republicans realize that it ters, which disproportionately affect one locality or is regressive, and Democrats that it is a tax. The 2016 region. By contrast, most funding and decision making presidential campaign suggests this realization is dawn- for K–12 education will remain at the state and local ing, at least among Republicans. level. There is less certainty, however, that the federal- Rising income inequality has significantly affected state Medicaid partnership will persist in its current Social Security as well. Over the past three decades, as form, food and nutrition programs will continue to be income has accumulated at the top, the share of earn- shaped and funded at the national level, or the federal ings above the payroll tax “cap” and not subject to the government’s historic role in funding infrastructure will Federal Insurance Contributions Act has risen from last much longer. 10 to 17 percent.11 It makes sense to reverse that rise Many experts on federalism have advocated a sub- in stages over 5 to 10 years. We should also consider stantial realignment of roles among the different lev- whether it is defensible under current circumstances els of the system, and this issue is a matter of ongoing to allow any earned income to escape Social Security contestation across party lines. Conservatives typically contributions entirely. For example, a flat tax of 2 per- favor devolving responsibility whenever feasible, while cent on income above the cap would make the system’s Democrats prefer federal leadership as a counterweight financing at least somewhat less regressive. to what they see as many states’ bias against big cit- Many Americans will regard increasing the progres- ies and their sizeable nonwhite and immigrant popula- sivity of the major entitlement programs as an end in tions and lower levels of income and education. itself. But for our purposes, the principal justification The division of labor within the federal system mat- lies elsewhere. Without significant changes in the reve- ters, because in recent decades political variations among nue and benefit structures of these programs, ongoing states have become broader and deeper. In the close pres- fiscal trends will continue to squeeze funding in other idential election of 1960, the Democratic and Republi- areas that matter for the future of the newest gener- can candidates were separated by 5 points or fewer in 37 ations of Americans, which are increasingly nonwhite states. In the equally close election of 2000, that number and poor. had shrunk by nearly one-half, to only 21 states. The For example, racial and ethnic minorities already evidence suggests that the number of states not clearly in constitute a majority of our public school students. the red or blue camp has continued to dwindle. Unified Providing them with an education that really prepares government at the state level is more prevalent than it

14 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

used to be, with Republicans controlling a strong major- be higher in 2040 than it is today and higher still in ity of governorships and state legislatures. 2060. All else equal, this would seem to ensure a sig- Under these circumstances, the allocation of respon- nificant shift toward conceptions of the social compact sibilities between national and subnational jurisdictions that nonwhite voters embrace. But all else may not be is more than a matter of administrative and fiscal effi- equal. Some nonwhite groups—Hispanics and Asians ciency; it often represents a choice between compet- in particular—may change their views as they become ing understandings of the social compact. When the more prosperous, educated, and assimilated in the sec- Supreme Court held that expanding Medicaid under ond and third generations. Even if that does not hap- the ACA was voluntary for states, about one-third of pen, whites facing what they see as a demographic tidal the states, nearly all red, rejected the option. Of the wave may shift in a more conservative direction, coun- 16 states declining federal funds to expand Medicaid, terbalancing the effects of rising nonwhite shares of 14 have Republican governors. In the remaining two VEPs in their respective states. states—Missouri and Virginia—Democratic governors So we end where we began: although demography face legislatures in which both houses are in Republi- shapes the context in which we make political choices, can hands. When the major parties are divided ideo- it does not determine the content of those choices. Pop- logically and programmatically, devolving power away ulation projections can illuminate the contours of the from Washington all but guarantees a patchwork of future. But demography is not destiny. diverse social compacts. Whether this represents a gain If we can adopt policies that boost growth and allow or a loss is a matter of ongoing debate. all Americans to share its fruits, we will lay the eco- Based on the States of Change findings, we have good nomic and political foundation for a robust and sustain- reason to believe that this diversity will persist, and we able 21st-century American social compact. If growth cannot rule out the possibility that it will intensify. On remains anemic while inequality widens, there is bound the one hand, seven currently red states—Alaska, Ari- to be a zero-sum struggle for scarce public resources—a zona, Georgia, Louisiana, Mississippi, Oklahoma, and struggle in which the strongest rather than the most Texas—will switch from a majority-white to a majority- meritorious claims are likely to prevail. nonwhite population by 2060. Overall, 40 states will still have majority-white voting-eligible populations (VEPs) For questions about the States of Change project data used in 2040, and 29 will in 2060. Of the 15 states decided by in this paper, please contact the author or Robert Griffin at margins of less than 10 points in 2012, 12 will still have the Center for American Progress. majority-white VEPs in 2040, and 8 will retain such VEPs as late as 2060. These white-majority bastions will include six key heartland states—Iowa, Michigan, About the Author Minnesota, Ohio, Pennsylvania, and Wisconsin— as well as New Hampshire and Oregon. William Galston is a senior fellow in governance stud- To be sure, the nonwhite share of the VEP will ies at the Brookings Institution.

15 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

Appendix Long-Term Projections, 1980–2060

Figure A1. Composition of Children (Ages 0–17), by White/Nonwhite (1980–2060)

100

Percentage 40

0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2015 2016 2020 2024 2025 2028 2030 2032 2035 2036 2040 2044 2045 2048 2050 2052 2055 2056 2060

White Nonwhite

Source: States of Change project data.

100 Figure A2. Composition of Children (Ages 0–17), by Race/Ethnicity (1980–2060) 90

Percentage 40

0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2015 2016 2020 2024 2025 2028 2030 2032 2035 2036 2040 2044 2045 2048 2050 2052 2055 2056 2060

White Black Hispanic Asian/Other

Source: States of Change project data.

16 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

Figure A3. White/Nonwhite Composition of Eligible Voters 65+ (1980–2060)

8 Percentage 6

0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2015 2016 2020 2024 2025 2028 2030 2032 2035 2026 2040 2044 2045 2048 2050 2052 2055 2056 2060

White Nonwhite

Source: States of Change project data.

Figure A4. Change in Percentage of Age Group in Whole Population (1980–2060)

11.9

5 4.2 2.5

0–17 18–29 30–39 0 40–49 50–64 65+

–3 –5

–7.7 –7.8 –10

Source: States of Change project data.

17 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

Figure A5. Composition of Working-Age Population, by Race/Ethnicity (1980–2060)

100

90 White Black Hispanic Asian/Other 80

50 Percentage 40

0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060

Source: States of Change project data.

18 DEMOGRAPHIC CHANGE AND THE FUTURE OF THE AMERICAN SOCIAL COMPACT WILLIAM GALSTON

Notes

1. Robert D. Putnam, “E Pluribus Unum: Diversity and Community in the Twenty-First Century,” Scandinavian Political Studies 30, no. 2 (2007): 137–74. 2. Congressional Budget Office,The 2015 Long-Term Budget Outlook, June 2015, https://www.cbo.gov/publication/50250. 3. Ibid. 4. William A. Galston, The New Challenge to Market Democracies, Brookings Institution, October 2014. 5 For example, see Robert J. Gordon, “Slower U.S. Growth in the Long- and Medium-Run,” NBER Reporter no. 1 (2015), http://www.nber.org/reporter/2015number1/gordon.html. 6. The statistics in the preceding two paragraphs are drawn from the Centers for Disease Control and Prevention, Deaths: Final Data for 2013, National Vital Statistics Report, vol. 64, no. 2, tables 7 and 8. 7. National Academies Press, The Growing Gap in Life Expectancy by Income: Implications for Federal Programs and Policy Responses, 2015, figures S-1 and S-2. The report draws from research and data analysis performed by the National Academy of Sciences’ Committee on the Long-Run Macroeconomic Effects of the Aging US Population and the Committee on Population. For an excellent summary of the report’s principal findings, see Louise Sheiner, “Implications of the Growing Gap in Life Expec- tancy by Income,” Brookings Institution, September 18, 2015, http://www.brookings.edu/blogs/health360/posts/2015/09/ 18-implications-of-the-growing-gap-in-life-expectancy-by-income-sheiner. 8. National Academies Press, The Growing Gap, Table S-3. 9. Douglas W. Elmendorf, “Federal Policies for Graying America,” Second Annual Conference of the MIT Center for Finance and Policy, September 17, 2015, http://www.brookings.edu/research/speeches/2015/09/17-federal-policies-for-graying-america- elmendorf. 10. For citations and discussion, see William A. Galston, “Should Increasing the Progressivity of Entitlement Benefits Be Part of a 21st Century American Social Contract?” Brookings Institution, November 2009, http://www.brookings.edu/research/papers/ 2009/11/23-entitlement-benefits-galston. 11. Rebecca Vallas et al., “The Effect of Rising Inequality on Social Security,” Center for American Progress, February 10, 2015, figure 1, https://www.americanprogress.org/issues/economy/report/2015/02/10/106373/the-effect-of-rising-inequality-on-social- security/. Based on data from the Social Security Administration, Annual Statistical Supplement, 2013.

19 Is the Hardening of Ethnoracial Inequalities Inevitable?

Reihan Salam, National Review Institute

etween now and 2044, the US Census projects that Change report illustrates, that much is inevitable. Even Bthe non-Hispanic white share of the US population if all immigration were to end tomorrow, America’s will fall from 62.2 percent to just under 50 percent. younger majority-minority generations would continue That is, in less than 30 years, the numerical dominance to steadily replace its older majority-white generations. of America’s Anglo population will come to an end. What has yet to be determined is whether the One could argue that America’s majority-minority America of the future will be peaceful and cohesive, or future is already with us. In majority-minority states whether it will be wracked by ethnic and class conflict, such as California and Texas and in our public schools, like so many other societies that have failed to forge a Hispanic and Asian populations have grown dramati- strong sense of national identity out of clashing tribal- cally in recent decades. The population of Americans isms. Might integration and intermarriage increase to under the age of five is nowmajority-minority , and the such an extent that distinctions among various ethno- same will be true of the population of Americans under cultural groups will blur and fade into insignificance?1 the age of 18 by 2020. Or might some minority groups find themselves con- What might this new majority-minority Amer- centrated at the bottom of America’s social hierarchy ica look like? How will rapid demographic change and stigmatized and marginalized as a result? As the shape America’s social, economic, and political insti- pace of demographic change accelerates, as upward tutions? These are the questions raised by the findings mobility from the bottom of the income distribution of the States of Change project, which has painstak- remains stagnant, and as the cultural and political con- ingly modeled this demographic transformation as it sensus around what a shared American national identity might unfold across the United States from now until ought to look like threatens to break down, the ability 2060. The first States of Change report identifies and of America’s institutions to successfully accommodate illuminates several trends, including the rapid aging of the country’s growing ethnic diversity is in question. the population, the growth of nonwhite populations Over the coming decades, policymakers will have to through natural increase and immigration, rising edu- address the challenges and opportunities presented by cational attainment, and shifts in family structure. rising diversity. As the share of older Americans rises, Until recently, the pace of America’s demographic and as the share of younger Americans raised in dis- transformation has been masked by the outsized influ- rupted families and by less-skilled immigrants rises ence of the baby-boom generation. As of 2015, how- as well, the social contract that undergirds American ever, Americans born between 1981 and 2000—the life will have to adapt. But changing entrenched insti- so-called “millennial” generation—outnumber baby tutions that benefit powerful constituencies is always boomers among the voting-eligible population. As the difficult, even in the best of times. Reforming Ameri- boomers age and fade from the scene, a younger, more ca’s sclerotic health and education sectors and its safety nonwhite generation is asserting itself. net programs will require achieving a broad consen- The central question is not whether America will sus, which is hard to imagine in our intensely polarized become a majority-minority society. As the States of political climate.

20 IS THE HARDENING OF ETHNORACIAL INEQUALITIES INEVITABLE? REIHAN SALAM

What follows is a sketch of how America’s chang- our demographic picture than if the birthrates of the ing demography might shape ethnoracial inequalities postwar decades had persisted into the present. going forward, with a particular focus on immigration Immigration has long been seen as a social or cul- and the second generation’s coming of age. The emerg- tural issue that speaks to whether one embraces tol- ing majority-minority America will need a new social erance, inclusiveness, and other liberal values. Many contract, a reality which political forces on the left and observers continue to see immigration policy through the right have only begun to confront. this lens. But immigration’s contribution to America’s future population growth should make it clear that although immigration is indeed a social or cultural Immigration: The Hart-Cellar Act, Educational issue, it is also much more than that. Immigration pol- Attainment, and Policy Implications icy has a powerful effect on the kind of society we will have in the future. A chief driver of US demographic change in recent decades has been immigration. In 1965, the United What has yet to be determined is States embraced a new approach to immigration policy, embodied in the Hart-Celler Act, which replaced whether the America of the future will the restrictive national origins quota system from be peaceful and cohesive, or whether the 1920s. This new approach was far more open to immigration from outside the Western Hemisphere, it will be wracked by ethnic and class particularly from the postcolonial societies of Asia and Africa. conflict, like so many other societies Hart-Cellar also introduced new limits on immigra- that have failed to forge a strong tion from Latin America, which have had complicated and contradictory effects.2 For example, several schol- sense of national identity out of ars, including Princeton sociologist Douglas Massey, clashing tribalisms. have argued that more stringent border enforcement transformed what had been a migration pattern con- necting Mexican laborers with seasonal employment The post-1965 immigration wave has had many in the United States into a pattern of permanent set- salutary consequences, including the revitalization of tlement.3 Ultimately, Hart-Cellar had the effect of urban neighborhoods, the diversification of America’s unleashing a massive, decades-long wave of immigra- cultural offerings, and the emergence of an innovative tion to the United States—a result that few of its back- class of immigrant and second-generation American ers anticipated. entrepreneurs. However, this wave has also contributed Had the post-1965 immigration wave never taken to economic inequality, because less-skilled immigra- place, demographers at the Pew Research Center esti- tion has benefited affluent professionals, while intensi- mate that the US population would today be 252 fying the labor market competition facing native-born million, rather than 324 million. That is, post-1965 Americans and less-skilled immigrants who already immigrants and their descendants account for 72 reside in the United States.5 million people, or just over half of all US population Moreover, immigration’s role in replenishing exist- growth over the past half century.4 In the half century ing immigrant communities may slow the social and to come, Pew anticipates that post-1965 immigrants economic integration of immigrants and their children and their descendants will account for 88 percent of into the American mainstream.6 Ethnic replenishment all population growth. Because the birthrate among ensures that immigrants often find themselves in social native-born Americans has fallen below replacement networks dominated by other immigrants, which limits levels, immigration represents a much bigger part of the extent of their contact with other groups.7

21 IS THE HARDENING OF ETHNORACIAL INEQUALITIES INEVITABLE? REIHAN SALAM

This integration challenge is compounded by the had at least a high school diploma, by 2013 that share fact that the average skill level of immigrants to the had increased to more than three-quarters. And while US is lower than the average skill level of US natives.8 only one-fifth of new immigrants had graduated from Drawing on data from the 2012 Program for the Inter- college in 1970, 41 percent had done so in 2013. national Assessment of Adult Competencies (PIAAC), Immigration advocates often point to this increase a comparative study of the cognitive skills of 16- to in educational attainment as a cause for optimism, 65-year-olds in the countries of the Organisation for particularly when conservatives express concern over Economic Co-operation and Development (OECD), immigrant skill levels.10 Are the immigration opti- Migration Policy Institute (MPI) researchers found mists right? Are the skills of recent immigrants actually that working-age immigrant adults were considerably quite strong, and are concerns about skills misplaced? less proficient in literacy, numeracy, and other skills To answer this question, we need a better sense of how than their native-born counterparts and that they rep- years of schooling translate into cognitive skills. resent a large share of all less-skilled US adults. According to PIAAC, US immigrant adults represent 33 percent of adults with low levels of literacy and 24 percent of adults with low levels of numeracy, While only half of newly arrived even though the foreign-born share of the working-age immigrants in 1970 had at least population is only 15 percent. Even more discourag- ing, although native-born US adults outperformed a high school diploma, by 2013 immigrants, both groups are well below the OECD that share had increased to average. Between 1994 and 2012, there has been no improvement in US average literacy scores, and from more than three-quarters. 2003 to 2012, US average numeracy scores declined. Stagnant literacy and numeracy skills are worrisome, Perhaps the most consequential effect of the because those with higher skill levels are more likely to post-1965 wave has been its role in increasing the num- be employed. Higher-skilled adults also report higher ber and share of US residents with low levels of liter- earnings and better health outcomes. acy and numeracy. This increase has occurred just as In theory, the US could use its immigration system global economic integration and automation have put to raise its average skill level by recruiting immigrants the wages of less-skilled workers under intense pres- with higher levels of literacy and numeracy than the sure and as the family lives of college-educated and native-born population. Instead, US immigration pol- non-college-educated adults and their children have icy appears to have a modestly negative effect on the sharply diverged. average skill level in the US, even though younger To be sure, there may well be countervailing effects. immigrants have somewhat stronger skills than their For example, if less-skilled immigration depresses wage older counterparts. growth in less-skilled occupations, it might encourage How can this be? Why is the skill level of the immi- natives to pursue additional education. But had the grant influx improving only modestly, even though post-1965 immigration wave been composed of people the share of immigrants with a college or postgradu- with higher-than-average levels of literacy and numer- ate degree is increasing? MPI observes that while adults acy, it seems likely that its effect on US society would with higher levels of educational attainment tend to have been markedly different, even if it were of the have stronger cognitive skills, this relationship is not exact same size and ethnoracial composition. linear. Remarkably, 22 percent of college-educated To be sure, today’s immigrants have a higher average natives and 54 percent of college-educated immigrants level of educational attainment than those who arrived were less than proficient in literacy. To some extent, this in earlier eras.9 The Pew Hispanic Center reports that could reflect that PIAAC evaluates literacy in English. while only half of newly arrived immigrants in 1970 But there appears to be more to this pronounced

22 IS THE HARDENING OF ETHNORACIAL INEQUALITIES INEVITABLE? REIHAN SALAM

literacy gap between college-educated natives and This disparity in educational performance might help college-educated immigrants. explain why households headed by college-educated By ignoring the dramatic variation in educational immigrants are twice as likely to use safety net bene- quality across countries, analysts may have overesti- fits than households headed bycollege-educated natives mated the extent to which increases in educational (26 percent versus 13 percent).12 The college-educated attainment have translated into higher levels of liter- immigrants who rely on safety net benefits tend to have acy and numeracy. In The Rebirth of Education, Har- lower skill levels than those who do not, which to at vard Kennedy School economist Lant Pritchett, a least some extent reflects disparities in educational per- leading advocate for more open immigration policies, formance in countries of origin. documents the disconnect between schooling and US immigration laws include several provisions learning in much of the developing world.11 In recent designed to ensure that immigrants will be able to sup- decades, there has been an astonishing global increase port themselves and their children. For example, under in years of schooling. However, in many countries, the 1996 welfare reform legislation, lawful permanent students learn relatively little over the course of a year, residents who are sponsored by a family member are and the effects of an inadequate education compound required to report not only their own income but also over time. the income of their sponsors. The combined income of immigrants and their sponsors is then meant to determine eligibility for means-tested programs, a concept Immigrant-headed households in known as sponsor deeming. Moreover, sponsors are the US are far more likely to rely on obligated to repay the government for benefits paid to immigrants they sponsored when government agencies means-tested safety net programs than were obligated to seek repayment, a concept known as native-headed households. sponsor recovery. In practice, however, these provisions have been ignored. In 2009, the US Government Accountabil- To illustrate his point, Pritchett draws on data from ity Office issued a report on sponsor recovery, which the Trends in International Mathematics and Science found that many benefits agencies at the state and local Study (TIMSS), an international assessment of the level have tried to develop policies around implement- math proficiency of students in grade eight. He finds ing sponsor deeming, but they have found it extremely that students in the average developing country have a difficult to do so, due in part to a lack of clear guide- score of 386, while students in Australia have a score of lines from the federal government.13 Even though the 499, fairly typical for a developed country. Some devel- 1996 welfare reform law required benefit agencies to oping countries, such as Lebanon (449) and Malay- seek repayment, the federal government has made sia (474), score quite well, while others, such as Qatar doing so optional in practice. Benefit agencies gener- (307) and Ghana (309), score quite poorly. ally choose not to seek repayment, possibly because Although a Lebanese immigrant and a Qatari immi- sponsors’ incomes tend to be quite low and the polit- grant might have had the same number of years of ical cost of actively seeking repayment would likely schooling, the Lebanese immigrant will likely have a prove quite high. stronger command of the skills that education is meant While the 1996 welfare reform aimed to reduce to impart than the Qatari immigrant. US immigrants immigrant dependence on safety net programs and hail from a wide range of countries, and the quality of encourage sponsors to be mindful of the wage-earning their local educational institutions varies dramatically. potential of those they sponsored, there appears to have Earning a high school diploma does not mean the same been no such effect. Immigrant-headed households in thing whether one earns it in Qatar or Lebanon, Indo- the US are far more likely to rely on means-tested safety nesia or Australia. net programs than native-headed households.14 This

23 IS THE HARDENING OF ETHNORACIAL INEQUALITIES INEVITABLE? REIHAN SALAM

largely reflects the fact that immigrant-headed house- These differences in assimilation do not appear to holds have lower market incomes than native-headed be entirely a function of differences in mean years in households. As of 2011, 19.9 percent of immigrants the United States. For example, the Chinese-born pop- lived in poverty, compared to 13.5 percent of natives. ulation and the Korean-born population have mean More than one-quarter of those living in poverty in the years in the US of 20 years and 21 years respectively, United States are either immigrants or children under yet Korean immigrants score far higher on the assim- age 18 born to immigrant fathers.15 ilation index than Chinese immigrants. Yet undoubt- Despite high levels of immigrant poverty, assimi- edly, a large influx of new immigrants will tend to lower lation is proceeding apace along several dimensions. a given group’s performance on Vigdor’s assimilation Jacob Vigdor, an economist at the University of Wash- index, simply because the level of assimilation tends to ington and an adjunct fellow at the Manhattan Insti- increase over time. tute, has devised an Index of Immigrant Assimilation, In 2013, immigrants to the US from China and which assesses assimilation by measuring the degree of India outnumbered those from Mexico, and the rapid similarity between native- and foreign-born popula- aging of Mexico’s population has led many analysts to tions along a range of indicators, including economic believe that this pattern will persist.17 Because Vig- indicators such as earned income, labor force partici- dor’s index is a composite of economic, cultural, and pation, and educational attainment; cultural indicators civic indicators, it is not clear that Chinese and Indian such as English-language proficiency and intermar- immigrants are more likely to assimilate than immi- riage; and civic indicators such as naturalization and grants with origins in Latin America. For example, military service.16 these immigrants might make more rapid progress Vigdor identifies several striking patterns. He dis- on economic indicators while making slower progress tinguishes between “Vietnamese-type immigrants” on cultural and civic indicators than their Hispanic and “Mexican-type immigrants,” observing that Viet- counterparts, depending on the skills and sensibilities namese immigrants exhibit some of the highest levels they bring with them and the rate at which their ties of assimilation over time and that Mexican immi- to their native countries attenuate.18 grants are among those that exhibit the lowest levels. It is important to keep in mind that because Vig- Although many observers assume that Asian-origin dor’s quantitative measure of immigrant assimilation is groups assimilate more readily than Latin American– based on the degree of similarity between immigrants origin groups, Vigdor’s findings offer a more nuanced and natives, it is built around a series of shifting goal- portrait. Immigrants from Mexico, El Salvador, posts. As the US population has grown more diverse, and Guatemala are among the least assimilated, yet and as the share of the native-born population raised Cubans are among the most assimilated, a distinction by immigrant parents has increased, it stands to reason that in part reflects that Cuban immigrants to the that foreign- and native-born populations will become US are far more likely to be legal than migrants from somewhat more similar. If a native minority popula- Mexico and Central America. tion with below-average household incomes increases Immigrants from Canada are the most assimi- in size relative to the total US population over time, the lated, but immigrants from the Philippines are only social distance immigrants must travel to reach the new slightly less so, with immigrants from Vietnam and median will fall. Korea close behind. Notably, immigrants from India Moreover, Vigdor’s interpretation of recent trends in have roughly the same scores on Vigdor’s assimilation economic assimilation is more sanguine than that of index as immigrants from El Salvador. And although other scholars. There is some evidence that more recent immigrants from China score somewhat higher on cohorts of immigrants are gaining skills at a slower rate the index than immigrants from India, they are far than older cohorts. Harvard Kennedy School econo- less assimilated than Cubans and members of other mist George Borjas writes: Asian-origin groups.

24 IS THE HARDENING OF ETHNORACIAL INEQUALITIES INEVITABLE? REIHAN SALAM

Immigrants who entered the country before the 1980s Tran and Valdez measured the educational and typically found that their initial wage disadvantage occupational attainments among various second- and relative to natives narrowed by 15 percentage points third-generation Hispanic groups and then com- during their first two decades in the United States. pared them to native whites, native blacks, and In contrast, the immigrants who entered the country third-generation (or higher) Puerto Ricans in young after the 1980s have a much lower rate of wage con- adulthood. They found that the second-generation vergence. In fact, the evidence suggests that there has members of several Hispanic groups have experi- not been any economic assimilation for the cohorts enced either long- or short-distance social mobility, that entered the country in the 1990s.19 and the Mexican Americans and Puerto Ricans have experienced second-generation disadvantage. More- Why might wage convergence between immi- over, while second-generation Mexican Americans and grants and natives have slowed down? One possible Puerto Ricans fare better than their first-generation par- explanation is that the returns to work experience ents, Tran and Valdez find some evidence for stagnation are higher for immigrants from rich countries to the among members of the third generations and higher. US than for those from poor countries, as the econo- Although Tran and Valdez offer this last point about mists David Lagakos, Benjamin Moll, Tommaso Por- third-generation stagnation tentatively, it is consistent zio, Nancy Qian, and Todd Schoellman have found, with the work of UCLA sociologists Edward Telles and the US receives a higher proportion of immi- and Vilma Ortiz, who have found that “while Mexican grants from poor countries than rich ones than in Americans make financial strides from the first to the earlier eras.20 second generation, economic progress halts at the sec- This slowdown in economic assimilation for immi- ond generation, and poverty rates remain high for later grants also appears to have consequences for their chil- generations.” Telles and Ortiz report that “educational dren. Recently, sociologists Van C. Tran and Nicol M. attainment peaks among second generation children Valdez offered a framework for understanding intergen- of immigrants, but declines for the third and fourth erational progress among second-generation Hispan- generations.”22 ics.21 They note that there are several ways to benchmark It is important to keep in mind that Telles and progress, including comparing second-generation Ortiz’s sample size of third- and fourth-generation Americans to their native-born peers in the native Mexican Americans was relatively small, and that majority group (for example, non-Hispanic whites) or third- and fourth-generation Mexican Americans of to members of native minority groups (for example, the present and future may fare better than their prede- non-Hispanic blacks and Puerto Ricans). cessors. It could be that US institutions for promoting When second-generation Americans of a national upward mobility—like the public schools serving chil- origin outperform members of the native major- dren in high-poverty neighborhoods—will help third- ity group, Tran and Valdez say that this group has a and fourth-generation Mexican Americans close the second-generation advantage. When this group achieves gap with whites, or that the next century’s economic parity with the native majority, it has experienced conditions will be more favorable to the interests of long-distance social mobility. When members of the less-skilled workers than those that prevailed in postwar second generation outperform members of native America. But it is by no means obvious that all this will minority groups without achieving parity with the hold true. native majority, they have experienced short-distance Tran and Valdez suggest that expecting second- social mobility. When members achieve parity with generation Americans to achieve long-distance social native minority groups, they have experienced stagna- mobility is unreasonable. Drawing on the work of tion. And when its members fall short of achieving par- sociologist Philip Kasinitiz, they claim that “the socio- ity with native minority groups, they have experienced economic attainment of the native majority group (i.e., a second-generation disadvantage. native white) is an unreasonably high benchmark to

25 IS THE HARDENING OF ETHNORACIAL INEQUALITIES INEVITABLE? REIHAN SALAM

assess second-generation progress, given the racially than when the payoff to acquiring skills is relatively low, stratified nature of American society.”23 Yet they also as in low-inequality societies. acknowledge that members of several Hispanic groups Although a moderately skilled worker might have have achieved long-distance social mobility and that the better economic prospects in egalitarian South Korea children of immigrants with high levels of human capi- than in the US, living in a highly egalitarian soci- tal are far more likely to experience long-distance social ety could be more frustrating for an ambitious skilled mobility or second-generation advantage than the chil- professional who knows she could command a much dren of immigrants with low levels of human capital. higher wage in the US. The situation is reversed in an This is true despite America’s racial stratification. inegalitarian society, such as Mexico’s, where skilled professionals can lead lives that are in many respects more comfortable than the lives they would lead in the US, Just under one-third (32 percent) of whereas middle-income workers can greatly improve unauthorized immigrant adults lived their circumstances when they move north of the border. Moreover, if it is extremely difficult for people of in families below the poverty level, and modest means to acquire valuable skills, as is often the case in inegalitarian societies, emigration might be the 62 percent lived in families earning less most attractive option for less-skilled people from poor than 200 percent of the poverty level. families looking to climb the economic ladder. It seems plausible that, had Mexican immigration been hyper-selective rather than hypo-selective, the tra- Nathan Joo and Richard V. Reeves have argued jectory of Mexican American integration would have that second-generation Asian Americans earn sub- more closely resembled that of Asian American groups. stantially higher incomes than second-generation His- That is, the second-generation disadvantage of Mexi- panics and native whites because Asian immigrants can Americans and the second-generation advantage of from many countries have higher levels of educational Asian Americans is probably less a reflection of intrinsic attainment than the median person in their native cultural differences than of differences in selectivity.26 countries and than the general US population—a phe- According to Tran and Valdez, Mexican Ameri- nomenon Jennifer Lee and Min Zhou have dubbed cans’ second-generation disadvantage can be attributed “hyper-selectivity.”24 In contrast, Mexican immigrants, to the fact that many of them are raised by unautho- who represent 63 percent of all Hispanic immigrants, rized immigrant parents. There is almost certainly some have a lower level of educational attainment than the truth to this notion, because unauthorized immigrants US population and the Mexican population—that is, face many obstacles in achieving upward economic Mexican immigration to the US has been defined by mobility. But the unauthorized immigrant population “hypo-selectivity.” faces challenges beyond their legal status. This line of analysis is in keeping with Borjas’ work In 2013, MPI released a detailed profile of the on how conditions in countries of origin shape the deci- unauthorized population.27 Just under one-third sion to emigrate.25 One striking pattern he has identi- (32 percent) of unauthorized immigrant adults lived in fied is that immigrants originating fromlow-inequality families below the poverty level, and 62 percent lived societies tend to earn higher entry wages than immi- in families earning less than 200 percent of the poverty grants originating from high-inequality societies. This level. Only 14 percent lived in families earning more is true even when we compare countries that are at than 400 percent of the federal poverty level, the cutoff similar stages of development. To explain this pattern, for Obamacare subsidies. A narrow 51 percent majority Borjas posits that when the payoff to acquiring skills is of unauthorized children lived in families earning less relatively high, as it is in high-inequality societies, emi- than the federal poverty level; 78 percent lived in fam- gration is a less attractive option to skilled professionals ilies earning less than 200 percent of poverty; and only

26 IS THE HARDENING OF ETHNORACIAL INEQUALITIES INEVITABLE? REIHAN SALAM

8 percent lived in families earning more than 400 per- Notwithstanding these changes in the broader eco- cent. Moreover, only 30 percent of unauthorized immi- nomic environment, let us assume that Lynch and grant adults are proficient in English, a strong barrier to Oakford are correct and that the experience of today’s upward mobility in itself. unauthorized immigrants will be similar to that of Extending legal status to this population would IRCA immigrants of the 1980s. A 15.1 percent wage almost certainly improve its economic prospects, leav- increase will not vault this population into economic ing aside other normative considerations. But it is not self-sufficiency, given its extremely low average market clear how much extending legal status would increase income. To the extent that low market incomes and low market wages. Robert Lynch and Patrick Oakford of levels of literacy and numeracy of immigrant parents the Center for American Progress analyzed what might are at all relevant to the prospects of their native-born happen to unauthorized immigrants’ wages if they are children, it is not clear that extending legal status in granted legal status but not citizenship.28 Drawing on a itself will end second-generation disadvantage. US Department of Labor study of the five-year impact It is suggestive that Puerto Ricans experience second- of the Immigration Reform and Control Act of 1986 generation disadvantage, even though Puerto Ricans are (IRCA), they project that in the first five years after US citizens from birth. One could argue that embracing legalization, these immigrants would see their wages a more selective immigration policy would help ensure increase by 15.1 percent. that a larger share of second-generation Americans of However, as María E. Enchautegui of the Urban all backgrounds would experience long-distance social Institute has observed, the unauthorized population mobility over the course of their lifetimes. This in turn that was legalized under IRCA and the unauthorized might accelerate the erosion of ethnoracial inequalities. population of today differ significantly.29 Today’s Instead, we may well be seeing a very different trend: unauthorized workers have higher levels of educational the hardening of ethnoracial inequalities and the emer- attainment than those of the 1980s. While 72 per- gence of new ones, as the hyper-selectivity in some cent of IRCA immigrants did not have a high school immigration streams coexists with hypo-selectivity diploma, the same is true of only 42 percent of unau- from others. So rather than focusing on whether assim- thorized immigrant adults in 2012. ilation is occurring—there is considerable evidence Nevertheless, today’s unauthorized immigrants are that immigrants and their descendants are learning and faring worse in the labor market relative to natives than speaking English at high levels, despite a dramatic surge IRCA immigrants. While the median weekly earnings in the number of limited English proficiency individu- of IRCA immigrants were 60 percent of the median als in the US—policymakers would do well to focus on full-time worker’s in the mid-1980s, the median weekly how it is occurring, and to what extent.30 earnings of current unauthorized immigrant workers Numerous scholars, including William Haller, Ale- were only 55 percent of the median full-time worker’s jandro Portes, and Scott M. Lynch, have advanced the in 2012. idea that assimilation in the US is segmented.31 That This could reflect more aggressive workplace is, differences in human capital, legal status, and fam- enforcement measures, which make it harder for the ily structure translate into different patterns of assimila- unauthorized to bargain for higher wages. But it might tion. Several factors might stymie successful adaptation, also reflect the fact that even as the skill level of unau- including racial prejudice, changes in the labor market thorized immigrants improves, it still lags far behind that have made the relative distance between highly that of the rest of the population. More than one-fifth paid professional occupations and low-paid manual jobs (22 percent) of all adults without a high school diploma quite substantial, and the emergence of the drug trade as are unauthorized immigrants, and unauthorized immi- a viable option for some who are unable or unwilling to grants represent roughly 4 percent of all adults living finish school or work in a conventional job. in the US. Moreover, the labor market position of As we have discussed, second-generation Americans less-skilled workers has deteriorated sharply over time. who benefit from high human capital parents, stable

27 IS THE HARDENING OF ETHNORACIAL INEQUALITIES INEVITABLE? REIHAN SALAM

families, and more effective assimilation tend to suc- children of less-skilled adults are less likely to achieve ceed. Some who are raised by parents with low incomes academically than the children of skilled adults. This and limited education also succeed, thanks to strong poses a challenge to the American social contract, to families and supportive communities. Others, however, which liberals, libertarians, and conservatives will have find it difficult to overcome the problems tied to low different responses. parental human capital, weak communities, and unsta- ble families. It is not difficult to imagine an alternative approach Immigration and the Future of to immigration policy, which would take into account the Welfare State the ways in which hyper-selectivity and hypo-selectivity respectively shape the integration trajectories of immi- Policy scholars on the left and right tend to be sanguine grants and their descendants. One comprehensive about the long-run implications of large-scale less- 2011 analysis of postwar US immigration by econo- skilled immigration, albeit for different reasons. On mists Xavier Chojnicki, Frédéric Docquier, and Lio- the social-democratic left, there is a widespread con- nel Ragot concluded that, although immigration had viction that increased levels of public investment will benefited virtually all US natives, the benefits would be enough to ensure that the children of immigrants have been larger had the US pursued a more selective, with low levels of literacy and numeracy will enter the skills-based immigration policy. They also observe that upper echelons of the US workforce in large numbers. “a stronger selection would obviously be more profit- On the libertarian right, in contrast, several influential able to low-skill workers than to medium and high-skill scholars have suggested that rising diversity will sharply workers,” and that for recent age cohorts, “gains for the reduce public expenditures, on the grounds that eth- low skilled are twice as large as for the highly skilled.”32 noracial fragmentation appears to reduce public sup- Moreover, there is at least some evidence that US vot- port for spending on safety net programs. ers would prefer a more selective, skills-based approach. Although scholars in both camps agree that the Political scientists Jens Hainmueller of MIT and Dan- long-term benefits of less-skilled immigration greatly iel Hopkins of the University of Pennsylvania surveyed outweigh the costs, there are tensions between their Americans on their attitudes toward different kinds of respective understandings of how less-skilled immigra- immigrants.33 They found a broad consensus: Ameri- tion will shape the American social contract. If the social cans strongly prefer educated immigrants in high-status democrats are correct that less-skilled immigration will jobs over other immigrants, and this preference varies benefit the US if the government spends more heav- little according to education, partisanship, labor market ily on labor-intensive services—such as early childhood position, and ethnocentrism. education, subsidized medical care, and wealth-transfer When we debate immigration policy, we tend to programs designed to increase the economic resources focus on would-be immigrants. Do they commit crimes available to households with low-market incomes— at unusually high rates? Are they more or less educated they would presumably be disappointed by an outcome than native-born Americans? Will they be better off in in which rising ethnocultural diversity led to a backlash the US than in their native countries? As important against public spending. Similarly, libertarians would as these questions may be, they pale in significance to presumably be concerned if less-skilled immigrants what will become of the children and grandchildren of and their children embraced redistributionist policies, today’s immigrants. and in doing so shifted the balance of political forces in Less-skilled adults, whether foreign- or native-born, favor of a higher level of public expenditures and taxes. earn substantially lower market incomes than their In Blurring the Color Line, Richard Alba, a sociolo- skilled counterparts. They tend to have poorer health gist at the CUNY Graduate Center, offers an ambitious outcomes, and they are more likely to rely on safety net agenda for encouraging the integration of racial and benefits. What is most distressing, however, is that the ethnic minorities, a central element of which is using

28 IS THE HARDENING OF ETHNORACIAL INEQUALITIES INEVITABLE? REIHAN SALAM

an activist government to combat ethnoracial inequal- public higher education, the role of subsidized home- ity.34 Alba argues that it would be a mistake to see con- ownership and infrastructure investment in driving temporary ethnoracial inequalities as enduring, in light suburbanization, and various other social programs of the successful incorporation of earlier waves of Euro- that advanced the economic interests of a panethnic pean immigrants into the American mainstream and mass middle class. Although economic growth has been the more recent success of Asian immigrants in enter- anemic in recent years, Alba anticipates that as younger ing prestigious occupations. cohorts take their place in the workforce, the number of non-Hispanic whites available to take on high-wage, high-prestige employment opportunities will fall, and Although African Americans are highly so the middle and upper rungs of the labor-force ladder concentrated in the South, a smaller will need to become more diverse. One of Alba’s more provocative observations is that share of black workers are employed in minorities are least likely to enter the upper tiers of the labor market in regions where they are highly concen- high-prestige occupations in the South trated. For example, although African Americans are than in any other region. highly concentrated in the South, a smaller share of black workers are employed in high-prestige occupations in the South than in any other region. Similarly, He rejects the “whiteness perspective,” in which the Hispanic workers disproportionately reside in the west- upward mobility experienced by European immigrants ern US, yet a smaller share of Hispanic workers work in and their descendants can be explained almost entirely high-prestige occupations in that region than any other. by the fact that they were accepted as members of the Alba ventures that the majority population in these dominant white majority. Rather, he argues that while regions is responding to minority demographic expan- perceptions of whiteness did play a role in this pro- sion by discriminating against members of minority cess, native-born white Protestants allowed the social populations. boundaries between themselves and European immi- How might Americans revise their social contract to grants to break down only once it became clear that ensure that whites and nonwhites experience non-zero- immigrant economic gains did not need to come at the sum mobility that results in a more integrated soci- expense of native-born whites. ety? Alba emphasizes the importance of preserving and During the postwar economic expansion, upward expanding racial preferences to ensure that elite institu- mobility was seen as non-zero-sum. Had economic tions and occupations are as diverse as the population at growth been less robust and had native white Protes- large. He also calls for a sharp increase in spending on tants perceived immigrant economic gains as a threat education, warning that if African Americans and His- to their own prosperity, Alba suggests that integration panics continue to lag behind whites in their creden- might not have proceeded so smoothly. And so, in tials, their mobility prospects will be severely limited. Alba’s view, the key to softening intergroup boundaries More broadly, he calls for efforts to reduce economic is to promote “non-zero-sum mobility.” inequality through higher taxes and transfers. Under non-zero-sum mobility, dominant groups While Alba sees higher public social expenditures feel less threatened by newcomers, and so they are less as essential to ensuring upward mobility for non- inclined to protect their privileged position by rein- whites, many of whom are less-skilled immigrants and forcing the boundaries that separate them from other their descendants, many libertarian scholars have been groups. Although Alba believes that robust economic advancing a markedly different perspective. Drawing growth did much to encourage a sense of non-zero-sum on the work of Harvard economists Alberto Alesina and mobility, the expansion of the public sector also played Edward Glaeser, these scholars posit that, to the extent a significant role. Specifically, he cites the expansion of immigration increases the ethnoracial fragmentation

29 IS THE HARDENING OF ETHNORACIAL INEQUALITIES INEVITABLE? REIHAN SALAM

of a given society, it will lead the native-born popula- Among voters at large, support for reducing immi- tion to turn against the welfare state.35 Libertarians are gration levels has been consistently higher than support not alone in suggesting that ethnoracial fragmentation for increasing them, particularly among self-identified might lead to reduced support for safety net programs Republicans.39 One concern advanced by conserva- and labor-intensive social services for low-income tive immigration skeptics is that large-scale less-skilled households, yet others who anticipate this outcome see immigration will tend to increase public social expen- this possibility as regrettable. ditures. The basic premise is that although less-skilled One leading scholar of multiculturalism, Queen’s immigrants work and pay taxes, households headed by University political philosopher Will Kymlicka, refers less-skilled immigrants often need public assistance. to this tension between ethnoracial diversity and Some conservative critics of less-skilled immigration social solidarity as “the new progressive’s dilemma.”36 have focused on its role in changing relative wages Is there in fact a trade-off between ethnoracial frag- by changing the relative supplies of different kinds of mentation and the level of public social expenditures? labor; others have instead focused on its role in either The evidence so far is inconclusive. But there is reason improving or depleting fiscal resources.40 to doubt it. Compared with other affluent market democracies, First, as Northwestern University sociologist Mon- the US does relatively little to reduce market inequality ica Prasad has observed, Alesina and Glaeser base their via taxes and transfers. Nevertheless, households with analysis on cross-sectional studies that find a correla- low levels of market income pay far less in net taxes tion between ethnoracial fragmentation and the level minus transfers than households with high levels of of public social expenditures across countries and US market income. Indeed, depending on program partic- states.37 The problem with this line of analysis, accord- ipation and the availability of various transfers across ing to Prasad, is that voters tend to increase their sup- jurisdictions, net tax rates can be negative for the poor- port for redistribution after new transfer programs are est households.41 passed. Across the affluent market democracies, safety There is considerable debate about the net fiscal net programs have proved extremely difficult to elimi- impact of less-skilled immigration, in part because nate, or even to cut, once they are entrenched. analysts disagree over which costs and benefits to take Prasad offers several reasons as to why this might into account. However, in terms of net fiscal impact, be true, among them the emergence of interest groups high-income immigrants undisputedly pay more in net devoted to building support for new programs, the fact taxes minus transfers than low-income immigrants, a that people grow accustomed to new programs over fact that conservatives see as an argument for reducing time, and “because their benefits are often highly visible less-skilled immigration. while their costs remain diffuse and obscure.”38 If we Pro-immigration libertarians have taken a differ- accept that support for safety net programs rises after ent view. Rather than back a reduction of less-skilled they have been established, the relationship between immigration to address concerns about fiscal resources, the current level of support for social spending and the some have called for “building a wall around the wel- current level of ethnoracial fragmentation does not tell fare state”—that is, restricting immigrant eligibility for us much. Regardless of the current level of ethnoracial safety net programs.42 One likely result of reducing fragmentation, if a new safety net program is somehow noncitizen access to safety net programs would be that established, it will be exceptionally difficult to reverse it. eligible noncitizens would become somewhat more The Affordable Care Act will offer a test case for inclined to naturalize, or to naturalize sooner than they this hypothesis in the years to come. The law was would otherwise. passed despite strong opposition from conservatives Sociologists Massey and Karen Pren have observed and skepticism from the wider public, yet efforts to that in the wake of the 1996 welfare reform’s limits on repeal it have met with little success and, over time, noncitizens’ access to safety net benefits, many immi- decreasing enthusiasm. grants embraced “defensive naturalization” to ensure

30 IS THE HARDENING OF ETHNORACIAL INEQUALITIES INEVITABLE? REIHAN SALAM

that they would continue to receive public assistance.43 supportive of redistribution than citizens and that nat- A new wave of defensive naturalization would greatly uralized immigrants and native-born coethnics are, diminish any effect of building a wall around the wel- to at least some degree, “providing political voice to fare state. And, of course, the citizen children of non- noncitizens.”45 citizens would be entitled to unfettered access to safety Elsewhere, political scientists Natalie Masuoka and net programs, regardless of whether their parents were. Jane Junn have argued that the political attitudes of individuals are profoundly shaped by their racial identity and their position in a racial hierarchy. “Groups Access to food stamps has long-lasting lower in the racial order experience more constraint as a function of their position of relative powerlessness and effects on the well-being of children raised the negative stereotypes associated with their race,” and in low-income households, including as a result, members of these racialized groups feel a greater tension between their group identity and Amer- a significant reduction in obesity, high ican national identity.46 blood pressure, and diabetes. There is no way to know how the politics of the welfare state will unfold in a more diverse America. But the notion that rising diversity will necessarily lead to More broadly, there is some evidence that limiting diminished support for the welfare state seems prema- access to safety net programs might have damaging ture at best, particularly if members of growing racial- consequences for immigrants and their children. One ized groups decide to fight back. influential study by economists Hilary Hoynes of UC Berkeley, Diane Whitmore Schanzenbach of North- western University, and Douglas Almond of Colum- Conclusion bia University found that access to food stamps has long-lasting effects on the well-being of children raised Is the hardening of ethnoracial inequalities inevitable? in low-income households, including a significant Not necessarily. But mitigating ethnoracial inequalities reduction in obesity, high blood pressure, and diabe- will require serious effort to reduce the social distance tes—serious chronic illnesses that can reduce earning separating marginalized groups from the mainstream. potential and generate significant medical costs.44 One of the chief reasons ethnoracial inequalities To be sure, barring noncitizens from transfer pro- persist despite higher levels of racial tolerance over grams need not entail barring access to their citizen time is that social networks remain highly segregated, children, although allowing these children to receive and social networks are the chief vehicles through aid would presumably go against the spirit of building which people gain access to employment opportuni- a wall around the welfare state. Furthermore, Hoynes, ties. In The American Non-Dilemma, Rutgers Busi- Schanzenbach, and Almond found that the economic ness School sociologist Nancy DiTomaso argues that resources available to parents while their children are in persistent racial inequality in the United States is not utero have long-run consequences for these children as solely or even primarily a reflection of racism and dis- they grow to adulthood. crimination.47 Rather, it reflects the fact that whites Given that less-skilled immigrants to the US are dis- tend to help other whites without ever discriminating proportionately nonwhite, a systematic effort to deny against or behaving cruelly toward blacks and other immigrants access to safety net programs could prompt nonwhites. a vigorous political response, particularly as the elec- As long as whites tend to dominate prestigious occu- torate grows more diverse. Political scientists Cybelle pations and control access to valuable social resources, Fox, Irene Bloemraad, and Christel Kesler have found the fact that whites, like all people, will do more to help suggestive evidence that noncitizens are more strongly family, friends, and acquaintances than strangers will

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tend to entrench racial inequality, provided that white thus failing to include large numbers of individuals people choose to associate primarily with other whites. with at least one Mexican-born grandparent. DiTomaso observes that while Americans highly value One complicating factor, however, is that the His- the idea of equal opportunity, virtually all of us seek panics who marry non-Hispanic whites tend to be “unequal opportunity” in our own lives by leveraging more educated than those who do not. For example, our intimate relationships to achieve our goals, includ- sociologists Zhenchao Qian and Daniel T. Lichter have ing our professional goals. found that native-born Hispanic women with a college Elsewhere, economists Elizabeth Ananat, Shihe Fu, education are more than three times as likely to be mar- and Stephen L. Ross have found that the gap in average ried to whites as native-born Hispanics with less than wages between whites and blacks gets bigger as the size a high school education.50 If the Hispanics who decide of the city in which they live gets bigger.48 Their expla- to leave behind their Hispanic self-identification to nation for this finding is that workers benefit from the identify as non-Hispanic whites are disproportionately knowledge spillovers that come from living and work- drawn from the ranks of the more educated, one obvi- ing in a place with a higher concentration of people ous implication is that those who continue to identify doing a certain kind of job, but these spillovers tend to as Hispanic will be disproportionately less educated. be bound by race. This in turn suggests that Hispanic communities as That is, blacks have fewer same-race peers from a whole will have lower levels of social resources than whom they can learn new skills and seek out new might otherwise be the case. opportunities than do whites. Consequently, whites To mitigate ethnoracial inequalities, policymak- gain more insider knowledge with each passing year, ers ought to consider a different approach, one which which in turn allows them to earn more money. Of we can only sketch. Drawing on the relatively success- course, some blacks (and other nonwhites) are plugged ful incorporation of Asian American communities, we into “white” networks, which are not exclusively white. might embrace an immigration policy that aims to Yet racial divides persist. be “hyper-selective” rather than “hypo-selective.” In a Some observers are encouraged by the rise of “ethnic 2014 essay, University of California, Davis, economist attrition.” Brian Duncan, an economist at the Univer- Gregory Clark offered a provocative suggestion: sity of Colorado Denver, and Stephen Trejo, an economist at the University of Texas at Austin, have found To avoid having a substantially poorer and less edu- that virtually all third-generation Mexican Americans cated Latino underclass for many future generations, with three or four Mexican-born grandparents iden- [Washington] should [consider] policies to increase the tify as being of Mexican descent, while only 79 percent number of highly educated Latino immigrants. Latino of those with two Mexican-born grandparents do the migrants are actually a very diverse group, with many same.49 For those with only one Mexican-born grand- of the most highly educated people emigrating to the parent, the share falls to 58 percent. United States from countries in South America that lie Because only 17 percent of third-generation Mex- geographically farther from the United States, includ- ican Americans have three or four Mexican-born ing Argentina, Brazil, Chile, and Peru. A program to grandparents, the ethnic attrition rate is thus quite boost the number of such educated immigrants could high: 30 percent of Americans with at least one bolster the overall social status of the Latino popula- Mexican-born grandparent do not identify as being tion in future generations, and their representation in of Mexican descent. And it appears that the educa- higher-status positions in the society.51 tional attainment of Mexican Americans who do not identify as Mexican is higher than for those who do. Essentially, Clark is arguing that by embracing a This suggests that when we measure life outcomes for more selective immigration policy, the US might be third-generation Mexican Americans, we might be able to foster long-distance social mobility among biasing the results by relying on self-identification and second-generation Hispanics. Less-educated Hispanics

32 IS THE HARDENING OF ETHNORACIAL INEQUALITIES INEVITABLE? REIHAN SALAM

would benefit, because highly skilled Latino immi- constraints on future fiscal resources. Immigrants who grants could enhance the social capital of Hispanic earn high entry wages and who experience more robust communities, and because perceptions of the Hispanic wage gains over time are more likely to ease future fiscal population as a whole would change over time. burdens than make them more difficult to bear. If we More broadly, policymakers might pursue a blend of are to create a more sustainable social contract, we must social-democratic and market-oriented strategies. The take this reality seriously. level of second-generation disadvantage is such that government will have to invest substantial resources in the human capital of the post-1965 immigrants About the Author and their descendants. Yet reforms to land-use and labor-market regulations can also do a great deal to pro- Reihan Salam is executive editor of National Review, a mote upward mobility. National Review Institute policy fellow, and a contrib- However, to pursue these domestic reforms suc- uting editor of National Affairs. cessfully, policymakers will have to be mindful of the

33 IS THE HARDENING OF ETHNORACIAL INEQUALITIES INEVITABLE? REIHAN SALAM

Notes

1. Richard Alba, “The Likely Persistence of a White Majority,” American Prospect (Winter 2016), http://prospect.org/article/ likely-persistence-white-majority-0. 2. Aristide R. Zolberg, A Nation by Design: Immigration Policy in the Fashioning of America (Cambridge, Massachusetts: Har- vard University Press, 2006). 3. Douglas Massey, “Immigration Enforcement as a Race-Making Institution,” in Immigration, Poverty, and Socioeconomic Inequality, ed. David Card and Steven Raphael (New York: Russell Sage Foundation, 2013). 4. Anna Brown, “Key Takeaways on U.S. Immigration: Past, Present, and Future,” Pew Research Center: Fact Tank, September 28, 2015, http://www.pewresearch.org/fact-tank/2015/09/28/key-takeaways-on-u-s-immigration-past-present-and-future/. 5. Ping Xu, James C. Garand, and Ling Xhu, “Imported Inequality? Immigration and Income Inequality in the American States,” State Politics & Policy Quarterly, September 23, 2015, http://spa.sagepub.com/content/early/2015/09/21/ 1532440015603814.abstract. 6. Tomas Jimenez, Replenished Ethnicity: Mexican Americans, Immigration, and Identity (Berkeley: University of California Press, 2009). 7. Zhenchao Qian and Daniel T. Lichter, “Social Boundaries and Marital Assimilation: Interpreting Trends in Racial and Ethnic Intermarriage,” American Sociological Review 72 (February 2007): 68–94. 8. Jeanne Batalova and Michael Fix, Through an Immigrant Lens: PIAAC Assessment of the Competencies of Adults in the United States, Migration Policy Institute, February 2015. 9. Pew Hispanic Center, “Modern Immigration Wave Brings 59 Million to U.S., Driving Population Growth and Change Through 2060,” September 28, 2015, http://www.pewhispanic.org/2015/09/28/chapter-3-the-changing-characteristics-of-recent- immigrant-arrivals-since-1970/#newly-arrived-immigrants-better-educated-than-in-1970-but-many-live-in-poverty. 10. David Frum, “Immigration Reform Isn’t Just About Numbers—It’s About Skills, Too,” Atlantic, May 5, 2014, http://www. theatlantic.com/politics/archive/2014/05/immigration-reform-isnt-just-about-numbersits-about-skills-too/361650/. 11. Lant Pritchett, The Rebirth of Education: Schooling Ain’t Learning (Washington, DC: Center for Global Development, 2013). 12. Steven Camarota, “Welfare Use by Immigrant and Native Households,” Center for Immigration Studies, September 2015, http://cis.org/Welfare-Use-Immigrant-Native-Households. 13. US Government Accountability Office,Sponsored Noncitizens and Public Benefits: More Clarity in Federal Guidance and Better Access to Federal Information Could Improve Implementation of Income Eligibility Rules, May 19, 2009, http://www.gao.gov/ products/GAO-09-375. 14. Camarota, “Welfare Use by Immigrant and Native Households.” 15. Center for Immigration Studies, Immigrants in the United States: A Profile of America’s Foreign-Born Population, http://cis. org/node/3876. 16. Jacob L. Vigdor, Measuring Immigrant Assimilation in Post-Recession America, Manhattan Institute, March 2013, http:// www.manhattan-institute.org/pdf/cr_76.pdf. 17. Neil Shah, “Immigrants to U.S. from China Top Those from Mexico,” Wall Street Journal, May 3, 2015, http://www.wsj. com/articles/immigrants-to-u-s-from-china-top-those-from-mexico-1430699284. 18. Vigdor, Measuring Immigrant Assimilation in Post-Recession America, Figure 9. 19. George J. Borjas, “The Slowdown in the Economic Assimilation of Immigrants,” Journal of Human Capital 9, no. 4 (2015). 20. David Lagakos et al., “Life-Cycle Human Capital Accumulation Across Countries: Lessons from U.S. Immigrants,” (working paper, NBER, 2016). 21. Van C. Tran and Nicol M. Valdez, “Second-Generation Decline or Advantage? Latino Assimilation in the Aftermath of the Great Recession,” International Migration Review (Fall 2015): 1–36. 22. Edward E. Telles and Vilma Ortiz, Generations of Exclusion: Mexican Americans, Assimilation, and Race (New York: Russell Sage Foundation, 2009).

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23. Tran and Valdez, “Second-Generation Decline or Advantage?,” 26. 24. Nathan Joo and Richard V. Reeves, “How Upwardly Mobile Are Hispanic Children? Depends How You Look at It,” Brookings Institution, November 10, 2015, http://www.brookings.edu/blogs/social-mobility-memos/posts/2015/11/10-upward- mobility-hispanic-children-reeves. 25. George Borjas, Immigration Economics (Cambridge, Massachusetts: Harvard University Press, 2014). 26. Jennifer Lee and Min Zhou, The Asian American Achievement Paradox (New York: Russel Sage, 2015). 27. Randy Capps et al., A Demographic, Socioeconomic, and Health Coverage Profile of Unauthorized Immigrants in the United States, Migration Policy Institute, May 2013, http://www.migrationpolicy.org/research/demographic-socioeconomic-and-health- coverage-profile-unauthorized-immigrants-united-states. 28. Robert Lynch and Patrick Oakford, The Economic Effects of Granting Legal Status and Citizenship to Undocumented Immi- grants, Center for American Progress, March 20, 2013, https://www.americanprogress.org/issues/immigration/report/2013/03/20/ 57351/the-economic-effects-of-granting-legal-status-and-citizenship-to-undocumented-immigrants/. 29. María E. Enchautegui, A Comparison of Today’s Unauthorized Immigrants and the IRCA Legalized: Implications for Immi- gration Reform, Urban Institute, December 2013, http://www.urban.org/sites/default/files/alfresco/publication-pdfs/412980-A- Comparison-of-Today-s-Unauthorized-Immigrants-and-the-IRCA-Legalized-Implications-for-Immigration-Reform.PDF. 30. Paul Taylor et al., When Labels Don’t Fit: Hispanics and Their View of Identity, Pew Hispanic Center, April 4, 2012, http:// www.pewhispanic.org/files/2012/04/PHC-Hispanic-Identity.pdf; and Jie Zong and Jeanne Batalova, The Limited English Profi- cient Population in the United States, Migration Policy Institute, July 8, 2015, http://www.migrationpolicy.org/article/ limited-english-proficient-population-united-states. 31. William Haller, Alejandro Portes, and Scott M. Lynch, “Dreams Fulfilled, Dreams Shattered: Determinants of Segmented Assimilation in the Second Generation,” Social Forces 89, no. 3 (2011): 733–62. 32. Xavier Chojnicki, Frédéric Docquier, and Lionel Ragot, “Should the US Have Locked Heaven’s Door? Reassessing the Ben- efits of Postwar Immigration,”Journal of Population Economics 24, no. 1 (January 2011): 317–59. 33. Jens Hainmueller and Daniel J. Hopkins, “The Hidden Immigration Consensus: A Conjoint Analysis of Attitudes Toward Immigrants,” American Journal of Political Science 59, no. 3 (2014): 529–48, http://onlinelibrary.wiley.com/doi/10.1111/ ajps.12138/abstract. 34. Richard Alba, Blurring the Color Line (Cambridge: Harvard University Press, 2009). 35. Alberto Alesina and Edward L. Glaeser, Fighting Poverty in the US and Europe: A World of Difference (New York: Oxford University Press, 2006); and J. R. Clark et al., “Does Immigration Impact Institutions?” Public Choice 163, no. 3 (2015): 321–35. 36. Will Kymlicka, “Solidarity in Diverse Societies: Beyond Neoliberal Multiculturalism and Welfare Chauvinism,” Comparative Migration Studies 3, no. 7 (2015), http://www.comparativemigrationstudies.com/content/pdf/s40878-015-0017-4.pdf. 37. Monica Prasad, The Land of Too Much: American Abundance and the Paradox of Poverty (Cambridge: Harvard University Press, 2012). 38. Ibid. 39. Jens Manuel Krogstad, “On Views of Immigrants, Americans Largely Split Along Party Lines,” Pew Research Center: Fact Tank, September 2015, http://www.pewresearch.org/fact-tank/2015/09/30/on-views-of-immigrants-americans-largely-split-along- party-lines/. 40. David Frum, “Does Immigration Harm Working Americans?” Atlantic, January 5, 2015, http://www.theatlantic.com/ business/archive/2015/01/does-immigration-harm-working-americans/384060/. 41. Elaine Maag et al., “How Marginal Tax Rates Affect Families at Various Levels of Poverty,” National Tax Journal 65, no. 4 (2012): 759–82, http://www.taxpolicycenter.org/UploadedPDF/412722-How-marginal-Tax-Rates-Affect-Families.pdf. 42. Alex Nowrasteh and Sophie Cole, Building a Wall Around the Welfare State, Instead of the Country, Cato Institute, July 25, 2013, http://object.cato.org/sites/cato.org/files/pubs/pdf/pa732_web_1.pdf. 43. Douglas S. Massey and Karen A. Pren, “Unintended Consequences of US Immigration Policy: Explaining the Post-1965 Surge from Latin America,” Population Development Review 38, no. 1 (2012): 1–29.

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44. Hilary W. Hoynes, Diane Whitmore Schanzenbach, and Douglas Almond, “Long Run Impacts of Childhood Access to the Safety Net,” (working paper, NBER, 2014), https://gspp.berkeley.edu/assets/uploads/research/pdf/Hoynes-Schanzenbach-Almond- 4-14.pdf. 45. Cybelle Fox, Irene Bloemraad, and Christel Kesler, “Immigration and Redistributive Social Policy,” in Immigration, Poverty, and Socioeconomic Inequality, ed. David Card and Steven Raphael (New York: Russell Sage Foundation, 2013). 46. Natalie Masuoka and Jane Junn, The Politics of Belonging: Race, Public Opinion, and Immigration (Chicago: University of Chicago Press, 2013). 47. Nancy DiTomaso, The American Non-Dilemma: Racial Inequality Without Racism (New York: Russel Sage Foundation, 2013). 48. Elizabeth Ananat, Shihe Fu, and Stephen L. Ross, “Race-Specific Agglomeration Economies: Social Distance and the Black- White Wage Gap,” (working paper, NBER, 2013), http://www.nber.org/papers/w18933. 49. Brian Duncan and Stephen Trejo, “The Complexity of Immigrant Generations: Implications for Assessing the Socioeco- nomic Integration of Hispanics and Asians,” (discussion paper, IZA, January 2012), http://ftp.iza.org/dp6276.pdf. 50. Zhenchao Qian and Daniel T. Lichter, “Social Boundaries and Marital Assimilation.” 51. Gregory Clark, “The American Dream Is an Illusion: Immigration and Inequality,” Foreign Affairs, August 26, 2014, https:// www.foreignaffairs.com/articles/united-states/2014-08-26/american-dream-illusion.