Ethnic Inequality in Retirement Income
Older immigrants are a growing population group in many European countries, but very little is known about their financial situation. The project uses data from the European Union Statistics on Income and Living Conditions (EU-SILC, 2004-2012) to document the extent of ethnic inequality in retirement income in 16 Western European countries. A major goal is to identify institutional factors that are related to the size of the retirement income gap between immigrants and natives. The factors considered include the pension system, immigration and integration policy, welfare state transfers and labor market regulation.
A recurrent finding is that immigrants have lower employment rates and earnings than the native population, even after accounting for human capital and demographic characteristics (Heath & Cheung, 2007; Heath, Rothon, & Kilpi, 2008; Kogan, 2006; Lancee, 2012; Van Tubergen, 2006). Whereas much research has analyzed ethnic inequality on the labor market, we know little about the economic situation of immigrants once retired. There is a clear need to fill this lacuna, as the immigrants that arrived in Europe in the 1960s and 1970s have mostly exited the labor market. In the European Union, there are almost 7 million foreign-born persons who are older than 65 years, which accounts for roughly 13% of the foreign-born population (in 2013, according to Eurostat).
A small number of single-country studies suggest that ethnic inequality in later life is substantial. For example, in the US, the racial income gap appears to be even larger in retirement than during working life (Hogan & Perrucci, 1998). For Canada, Marier and Skinner (2008) estimated retirement income gaps between native and foreign-born persons of approximately 50% and 35% for men and women, respectively. Evandrou (2000) found that in Great Britain at least half of older people of Indian, Pakistani or Bangladeshi origin are situated in the bottom quintile of the income distribution. In Germany, public pension entitlements of immigrants have been reported to be about 20% lower than those of natives (Hochfellner & Burkert, 2013; Mika & Tucci, 2006).
Existing research suggests that retirement income gaps are at least partly a consequence of ethnic disadvantage during working life (Bratsberg, Raaum, & Røed, 2010). Immigrants who migrate when they are working aged have less time to accumulate pension entitlements in the destination society (Ginn & Arber, 2001). In most pension systems there is a close link between lifetime earnings and retirement income, suggesting that delayed entry into the destination-country labor market translates into lower retirement income. Furthermore, due to compositional differences in education, occupational sector and other characteristics – and probably also because of discrimination – immigrants face greater risks of involuntary unemployment and earn lower wages than the native-born (e.g., Heath & Cheung, 2007; Kogan, 2006). Previous studies indeed show the importance of disadvantage during working life for immigrants’ retirement income in countries as diverse as the United Kingdom (Ginn & Arber, 2001), Switzerland (Bolzman, 2012) and Germany (Mika & Tucci, 2006).
Interesting as they are, existing studies are difficult to compare because of varying income concepts, definitions of immigrant status and other methodological differences. The first objective of this paper therefore is to document the extent of “ethnic inequality” in retirement income in 16 Western European countries using comparable micro data. We focus on the “retirement income gap” (RIG) between immigrants from non-EU countries and natives among men aged 65 and older. Our second objective is to make first steps toward explaining cross-national variation in the RIG, something that, to our knowledge, has not been done before. Better understanding the role of national context in shaping ethnic inequality in old age can help aging societies cope with the socioeconomic changes brought about by immigration.