Social security and migration with endogenous skill upgrading

The aim of the paper is to investigate the joint redistributive effects of migration and pensions and to reassess the sustainability issue raised in the existing economic literature. The paper first develops a theoretical framework to analyse the impact of international migration on the labour market. The model allows for heterogeneity across native-born individuals and for migrants to affect both the wages and the education decision in the recipient country. It then explicitly focuses on pensions under alternative migration scenarios. The analysis shows that migration causes redistributive effects which increase across-group wage inequality. However, the endogenous educational response by residents partially offsets the redistributive impact of migration while creating additional interest groups. Migration helps the financial sustainability of the pension scheme but the interaction between migration and pensions causes complex inter- and intragenerational redistributive conflicts, which are analysed in the paper.