The report “Borderless welfare state” deals with the consequences of immigration for Dutch public finances. It answers the following questions:
• What are the fiscal costs and benefits of immigration by migration motive (labour, study, asylum and family migration) and by region of origin?
• To what extent can immigration provide a solution to the ageing population in the Netherlands?

The current report is an update of the Public Sector chapter of the report Immigration and the Dutch Economy (2003) by the Netherlands Bureau for Economic Policy Analysis. Both reports deploy the method of generational accounting to calculate the net contribution – revenues minus expenses – of immigrants to public finances, measured from the moment of their immigration to the time of repatriation or death. This net contribution is the key concept of the current study.

The study uses microdata from 2016 provided by Statistics Netherlands. These are very detailed, anonymized data of all 17 million Dutch residents, including about two million people with a first-generation migration background and almost two million people with a second-generation migration background.

Total costs of immigration
The rapid pace of immigration into the Netherlands has greatly increased the Dutch population, but not the sustainability of the Dutch welfare state. Of the 17 million Dutch inhabitants at the end of 2019, 13% were born abroad (first generation) and 11% were children of immigrants (second generation). Currently, per capita expenditures on immigrants are significantly higher than on indigenous people in areas such as education, social security and benefits. Moreover, immigrants pay fewer taxes and social security premiums, which further lowers their net fiscal contribution. The main findings for the net contribution (benefits minus costs) of the first two generations together are given below.

The total net costs for the Dutch public sector of immigration in the period 1995-2019 averaged €17 billion per year, with a peak of €32 billion in 2016 due to the 2015 ‘refugee crisis’. By comparison, the Dutch government also spent roughly €30 billion on education in 2016. As for totals, the total costs of immigration over the period 1995-2019 amounted to €400 billion. To put that into perspective: these government expenditures have the same order of magnitude as the total Dutch natural gas revenues at €400 billion from the start of extraction until 2019. The current study looks back at past data as well as forecasts from Statistics Netherlands to calculate the total cost of immigration for the next two decades if policy remains unchanged.

Table 0.1 Total costs for the public sector of immigration from 1995-2040 in billions of euro, including the costs for the second generation (rounded to multiples of 20 billion euro).

                                                 Net costs of immigration (billions)
Period                                               Subtotal             Total          
1995-2009:                                        € 200
2010-2019:                                        € 200 +
Total 1995-2019:                                                      € 400
2020-2040 (forecast):                                               € 600 +
Total 1995-2040 (including forecast):                      € 1.000

Costs and benefits by migration motive and region
As regards the net contribution of immigrants to public finances, there are substantial differences between groups with different migration motives as registered by the Dutch Immigration and Naturalisation Service (IND). Only labour migration generates a positive net contribution of, on average, €125,000 per immigrant. Study migration shows, on average, a negative net contribution of €75,000. Family migration shows, on average, a negative net contribution of about €275,000 per immigrant. Asylum migration shows a negative figure as well, amounting to an average of €475,000 per immigrant.

There are also considerable differences by region of origin. On average, Western immigrants make a positive contribution of €25,000, while non-western immigrants cost nearly €275,000. Within the categories Western and non-Western there is, however, much variation.

Immigration from most Western regions has a positive fiscal impact. Immigrants from Japan, North America, Oceania, the British Isles, Scandinavia, and Switzerland, in particular, make a significant positive contribution of roughly €200,000 per immigrant. Immigration from Central and Eastern EU-member costs about €50,000. Immigration from former Yugoslavia and the former Soviet Union mainly concerns asylum seekers, who make a much larger negative contribution of €150,000.

Table 0.2 Average net contribution of immigrants to public finances, by migration motive and region, including the cost for the second generation (rounded to multiples of €10.000).

Migration motive                                                                                                                              Amount      
Labour migration                                                                                                                       + € 125.000
Study migration                                                                                                                           – € 75.000
Family migration                                                                                                                        – € 275.000
Asylum migration                                                                                                                       – € 475.000
Region Amount
  Western average                                                                                                                       + € 25.000
    Japan, North America, Oceania, British Isles, Scandinavia and Switzerland                                 + € 200.000
    Central and Eastern European EU countries                                                                                – € 50.000
    Other EU countries (excl. British Isles, and Scandinavian EU countries)                                        + € 50.000
    Former Yugoslavia and the former Soviet Union                                                                        – € 150.000
  Non-western average                                                                                                               – € 275.000
    Southern Africa (de facto RSA)                                                                                               + € 150.000
    Israel                                                                                                                                     + € 50.000
    Morocco                                                                                                                                – € 550.000
    Horn of Africa and Sudan                                                                                                        – € 600.000
Migration motive combined with region Amount
  Labour migration from Japan, North America and Oceania                                                           + € 625.000
  Asylum migration from Africa                                                                                                    – € 625.000
  Study migration from the European Union (including UK)                                                              + € 75.000
  Study migration from Africa                                                                                                      – € 250.000

Immigration from non-Western regions is usually unfavourable for public finances. This applies especially to the areas of origin Caribbean, West-Asia, Turkey and North, Central and West Africa with net costs around ranging from €200,000 to €400,000 per immigrant, and Morocco, the Horn of Africa and Sudan with net cost of €550,000 to €600.000 per immigrant. See the Table 0.1 for more data. By way of comparison: an average Dutch native is roughly ‘budget-neutral over’ his or her life.

For all migration motives, Western immigrants seem to ‘perform better’ than non-Western immigrants. The difference is approximately €125,000 for labour and study migrants, and €250,000 for asylum and family migrants.

In isolation, only two categories seem favourable for Dutch public finances; labour migration from western countries (except Central and Eastern European countries), Asia (except the Middle-East) and Latin America, as well as study migration from the EU. All other forms of immigration are at best budget-neutral or have a considerable negative fiscal impact. The highest net costs apply to asylum migration from Africa. It should be noted that study and labour immigration usually comes with family migration, which may have a considerable negative impact on the combined net contribution.

There is a large and growing group of immigrants whose migration motives are unknown. For a considerable part, these are people who would not state a reason for migration because they have already acquired the Dutch nationality.

Costs and benefits by generation and the importance of education and test scores
For Dutch residents without a migration background (native Dutch), the costs and benefits are roughly in balance. In other words: they are approximate ‘budget-neutral’. The effect on public finances of persons with a second-generation background who are well-integrated – i.e. with a level of education and labour market performance very similar to natives – is therefore also about budget-neutral.

Migrant groups of which the first generation yields substantial net benefits usually do not show the same outcome for the second-generation. That generation – although well-integrated – is usually roughly budget-neutral.

Migrant groups of which the first generation has a considerable negative net contribution, usually continue into a second generation that also has a negative or, at best, approximately budget-neutral contribution. For those groups, the net present value of the net contribution of future generations will not offset the costs for the first generation. The quite common idea that ‘things will change for the better in future generations’ therefore, does not apply when it comes to the costs and benefits of immigrants.

There is a substantial correlation between net lifetime contribution and educational attainment, ranging from –€400,000 for immigrants with at most primary education to +€ 300,000 for immigrants with a master degree. Furthermore, a robust correlation exists between net contribution and scores on the so-called ‘Cito test’, a 50-point student assessment scale for primary education. For natives, lifetime net contributions range from roughly –€400,000 for the lowest Cito score to +€300,000 for the highest Cito score. For people with a second generation migration background, a similar correlation exists, though at a considerably lower level.

There are considerable differences in Cito scores between regions of origin and also between migration motives. At group level, the net contribution of first-generation and second-generation immigrants is closely related to the Cito scores. The Cito scores and the educational level of the second generation are strongly related to the educational level of the first generation. Partly for this reason, any educational attainment of the first generation affects the net contribution of the second generation. ‘Mixed relationships and marriages’ have a considerable positive effect on the Cito scores and thus, the net contribution of the second generation.

Immigration as a demographic solution to the problems of population ageing
Like many Western nations, The Netherlands has an ageing population. There are incidental elements to population ageing, such as the baby boom, but also a structural element, being a persistently low fertility rate. For almost half a century, the average number of children per woman has been around 1.7, well below the replacement level of approximately 2.1 needed for a constant population size. This causes every new generation to be smaller in size than the previous one, resulting in a dwindling share of young people in the population, a process sometimes referred to as dejuvenation. It also leads to an increase in the so-called grey pressure, that is, an increase in the ratio between the over-65s and people in the age group 20 to 65 years.

In line with the literature, this study found that solving dejuvenation by immigration resembles a pyramid or Ponzi scheme. A simulation shows that ever-increasing numbers of immigrants are needed to keep the Dutch grey pressure at the 2020 level. This results in significant population growth: 35 million inhabitants by the year 2060, 75 million at the end of this century, and half a billion by the year 2200.

Immigration does not provide a stable solution to population ageing because the underlying problems of low fertility and dejuvenation are not resolved. On average, fertility of immigrants is below the replacement level as well, partly because women from high fertility groups adjust their fertility downwards over time, and partly because immigrants from most countries in the Americas, Europe and Eastern Asia already have low fertility rates.

Immigration as a solution to the financial burden of population ageing
Due to the increasing ageing of the population (the grey pressure), the costs for healthcare and state pensions are rising rapidly. The current study challenges the idea that it is possible to absorb the additional costs of an ageing population through immigration.

Immigration as a means of absorbing the costs of an ageing population encounters the same practical objection as the strategy of immigration as a demographic solution to the ageing population, being strong population growth. A simulation shows that closing a permanent financial gap in public finances of 2.5% of gross domestic product, by admitting labour migrants with high economic potential, would lead to additional population growth of 7.2 million inhabitants in the period 2020-2080. In addition, mass recruitment of high-potential migrants may prove difficult in practice, as most high net contributors currently come from countries that are themselves grappling with a rapidly aging population and/or trying to attract highly skilled immigrants.

Future costs and benefits
The findings in the current report and recent projections for immigration indicate the total cost of immigration is expected to continue to rise. For the period 2020-2040, the estimated total additional costs of future immigration amount to around €600 billion.

A slight increase in the share of asylum seekers would lead to a significant increase in future costs. If, for example, the volume of asylum migration from West Asia and Africa kept pace with the population growth there, this alone would result in additional costs of approximately €64 billion in the years 2020-2040.

A less negative, or a positive fiscal impact of immigration can be attained, but requires a fundamental policy change. The present study calculates a restrictive scenario, in which labour migration mainly originates from Western countries (except Central and Eastern Europe), Latin America and Asia (except the Middle East), in which there is also a 50% reduction in family migration and a 90% reduction in asylum migration. This scenario is highly selective compared to the current situation and requires changes in international treaties, such as the UN Refugee Convention. Nevertheless, even then, immigration is only about budget-neutral.

Policy implications
The net costs of immigration to the government are considerable, and projections show they will consume a steadily increasing portion of the annual government budget. These costs are mainly due to redistribution through the welfare state. Continuation of the current level of immigration and current arrangements of the welfare state increases pressure on public finances. Downsizing the welfare state and/or curtailment of immigration will then be inevitable.

Immigration does not appear to be a solution to the ageing population either. In essence, ageing is mainly dejuvenation due to a low fertility rate. The only structural solution for that is an increase in the average number of children per woman in the Netherlands to approximately 2.1.

Nowadays, the consequences for public finances hardly play a role in policy decisions on immigration. This could change if the type of calculations presented in this report were taken into consideration. First of all, the results presented offer starting points for the admission policy for immigrants from outside the EU with the motives ’work’ and ‘study’. The policies can relate to the size of these immigration flows and selection of immigrants on proven predictors of positive outcomes like educational attainment. Other examples include cost estimates of specific policy proposals such as a general amnesty scheme, the number of invited refugees, approval of new EU rules, admission of new EU member states and the opening of our labour market to their residents, an asylum seekers quota assigned by the EU, the required compensation for above-average quota, et cetera.

Calculations may also offer a starting point for integration policy. A study of the net contributions to our government, as described in this report, provides a good indication of the socioeconomic position of various migrant groups. Not only the integration of the first generation, but also of the second and third generation requires attention. As this report demonstrates, educational attainment of the first generation, and school success of children of the first and second generation are quintessential for positive outcomes.

A more structural approach is to monitor the costs of current immigration flows and to keep an account of the outstanding claims that immigrants have on the treasury. This brings us to the value of periodic surveys of net contributions. The Dutch government has not published data on net contributions to public finances of migrants since 2003. We can only guess the reasons for this. Hopefully, this research will make it clear that this information is necessary for the foundation of policies and insight into future government spending. The report fits well within the current inquiry into the consequences of changes in the size and composition of the population of the Netherlands in 2050.

Perspective
Immigrants that make on average a significantly negative contribution to Dutch public finances are mainly those who exercise the right to asylum, especially if they come from Africa and the Middle East. The latest UN population forecast shows that the total population in these areas will increase from 1.6 billion to 4.7 billion by the end of this century. It is not implausible that the migration potential will at least keep pace. Migration pressure, in particular on the welfare states in North-Western Europe, will therefore increase to an unprecedented degree. This raises the question of whether maintaining the open-ended arrangement enshrined in the existing legal framework is a realistic option under these circumstances.