Cross-border retirement policy makes economic sense
Ilearned a new term recently from a guest commentary in the newspaper. I’d not heard of a Social Security “totalization agreement” or the need for one between the U.S. and Mexico, so I decided to familiarize myself with the concept. And, therefore, you too.
In their article, Jacqueline Angel, a sociologist at the University of Texas at Austin, and Emma Aguila, an economist at the University of Southern California, called attention to a gap in retirement rights of Mexican nationals who work part of their lives in the U.S. and return to Mexico to retire.
What’s missing, they said, is a totalization agreement.
Such an agreement provides non-U.S. nationals with “work credits” achieved under a different country’s retirement plan. In addition, it provides U.S. nationals who work abroad with reciprocal courtesy.
If you work a number of years in one country then some more years in another, there’s a risk you might not get a fair deal. You could pay into one system for many years but not get money out when you retire.
I didn’t know that the U.S. entered many totalization agreements after World War II, when European workers were immigrating to the United States. Today, the U.S. has such agreements with 28 countries, covering Canada, Australia, South Korea, Japan and most of Europe. A Mexican agreement was negotiated and signed in 1994 — the year of NAFTA negotiations — but never ratified.
Mexico is our second-largest trading partner after Canada, and we have a totalization agreement with our northern neighbor. But despite the large volume of labor movement between Mexico and the U.S., no such agreement is in place.
Awful and bizarre
In the U.S., we tend to think of our relationship with Mexico as unidirectional: The United States sets the rules and Mexico follows those rules. For U.S. nationals who haven’t spent much time in Mexico, this may feel comfortable, logical and right. Viewed from the other side of the Rio Grande, this assumed relationship status is awful — and bizarre.
Totalization agreements of retirement programs are always bilateral. U.S. citizens working in Mexico can only benefit if Mexican citizens working in the U.S. can also benefit. The point of an agreement is so workers don’t pay twice for a single retirement plan, don’t pay once for no retirement plan, or work for some time but not long enough to fully vest in a retirement plan.
Contrary to our most fearful and xenophobic instincts, undocumented workers from countries like Mexico on balance are a net gain for the Social Security system. They typically
pay in but never receive benefits, creating an estimated $7 billion net surplus per year to the system. A totalization agreement does not address undocumented workers, however. It only works for documented workers who accumulate years of paying in.
For people working on both sides of the border, a totalization agreement is simply a recognition of the reality of workers paying in to more than one system. No money is given away. It’s just ending the penalty on people who pay in to two systems but get paid by neither.
Angel and Aguila point out that the humanitarian case for Mexican nationals who work in
the U.S. and return to Mexico is particularly compelling. Because of a history of working for lower wages, they may not have accumulated much safety net by the time they reach retirement age. And with a lower cost of living south of the border, even a modest Social Security safety net — which they already paid for through mandatory payroll taxes — can provide a huge improvement in their old-age standard of living.
Immigration needed
Here’s where I should lay my cards on the table about my view on the intersection of immigration and money. I sub
scribe to the view of writer Matthew Yglesias in his 2020 book, “One Billion Americans: The Case for Thinking Bigger,” in which he argues that national strength requires the U.S. to grow from its present 330 million people to 1 billion. The most efficient way to do that is through immigration.
I believe in Yglesias’ thesis not because I’m a bleeding heart progressive but because I’m a capitalist and a nationalist. Markets work better when people can move to where the jobs are. State and national economies grow when populations grow.
What has made America great is ambitious, hardworking people going to extraordinary lengths to get here then contributing disproportionately to the nation’s economic might. Over the past three decades, the U.S. has run the table on technological innovations
— and immigrants make up a disproportionate share of the world-beating tech companies’ founders.
There are humanitarian and technocratic reasons to advocate for a Social Security agreement between the U.S. and Mexico. Angel and Aguila lean on those. I lean on reasons of raw economic strength.
Immigration does not make the U.S. weaker or poorer. Any objective analysis of our nation’s history shows that it makes us stronger and richer. Making rational technocratic improvements in the relationship between the U.S. and Mexico — such as we have with European and Asian allies — would make us stronger and richer as well.