Immigration is soaring. Here’s what it’s doing to the labor market.
Wage growth is dampened when more workers enter the labor force and labor-market tightness eases. And when wage growth cools off, so does inflation.
Europe, Japan, South Korea, and China can only dream of attracting those immigrants
Published: July 15, 2024 at 3:23 p.m. ET
By Maya Levine
Millions of immigrants are entering the country and joining the workforce
The strong migration flow into the U.S. over the past few years is easing tight labor markets, according to a Monday letter by Evgeniya Duzhak, a regional policy economist at the Federal Reserve Bank of San Francisco.
In 2023, a net total of 3.3 million immigrants came into the U.S., the Congressional Budget Office estimated. In January, the CBO predicted another 3.3 million people on net would immigrate to the country in 2024.
Duzhak’s up-to-date data suggest that figure will be closer to 3.8 million this year, with a spike in undocumented immigrants having driven estimates way up, Duzhak wrote. Last year’s immigration estimates for 2023 and 2024 were about 2 million people short of this year’s numbers, she said.
According to Duzhak, the unusually high number of immigrants is helping to ease tight labor markets, which have been marked by a high number of job vacancies and a low unemployment rate, indicating a worker shortage.
When immigrants enter the workforce, many become employed, reducing the number of job vacancies, Duzhak noted. Others cannot find work, which increases the unemployment rate. Together, these changes decrease the ratio of job vacancies to unemployment, signaling easing labor-market tightness.
“Overall, my estimates suggest that around one-fifth of the easing of labor-market tightness in 2023 can be attributed to the spike in immigration,” Duzhak said.
Labor-market tightness varies by region, with the dynamic less pronounced in states where many immigrants end up living.
In New York and New Jersey, where courts heard the most new immigration cases by far in 2023, labor markets are the least tight. North Dakota, by comparison, sees very few immigration cases and has the tightest labor market in the country.
Duzhak found that when a state’s immigration cases doubled, its vacancy-to-unemployment ratio dropped 16% as more workers joined the labor force.
Because many immigrants have not yet joined the labor force due to lengthy work-authorization processes — and because estimates point to an ongoing flow of migrants into the U.S. — Duzhak predicts that labor-market tightness will continue to ease at least through the end of 2024.
Wage growth is dampened when more workers enter the labor force and labor-market tightness eases. And when wage growth cools off, so does inflation.
Addressing inflation and immigration is a priority for both candidates in the upcoming presidential election.
On immigration, Republican nominee and former President Donald Trump intends to secure the border and undertake “the largest domestic deportation operation in American history,” targeting nearly 15 million people. Not only would this project be costly for the federal government, but the labor market would tighten upon millions of workers leaving the country.
President Joe Biden recently announced pathways for more noncitizens to stay and work in the U.S. — but, like Trump, the president wants to curb immigration. Some of Biden’s recent actions to this end include restricting asylum and increasing enforcement at the border. Biden’s policies target undocumented immigrants in particular — the population driving the recent surge in immigration which has saved taxpayers money, strengthened the economy and eased tight labor markets.
To be sure, diminishing labor-market tightness isn’t always a good thing. Were the unemployment rate to increase too much, the continuing stream of immigrant workers into the labor force could put a strain on the labor market, leaving many people without jobs and driving wages down.
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