The Trump Administration\u2019s mission to severely curb unauthorized immigration was both highly successful and politically popular. Yet a new research paper from the Federal Reserve Bank of San Francisco found that the huge influx of foreigners under President Biden\u2019s open border policy had the beneficial role of increasing the labor force, especially in fields where the U.S. sorely needed workers, notably in manufacturing and construction. The study further concludes that current crackdown has reduced employment in those and other industries where employers face shortages. Potential result: A slowdown in the pace of the residential construction at a time when the U.S. faces a major housing shortage, and faster-rising home prices as builders pay higher wages to tap a smaller pool of everything from carpenters to framers to electricians. The Data centers essential to the growth of AI could face delays as well.<\/p>\n
The article, \u201cUnauthorized Immigration Effects on Local Labor Markets,\u201d appeared as an \u201ceconomic letter\u201d on the San Francisco Fed\u2019s website<\/a>, written by Daniel Wilson, a VP in the economic research department. It\u2019s the summary of a longer study conducted by Wilson and Xiaoquing Zhao of the Dallas Fed. Wilson and Zhao collected data on the arrivals and departures of unauthorized, working age immigrants to derive the \u201cnet immigration\u201d numbers for all 3100 U.S. counties. Their analysis focuses on two main periods: the Biden era of extremely high entries from March 2021 to March 2024, and the span of the Trump crackdown period lasting from March of 2024 to March of last year. They gathered the numbers from the immigration court records that they contend cover the vast majority of all unauthorized immigration.<\/p>\n The authors note that unauthorized immigrants are not illegals. They\u2019re typically encountered at ports of entry by federal agents, and receive notices to appear in immigration court, usually in one to three years. So once they\u2019ve entered the U.S., these arrivals are authorized to remain, at least temporarily. The authors state that the all but a relative few stay stateside while \u201ctheir cases proceed through the court system,\u201d as they seek asylum or otherwise challenge removal in order to achieve permanent residency.\u00a0<\/p>\n Wilson and Zhao then match the inflows to clusters of counties that form employment hubs\u2014geographies where workers commute to jobs\u2014to U.S. Census data covering employment in the same locales for all non-farm workers. Their analysis also adjusts their net workforce inflow numbers by estimating the volume of working age adults not encountered by federal agents.<\/p>\n Couldn\u2019t a boom market in one metro, say lots of home building or a bunch of new data data centers, explain the rise in employment? In other words, it\u2019s new\u00a0demand\u00a0that created the jobs, not the fresh\u00a0supply\u00a0of labor that provided enterprises with the workers they previously lacked to push forward on new projects. The authors found that immigrants consistently settle in areas where people from their home countries are already living. They cite as an example that if 10% of the Hondurans are living in Chicago, 10% of the annual entries tend to settle in the Windy City as well. Hence, Wilson and Zhao were able to isolate the impact on total employment in each locale caused mainly by the arrival of immigrants.<\/p>\n Of course, in the 2021 to 2023 period they studied, that inflow was famously huge as around 3.5 million unauthorized immigrants settled in the U.S. (The authors estimated that roughly 70% of the working age cohort had jobs in their home countries, and that the proportions in the U.S. were similar.) The study concludes that \u201can increase in the unauthorized local workforce equal to 1% of local employment raises local employment by 0.92%.\u201d In other words, the dynamic is one for one. The new workers effectively created a new job by proving available to go to work, in industries that needed people to expand\u2014and these immigrants effectively provided that missing input.<\/p>\n The CBO backs the Fed study in positing that slow immigration will prove a strong headwind to expanding the U.S. economy <\/p>\n The study\u2019s finding are especially important because the America\u2019s future running room is highly dependent on the rate of expansion of the labor force. As the authors put it, \u201cThe results suggest that U.S. employment growth is likely to continued downward pressure as long as declines in unauthorized immigrant worker flows continue.\u201d The Congressional Budget Office agrees. The fundamental problem is well-documented: Due to our rapidly aging population, the slow volume of native-born Amrericans entering the workforce over the next several decades will more or less replace retirees, so their entry will contribute little or nothing to the employment rolls going forward. In its annual ten-year forecast issued on February 11, \u201cThe Budget and Economic Outlook<\/a>: 2026 to 2036, the CBO points out that the U.S. labor force expanded at a sturdy 0.7% pace in 10 years preceding the pandemic, then during the Biden years exploded to 1.6%, bringing all the jobs to the likes of construction, manufacturing and hospitality the Fed paper spotlights. But for the 2026 to 2034 period, the agency predicts tepid increases that at 0.4%, will hover just over half the pre-COVID number, and equal 25% of the 2021 to 2024 rush. Overall, the CBO forecasts in its new update that the labor force will add 2.4 million fewer employees in the next decade than its year-ago estimate.<\/p>\n The CBO effectively acknowledges the power of immigration in stating, \u201cThe reduction in net migration slows the growth of the labor force and puts downward pressure on the CBO\u2019s projections. It slows the pace of GDP growth while dampening aggregate consumer demand and slowing the construction of new housing.\u201d Throughout the report, the CBO stresses the weak labor force outlook as a major reason for its projection that national income will grow at only 1.8% annually from 2027 to 2036, far below the 2.3% that prevailed from 2010 to 2019.<\/p>\n Revisiting the wisdom of Milton Friedman<\/p>\n