The shifting immigration landscape: Implications for the labor market

Summary

A surge in immigration went a long way toward alleviating the historic labor shortfalls that emerged in the wake of the pandemic. Yet persons entering the U.S. either illegally or under parole represented the lion's share of the recent growth in the foreign-born population, underpinning the Trump administration's efforts to ramp up deportations and limit legal pathways to entry. How are these changes rippling through the jobs market and shaping the outlook for labor force growth ahead?

Foreign workers in the US labor market: Foreign-born workers, irrespective of legal status, comprise 19% of the labor force, up from an 11% share in the late 1990s.

• The group has accounted for about ³/4 of total labor force growth since February 2020, reflecting not only the jump in immigration but also a higher participation rate.
• Estimates place the unauthorized immigrant population at around 11-12 million and about 4.0%-5.5% of the U.S. labor force.
• Foreign-born workers have out-sized representation in agriculture, construction and various service occupations. The composition of the undocumented workforce is less certain, but research suggests the distribution is similar to the official measurement, except for a few highly-skilled occupations.

Early signs of policy changes: Recent efforts to curtail unauthorized immigration are contributing to a moderation in labor force growth.

• While volatile, the household survey shows the foreign-born workforce has declined by an average of 150K over the past four months, compared to an increase of 186K during the same period last year.
• A slowdown in border encounters, as well as the shutting of avenues previously available to gain temporary parole, have greatly reduced the pipeline of foreign-born workers potentially entering the labor force. Total encounters at the border have averaged 29K in the three months ending in April, down 88% relative to a year ago.
• The average level of daily deportations thus far has been little different from the Biden administration's last year in office, but data indicate more removals are coming from the interior. Recent reports of ICE stepping up apprehensions suggest removals could rise further in the months ahead.

Labor market implications: Whereas immigration overstated the pace of labor market cooling last year, it could now paint an overly-rosy picture of its health.

• Despite a sharp slowing in GDP, we expect the unemployment rate to peak at just 4.5% in the year ahead as weaker demand for workers coincides with weaker supply.
• As labor force growth slows, fewer jobs will be needed to keep the unemployment rate from rising. Assuming stable labor force participation and population growth similar to the last time net immigration registered a decline implies the breakeven pace of payrolls would slow to about 90K per month.
• Even if deportations fail to materially ramp up, the near-stalling in immigrant inflows and slower native-born population growth will keep the potential pool of workers historically tight. Thus, the hiring challenges that seemed like an anomaly following the pandemic and even in the late 2010s could increasingly feel like the norm.

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