As the United States faces growing worker shortages, new government data is showing that falling immigration is playing a major role in the crisis. Immigration numbers have dropped sharply in recent years, and this slowdown is contributing to the current labor shortages across many industries.
According to U.S. government data, immigration into the United States has fallen dramatically, with the number of people entering the country dropping by more than three-quarters from 2016 to 2021. In 2016, over 1 million people entered the U.S., but by 2021, that number had fallen to under 247,000. This sharp decline means there are about 2 million fewer working-age immigrants in the country today than if immigration had continued at a normal pace.
When you add this to the recent drop in birth rates (as shown in the 2020 Census) and the large number of workers over age 45 who left the workforce during the COVID-19 pandemic, it becomes clear that the slowdown in immigration is making the U.S. labor shortage even worse.
Which Industries Are Most Affected by Immigration Decline?
Certain industries are being hit hardest by this shortage of immigrant workers. The service, natural resources, and construction industries, in particular, are feeling the effects. Here’s why:
- Service Industry: Over 20% of workers in the service sector are foreign-born, compared to just 14% of workers who are U.S. citizens.
- Natural Resources & Construction: Nearly 14% of workers in these fields are foreign-born, while only 8% are native-born U.S. citizens.
While foreign-born workers do not make up the majority of workers in these sectors, they make up a significant portion. Losing these workers has created significant labor gaps, especially when employers are struggling to find enough workers to fill positions.
The Loss of Skilled Immigrants
The impact of reduced immigration goes beyond the loss of manual labor in certain industries. Among the 2 million working-age immigrants who were excluded from entering the U.S. in the last two years, about 1 million of them were college-educated. This means the U.S. has lost out on millions of skilled workers—professionals, entrepreneurs, and foreign students who would have contributed to the U.S. economy.
Some estimates suggest that the absence of these highly educated immigrants has led to a loss of 2.5 million jobs. This also includes the missed opportunity to welcome talented foreign students and entrepreneurs who might have created jobs, started businesses, and fueled innovation in the U.S.
Immigration’s Link to Inflation
The shortage of foreign-born workers isn’t just hurting employers—it’s also tied to rising inflation and as the U.S. Chamber of Commerce has pointed out, increasing immigration could be one of the fastest ways to help reduce inflation.
Here’s why: Many supply chain problems, such as the shortage of truck drivers, are at the root of inflation. By allowing more foreign workers to enter the U.S. and fill these critical roles, the country could ease some of the disruptions causing higher prices. More workers would help reduce supply chain bottlenecks, making goods and services more available and lowering costs.
The sharp decline in immigration over the past few years is significantly impacting the U.S. labor force. With fewer workers available to fill jobs in key sectors like service, construction, and natural resources, industries are struggling to meet demand. The loss of college-educated immigrants is also holding back job creation and innovation in the U.S.
What are the economic benefits of increased immigration during labor shortages
Increased immigration during labor shortages presents several economic benefits that can significantly enhance the overall productivity and stability of the U.S. economy. Here are the key advantages:
Boosting GDP
Immigrants contribute to economic growth by increasing the productive capacity of the economy. Research indicates that an influx of immigrants can lead to substantial GDP growth, with projections suggesting that a surge of immigrant workers could add approximately $8.7 trillion to the U.S. economy over the next decade. This growth is often referred to as the “immigration surplus,” which benefits both immigrants and native workers, albeit in different measures.
Job Creation
Immigrants often fill roles that are difficult to staff, particularly in sectors experiencing labor shortages. By doing so, they not only fill gaps but also create additional jobs in complementary fields. For instance, as immigrant workers enter industries like healthcare and hospitality, they stimulate demand for other services and positions, leading to broader job creation.
Alleviating Worker Shortages
Increased immigration helps alleviate severe staffing shortages that have plagued various industries, particularly during and after the COVID-19 pandemic. The presence of immigrant workers has been linked to a decrease in job vacancy rates; for example, a 1% increase in immigrant employment corresponds to nearly a 0.5% decline in job vacancies. This stabilization is crucial for maintaining operational efficiency across sectors.
Moderating Wage Growth
While wage pressures have increased due to labor shortages, an influx of immigrants can help moderate these pressures by providing a larger pool of available workers. This can lead to more balanced wage growth, preventing extreme inflationary episodes that arise from competition for limited labor12. For instance, projections indicate that increased immigration could lead to average earnings rising by about $1,000 per individual by 2040 due to a more robust labor market.
Easing Inflation
The relationship between immigration and inflation is significant; as worker shortages diminish with increased immigration, inflationary pressures tend to ease. A more stable workforce allows businesses to operate more effectively without resorting to drastic wage increases that contribute to rising prices. The recent uptick in immigration has coincided with a reduction in inflation rates, highlighting this connection.
Maintaining Economic Edge
To remain competitive on a global scale, the U.S. must ensure a growing workforce. Without sufficient immigration, projections suggest stagnation or decline in the working-age population, which could weaken economic competitiveness and innovation capacity. Countries that have experienced declines in their prime-age working populations have struggled economically; thus, increasing immigration is vital for sustaining growth and attracting talent.
The Role of Immigration in Preventing Inflation
Immigration plays a significant role in influencing inflation, primarily through its impact on labor supply and economic productivity, As economies face labor shortages, particularly in sectors heavily reliant on immigrant worker, increasing immigration can alleviate these shortages and help stabilize prices.
Labor Supply and Wage Dynamics
- Addressing Worker Shortages: The U.S. has faced significant worker shortages since the COVID-19 pandemic, worsened by decreased immigration levels. As a result, employers have raised wages to attract workers, often passing these costs onto consumers and contributing to inflation. Increasing the number of immigrants entering the workforce can help reduce these labor shortages, easing wage pressures and stabilizing prices.
- Economic Contributions: Studies indicate that immigrants contribute significantly to various sectors, including construction and hospitality, where they constitute a substantial portion of the workforce. The absence of immigrant workers during the pandemic resulted in sharp wage increases in these industries, further fueling inflationary pressures
Inflation Reduction Mechanisms
- Lowering Goods Inflation: Research by the International Monetary Fund (IMF) suggests that higher immigration flows can reduce local goods inflation by approximately 0.1 to 0.2 percentage points following a doubling of immigration rates. This effect is particularly pronounced among working-age and low-education immigrants who tend to fill essential roles in the economy.
- Flexible Workforce: Immigrants provide a flexible labor force that can adapt to changing economic demands. This adaptability is crucial during periods of economic transition or growth, as it allows for quicker responses to labor market needs without exacerbating inflation
- Impact on Job Openings: Recent analyses show that an influx of paroled immigrants has contributed to a decrease in job openings in sectors facing labor shortages. This reduction in unfilled positions helps stabilize wages and prices in those industries.
Broader Economic Implications
- Long-Term Economic Growth: Increased immigration not only addresses immediate labor shortages but also supports long-term economic growth by enhancing productivity and consumption levels. A larger workforce can lead to increased output without necessarily driving up prices if managed effectively
- Inflationary Pressures from Demand: While initial waves of immigration may create short-term demand pressures (e.g., for housing and services), the overall long-term benefits typically outweigh these effects by stabilizing the labor market and reducing inflationary pressures over time
To solve these problems and reduce inflation, many experts argue that increasing immigration should be a priority also by welcoming more immigrants, especially skilled worker, the U.S. could ease labor shortages, boost the economy, and help bring inflation under control. For noncitizen workers, entrepreneurs, and students who want to contribute to the U.S. workforce, this is a critical time to stay informed about immigration policies and opportunities. If you have questions about visas or work permits, consulting with an experienced immigration professional can help guide you through the process.
How Law and Visas Can Help?
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Our Immigration Consultants and Lawyers ensure that your application meets the highest standards, with no details missed. We’ll also keep you informed throughout the process and coordinate with the immigration office or embassy on your behalf.
Law and Visas has a strong record of helping clients secure the visas/permits they need to visit the United States. You can call us today at +234 812 5505 986 to learn how we can help you.
