The Trump Administration’s 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’s 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.
The authors note that unauthorized immigrants are not illegals. They’re 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’ve 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 “their cases proceed through the court system,” as they seek asylum or otherwise challenge removal in order to achieve permanent residency.
Wilson and Zhao then match the inflows to clusters of counties that form employment hubs—geographies where workers commute to jobs—to 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.
Couldn’t 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’s new demand that created the jobs, not the fresh supply of 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.
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 “an increase in the unauthorized local workforce equal to 1% of local employment raises local employment by 0.92%.” 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—and these immigrants effectively provided that missing input.
The CBO effectively acknowledges the power of immigration in stating, “The reduction in net migration slows the growth of the labor force and puts downward pressure on the CBO’s projections. It slows the pace of GDP growth while dampening aggregate consumer demand and slowing the construction of new housing.” 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.
In the years that Friedman spent at Stanford’s Hoover Institution, I spoke to him frequently on subjects ranging from the doctor shortage to the sources of inflation. Usually, I’d leave a message with his assistant, and Friedman would call back, collect! The operator would intone something like, “Will you accept the charges from Milton?” and the great man would start our conversation by joking, “I was most amused that the operator’s referring to me as Milton.” Friedman was right about a lot of things: the monetizing of huge deficits, the phenomenon that he claimed caused inflation, is indeed what sent prices soaring post-pandemic. The new Fed study also shows that he was right on immigration. And to gain that insight, I didn’t have to accept the charges.
