How immigrants are driving labor force growth, easing worker shortages and inflation

Immigrants are powering growth in the U.S. labor force, helping ease long-standing worker shortages and a historic inflation spike.

Since February 2020, before the pandemic started, 2.1 million foreign-born workers have streamed into the labor force – which includes people working and looking for jobs – compared with 422,000 U.S.-born people, according to data from Moody’s Analytics and the Bureau of Labor Statistics. That means immigrants made up 83% of the growth in the nation’s labor force.

The numbers represent net increases after accounting for workers entering the job market and those leaving because of retirement, illness or other reasons.

Immigration is at the center of the latest crisis at the southern border, with a COVID-era policy that allowed easier expulsion of migrants, called Title 42, ending late Thursday night after more than three years. Republicans, and some Democrats, have accused the Biden Administration of not being prepared for an expected influx of thousands of migrants.

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In March, foreign-born workers comprised about 31 million, or 18.5%, of the nation’s total labor force of 167 million, just below the record 18.6% in February. They include not just recent immigrants but anyone who was born in another country and migrated to the U.S., even if they came decades ago as infants.

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An immigration activist participates in a rally near the U.S. Supreme Court as they demonstrate to highlight immigrant essential worker rights, on May 12, 2021, in Washington, DC. The group marched on Capitol Hill as the Senate Judiciary Committee held a subcommittee hearing on the role of essential immigrant workers in America.
An immigration activist participates in a rally near the U.S. Supreme Court as they demonstrate to highlight immigrant essential worker rights, on May 12, 2021, in Washington, DC. The group marched on Capitol Hill as the Senate Judiciary Committee held a subcommittee hearing on the role of essential immigrant workers in America.

After stagnating for most of last year, the share of people working or looking for jobs has risen to 62.6% in March from 62.2% in November, BLS figures show. That’s still below the pre-pandemic mark of 63.3%, but the increase has helped ease COVID-19-related worker shortages and slow average wage growth that topped 5% last year.

Federal Reserve Chair Jerome Powell says moderating pay increases are crucial to lowering inflation to the Fed’s 2% target and halting an aggressive campaign of interest rate hikes that has many economists forecasting a recession this year.

Many of the new entrants to the labor force are people – U.S. and foreign-born alike – who were sidelined by COVID-19-related health concerns or child care duties, or whose savings from pandemic stimulus checks have finally depleted.

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But give credit to immigrants for much of the gains.

“Most of the growth we’ve had in the labor force has come from immigration,” says Moody’s economist Marisa DiNatale.

The increase has come despite constraints on immigration imposed by President Donald Trump’s administration and a pandemic that virtually froze movement among countries for the better part of two years.

The figures, DiNatale says, highlight the need to reduce barriers to immigration to grow the labor force and boost productivity and economic growth, especially since U.S. fertility rates have been declining.

Foreign-born workers have entered the job market at a faster pace than U.S.-born  people for an even longer period. Since early 2010, both pools of workers have increased by about 6 million, but the much smaller group of foreign-born people swelled by 29.3%, compared with a 4.7% advance for U.S.-born workers.

Yet, since the pandemic, foreign-born workers have made up a growing share of the labor force.

Here’s why:

Industries hurt by COVID are bouncing back

Much of the nation’s record job growth in 2021 and 2022 occurred in service industries that were clobbered by the pandemic but have rebounded strongly, including restaurants and bars, retail, construction, transportation and health care. Those sectors have a disproportionate share of immigrants, according to DiNatale, BLS and the Migration Policy Institute, a nonpartisan think tank.

Foreign-born workers represented nearly one-quarter of the construction workforce in 2021, according to the National Association of Home Builders and the Census Bureau.

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July 1, 2022: Sheannica Chua participates in a naturalization ceremony held for the United States Citizenship and Immigration Services annual Independence Day celebration at Stavros Niarchos Foundation Library.
July 1, 2022: Sheannica Chua participates in a naturalization ceremony held for the United States Citizenship and Immigration Services annual Independence Day celebration at Stavros Niarchos Foundation Library.

Immigrants retire later

While an outsize share of U.S.-born baby boomers retired early during the pandemic, many of their foreign-born counterparts have continued to work. Since March 2020, the ranks of U.S.-born workers ages 45 to 54 have declined by 3.4%, and the number of 55- to 64-year-olds has dropped by 4.3%, according to Moody’s and BLS.

Meanwhile, the number of immigrants in those age groups has increased by 11.7% and 13.1%, respectively.

Foreign-born workers generally may have to work longer because they earn lower wages and have less in savings than their U.S.-born counterparts, according to DiNatale and BLS. The Social Security benefits to which they are entitled are also lower on average, and, as a result, foreign-born people may need to work longer because those benefits are based on the 35 highest-earning years, according to a 2019 study by the National Bureau of Economic Research.

Immigration surged last year

After peaking at 1.2 million in 2016, net immigration to the U.S. began dropping gradually to 915,000 in 2019 amid Trump-era constraints before plunging to 376,000 by 2021, mostly because of COVID-19-related restrictions, according to the census.

But as the health crisis has faded and the Biden administration has lowered some immigration barriers, immigration topped 1 million in the past fiscal year (ending in July), the largest yearly increase on record.

“Reopening of borders in 2022 and easing of immigration policies brought a sizable immigration rebound, which in turn helped alleviate the shortage of workers relative to job vacancies,” a paper by the Federal Reserve Bank of San Francisco said in February.

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Is immigration a long-term remedy?

A Brookings Institution report last year found that jobs held by immigrants – such as in food preparation, motor vehicle operation, material moving and building cleaning – often complement and support other jobs held by workers born in the U.S.

But a paper this month by the Migration Policy Institute says relying too heavily on immigration to solve worker shortages can prompt employers and governments to put off investments in worker training for hard-to-fill jobs and automation that improves productivity.

“These studies underscore the importance of helping local workers, both native-born and resident immigrants, to upskill and even change professions as labor markets transform,” the study says.

This article originally appeared on USA TODAY: Immigrants are powering growth in labor force, helping ease inflation

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