Immigration Drives U.S. Job Growth, Boosting Economy’s Resilience

A recent surge in immigration is credited with fueling job growth in the United States, contributing to the economy’s remarkable resilience and potentially sustaining the booming job market without causing inflationary pressures in the foreseeable future.

Why It Matters: Although immigration policy remains a contentious political issue, economic policymakers widely agree that the influx of immigrants has significantly bolstered the labor supply, helping to mitigate price pressures amidst robust economic expansion.

Current Scenario: Analyzing data from the Brookings Institution, economists have quantified the impact of increased immigration on the labor market, revealing that a greater influx of workers has enabled the U.S. to achieve higher rates of payroll growth than previously anticipated before the pandemic.

According to Wendy Edelberg and Tara Watson, economists at the Hamilton Project, the accelerated population and labor force growth facilitated by immigration have allowed for faster employment expansion without exacerbating inflationary trends.

Key Figures: Before the pandemic, economists estimated sustainable monthly employment growth to range between 60,000 and 130,000 in 2023. However, considering the heightened immigration levels, the economy could have supported job growth between 160,000 and 230,000 without fueling wage and price inflation.

The authors suggest that if immigration persists at current levels, monthly employment growth of nearly 200,000 workers could be sustained, indicating a robust yet stable labor market—double the previous forecast.

Insights: Wendy Edelberg, former Congressional Budget Office chief economist, expressed surprise at the close alignment of employment growth with inflation targets, indicating that monetary policy may require less intervention than previously assumed to moderate labor market dynamics.

Methodology: The research draws on immigration estimates from the Congressional Budget Office, highlighting the underestimation of population and labor force growth by the Labor Department, which utilizes Census population data.

Overall Impact: The surge in immigration not only bolstered the labor force but also contributed to resilient consumer spending and GDP growth, with immigration estimated to have increased real consumer spending growth by about 0.2 percentage points last year.

However: Despite its economic benefits, the influx of immigrants has also heightened demand for housing, potentially driving up rents in certain areas.

Unforeseen Consequences: The authors caution that while elevated immigration rates have positively impacted the economy, they have also strained state resources. Moreover, abrupt changes in immigration policy could disrupt local economies accustomed to steady growth.

Policy Implications: While immigration-driven job growth has been beneficial overall, policymakers face challenges in managing its impact on local resources. Optimal immigration policies are essential to ensure sustained economic growth without causing undue strain on communities.

Looking Ahead: Federal Reserve Chair Jerome Powell acknowledged the significant contribution of immigration to economic growth but refrained from making policy recommendations, emphasizing the need for evidence-based decision-making in immigration policy discussions.


Source: Axios