Will stopping immigration cause labor shortages?

Will cutting immigration create worker shortages? I'll pull the latest research on labor markets and immigrant contributions.

Yes, most economic research finds that stopping or sharply reducing immigration would cause or worsen labor shortages in the United States - especially given current demographics - though the effect varies by industry, region, and time horizon.

1. Immigration is now the main driver of labor force growth

> Slowing labor force growth is the product of a number of factors — the aging of the U.S. population, retiring baby boomers and declining birth rates. But another element is immigration. Immigrants and their children contributed more than one-half of workforce growth in the past two decades.

> The future of America's economic strength depends on immigration. As the US birth rate declines and the median age goes up, fewer US-born workers will enter the labor force

> In recent years, growth in the U.S.-born working-age population has been weak, and nearly all growth in the labor force has stemmed from immigration flows

The Dallas Fed estimated:

If immigration continued at 2016 levels, the labor force would grow at 0.45% annually 2016-2060 to 193 million workers. With a 50 percent decline in legal immigration the growth rate would be cut by more than half, from 0.45 to 0.19 percent, and by 2060 there would be about 20 million fewer workers than in the base case.

The basic principle: The economy expands with growth in the labor force and its productivity. Due to retirement of baby boomers and population aging, immigration will play an even larger role in workforce growth going forward. Absent offsetting increases in productivity growth, less immigration will therefore translate directly into slower gross domestic product growth.

2. Recent experience: Less immigration = tighter labor market

The Federal Reserve Bank of Kansas City found:

> U.S. labor markets are currently experiencing unprecedented labor shortages. Reduced immigration flows in recent years have contributed to these labor supply shortages and tightened labor markets. Industries, occupations, and regions that rely more heavily on foreign workers have been particularly affected

From 2016 to 2021, an estimated 3.4 million additional immigrants might have entered the U.S. had the pre-2016 trend continued, many of whom would have joined the labor force.

Coincident with that decline:

Industries with larger shares of foreign-born workers in 2015 tended to experience more significant increases in job vacancy rates from 2016 to 2021. For example, industries such as construction, leisure and hospitality, and other services had an above-average share of foreign workers and experienced an above-average increase in vacancy rates.

Similar analysis from the Kansas City Fed more recently:

> increase in immigration has helped stabilize the labor market over the past two years. In industries and states that have struggled to fill positions, the arrival of immigrant workers has eased labor shortages

Federal Reserve policy makers have made the same argument:

> Immigration, which slowed during the pandemic, could help ease a shortage of workers in the U.S. that's pushed job vacancies to an all-time high

3. What would stopping immigration do now?

Estimates for current restrictionist policies:

> Immigration restrictions may reduce the U.S. labor force by 2.1 million people, which could cause upward wage pressure and push inflation higher

That estimate assumes removing ~1 million immigrants with existing deportation orders ( ~615,000 workers) plus ending protections for ~2.5 million on Temporary Protected Status, humanitarian parole and DACA ( >1.5 million workers) by 2027, totaling ~1.3% of a 169 million civilian labor force, not counting slower visa and green card issuance.

Other forecasts:

> If the current trends continue, The IMF estimates, the U.S. could have as many as 2.5 million fewer immigrants by the beginning of 2026 than there were in 2023

And the IMF and other analysts warn the U.S. crackdown on immigration could lead to greater labor shortages.

> Even as pandemic-related immigration restrictions and delays wane and immigration levels increase, the demand for immigrant workers will likely continue to exceed the supply of these workers in the absence of broader changes in immigration policy. As a result, industries and regions that depend on immigrant workers may continue to experience labor shortages

Net immigration has already declined significantly and is on track to be near zero for 2025, which analysts say has big implications: With fewer people in the workforce, the job market and economy could shrink.

Highly-impacted sectors include:

4. Nuance and counterarguments

Stopping immigration would not cause uniform shortages everywhere immediately:

a) Wages would adjust: As immigration declines, wages rise, as the reduced labor supply drives employers to raise wages to attract more workers. This could draw some U.S.-born workers into those jobs, but studies suggest the effect is modest and often insufficient in labor-intensive, low-pay jobs that U.S.-born workers have already exited after conditions degraded.

b) Some economists note a small negative effect on wages for competing low-skilled native workers: Most researchers agree new immigration has at least a small negative effect on wages and employment for other low-skilled immigrants and some low-wage native workers. In that narrow sense, restricting immigration could modestly raise wages for that group, but at the aggregate cost of slower growth and higher prices.

c) Automation and productivity: Over the medium-to-long term employers may automate to deal with worker shortages and rising wages, reducing the need for workers, but that takes time and investment and is not possible in many services like direct care which will likely experience increasing shortages and costs.

d) Short-term masking effect: Economists widely believe the lack of immigration has been a key factor limiting the rise in the unemployment rate. A shrinking pool of available labor acts as a "speed limit" for the economy - unemployment stays low not because jobs are plentiful, but because the labor force is shrinking, and shortages could be revealed if labor demand picks up.

Bottom line

In an economy where native-born population growth is near zero and baby boomers are retiring, stopping immigration would almost certainly reduce the total number of available workers, slow GDP growth, and intensify labor shortages in agriculture, construction, hospitality, health and home care, and other immigrant-reliant industries. It would likely push wages and prices up in those sectors, rather than create a one-for-one replacement of immigrant workers with U.S.-born workers.