Will stopping immigration cause labor shortages?

Will halting immigration tighten labor markets? I'll gather recent research on the link.

Yes, most economic research finds that stopping or sharply reducing immigration would cause or worsen labor shortages - particularly in specific industries and over the long term due to demographics - though the aggregate effect is debated.

1. General finding: Reduced immigration tightens labor supply

Federal Reserve research finds:

> 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 2016-2021, an estimated 3.4 million additional immigrants might have entered if pre-2016 trends continued, many of whom would have joined the labor force.

The decline in immigration coincided with labor market tightening: mean real earnings increased by 9%, vacancy rates rose, and industries that had a larger share of foreign-born workers in 2015 tended to experience more significant increases in job vacancy rates from 2016 to 2021

> industries that had a larger share of foreignborn workers in 2015 tended to experience more significant increases in job vacancy rates from 2016 to 2021

Researchers at UC Davis found similar results:

> labor shortages are a result of a dramatic drop in foreign labor supply growth. Sectors that are reliant on immigrant workers had significantly higher rates of unfilled jobs in 2021

The Kansas City Fed concluded that even as pandemic-related restrictions wane:

> 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.

2. Which sectors are most vulnerable?

Immigrants are not evenly distributed across the economy.

An American Action Forum analysis estimated that in 2012 roughly 6.8 million employed workers in the private sector were undocumented immigrants, making up 5.6 percent of all employed people in the private sector.

Removing them would disproportionately affect industries that rely heavily on them:

> The industries most strained would include agriculture, construction, and leisure and hospitality.

With concentrations like:

Immigrants also provide critical services in understaffed sectors such as direct care: in 2019, more than 25 percent of directcare workers were foreign born. Reduced supply increases costs and may cause other workers (e.g., parents) to exit the labor force to replace lost childcare services.

3. Demographic context: Why immigration has offset native labor decline

The shortage is not only about immigration itself, but about aging and low fertility:

Studies project that:

> without continued immigration, the U.S. working-age population will decrease significantly by 2040.

The U.S. had an average net reproduction ratio of 0.97 for two decades — 3 percent less than the level required for longterm population stability, absent compensatory immigration.

4. Nuance and counterarguments

Not all studies find a direct causal link for aggregate labor market tightness after COVID-19:

A Federal Reserve Bank of St. Louis study found:

> We find no evidence to support the hypothesis that the immigration shortfalls caused the tight labor market, for two main reasons. First, while the immigration deficit peaked at about two million workers, this number had largely recovered by February 2022, just as labor market tightness was increasing.

> we do not find that states, cities, or industries most impacted by immigration restrictions also experienced larger increases in labor market tightness.

Using measures of missing workers, they found:

> In no case do we find a significant positive correlation, meaning that industries, states, and cities with the most missing workers did not systematically experience larger increases in the VU ratio or higher wage growth.

Other research also shows that stopping immigration does not automatically create jobs for U.S.-born workers:

> "We show that heightened ICE activity is harming the labor market overall, and we find no evidence that it is benefiting U.S.-born workers,"

Areas with large increases in ICE arrests saw a decline in work among US-born male workers, driven by those with a high school degree or less, with no evidence that employers increased wages to attract US-born workers to fill roles.

This suggests immigrants and natives are often complements rather than substitutes - when immigrant labor is removed, businesses may cut output, close, or reduce hiring overall rather than replace workers one-for-one. The Action Forum estimated that even if native workers filled jobs left by undocumented immigrants, there were not nearly enough unemployed workers to offset a loss of all 6.8 million employed undocumented workers, with private sector employment falling by 4 to 6.8 million.

5. Bottom line

In general, economists view immigration as easing labor shortages by helping fill vacancies and dampening wage growth, rather than creating unemployment for natives.