Will stopping immigration cause labor shortages?

Whether stopping or significantly reducing immigration causes labor shortages is a central question in modern economics. The short answer is yes, in the short to medium term, stopping immigration almost always causes labor shortages, particularly in countries with aging populations.

However, how the economy adapts to these shortages in the long run is a subject of intense debate among economists, policymakers, and business leaders.

The economic arguments on both sides of the issue reveal distinct perspectives on how labor markets respond to restrictionist immigration policies.

1. The Standard Economic View: Why Stopping Immigration Causes Labor Shortages

Most mainstream economists and business groups argue that immigration is essential to modern labor supply, and halting it leads to severe workforce deficits. This argument relies on several key factors:

•Demographic Decline: Most advanced economies (such as the United States, Japan, and Western Europe) are facing declining birth rates and rapidly aging populations. As the "Baby Boomer" generation retires, there are not enough native-born workers entering the workforce to replace them. In this context, immigration is the primary driver of labor force growth.

•Sector-Specific Deficits: Certain industries rely heavily on foreign-born labor.

•Low-wage/Physical Labor: Agriculture, construction, hospitality, food processing, and domestic services (like cleaning and landscaping) have very high concentrations of immigrant workers.

•Healthcare and Eldercare: An aging population increases demand for nurses, home health aides, and eldercare workers—roles that are increasingly filled by immigrants.

•High-Tech and STEM: High-skilled immigrants fill critical talent gaps in technology, engineering, and medical research.

•Economic Bottlenecks and Inflation: When immigration slows or stops, these key sectors face immediate labor shortages. This can lead to crop failures (due to unharvested fields), construction delays, and understaffed hospitals. These bottlenecks can drive up the cost of goods and services, contributing to inflation.

•The "Fixed Number of Jobs" Fallacy: Economists point out that the economy is not a zero-sum game with a fixed number of jobs (known as the lump of labor fallacy). Immigrants do not just take jobs; they also consume goods, buy houses, pay taxes, and start businesses, which in turn creates more jobs for native-born workers. Halting immigration shrinks the overall size of the economy, reducing total demand and employment opportunities.

2. The Restrictionist View: How the Economy Might Adjust

Proponents of reducing immigration, along with some labor economists, argue that while stopping immigration may cause short-term disruptions, the economy will naturally adjust in ways that benefit domestic workers:

•Wage Growth for Native Workers: When the supply of labor decreases, basic economic theory suggests that the price of labor (wages) must go up. Employers, unable to rely on cheap foreign labor, are forced to raise wages and improve working conditions to attract native-born workers who are currently unemployed or out of the labor force.

•Incentives for Automation: A continuous supply of low-cost labor can sometimes act as a "crutch" that discourages businesses from modernizing. If labor becomes scarce and expensive, companies have a strong financial incentive to invest in capital, technology, and automation. For example, a farm might purchase expensive automated harvesting machinery rather than hiring seasonal migrant workers. This "capital deepening" can ultimately boost national productivity.

•Encouraging Inactive Workers to Re-enter: Higher wages and better benefits can entice people who have dropped out of the labor force—such as retirees, stay-at-home parents, or discouraged workers—to return to work.

•Relieving Strain on Infrastructure: Some argue that lower immigration reduces the burden on public services, housing, schools, and healthcare systems, which can offset some of the direct economic losses from a smaller workforce.

3. What Does the Real-World Evidence Show?

When countries or states have abruptly reduced immigration, empirical studies have yielded mixed but generally challenging outcomes:

•Native Workers Rarely Fill the Gaps: Research shows that native-born workers are often unwilling to take physically demanding, seasonal, or low-prestige jobs (such as agricultural harvesting or meatpacking) even when wages are raised significantly.

•Business Downsizing over Automation: In many cases, rather than automating, businesses that lose access to immigrant labor simply scale back operations, downsize, or shut down entirely. For example, when agricultural labor is restricted, farms often switch to less labor-intensive crops or import more food from abroad.

•Impact on Wages is Minimal: While standard theory suggests wages should rise, empirical evidence suggests the long-term wage gains for native workers from restricting immigration are very small. For example, a study by the National Bureau of Economic Research (NBER) found that while deporting unauthorized workers might cause a tiny, temporary bump in wages for some native workers, in the long run, the reduction in overall economic activity and capital investment actually leads to a decrease in real wages for native-born workers.

•A Real-World Example (US Policy Shift): During periods of sharply reduced net migration and increased enforcement (such as the mid-2020s), sectors like construction and manufacturing faced persistent understaffing. Data from these periods showed that the expected wave of native-born workers returning to fill these vacancies largely failed to materialize, resulting in delayed infrastructure projects and higher housing development costs.

Conclusion

Stopping immigration will cause labor shortages, especially in physically demanding, service-oriented, and highly specialized sectors.

While restrictionists correctly point out that labor scarcity can incentivize automation and put upward pressure on wages in certain low-skilled sectors, economists generally agree that these adjustments are rarely seamless or complete. In countries facing demographic decline, a total halt to immigration typically results in a smaller economy, higher prices for consumers, and persistent unfilled vacancies in critical industries.

Citations (6)

1csis.orgNonprofits and think tanks
csis.org
Backs: “Most mainstream economists and business groups argue that immigration is essential to modern labor supply, and halting it leads to severe workforce deficits.”
2americanprogress.orgNonprofits and think tanks
americanprogress.org
Backs: “Most mainstream economists and business groups argue that immigration is essential to modern labor supply, and halting it leads to severe workforce deficits.”
3equitablegrowth.orgNonprofits and think tanks
equitablegrowth.org
Backs: “Low-wage/Physical Labor: Agriculture, construction, hospitality, food processing, and domestic services (like cleaning and landscaping) have very high concentrations of immigrant workers.”
4forbes.comNews and mediaquality 0.83
forbes.com
Backs: “This can lead to crop failures (due to unharvested fields), construction delays, and understaffed hospitals. These bottlenecks can drive up the cost of goods and services, contributing to inflation.”
5bakerinstitute.orgNonprofits and think tanks
bakerinstitute.org
Backs: “Wage Growth for Native Workers: When the supply of labor decreases, basic economic theory suggests that the price of labor (wages) must go up. Employers, unable to rely on cheap foreign labor, are forced to raise wages and improve working conditions to attract native-born workers who are currently unemployed or out of…”
6migrationpolicy.orgNonprofits and think tanks
migrationpolicy.org
Backs: “Incentives for Automation: A continuous supply of low-cost labor can sometimes act as a "crutch" that discourages businesses from modernizing. If labor becomes scarce and expensive, companies have a strong financial incentive to invest in capital, technology, and automation.”