Will stopping immigration cause labor shortages?

The question of whether stopping immigration will cause labor shortages is one of the most hotly debated topics in modern economics and policy.

To understand the relationship between immigration and labor, economists generally divide into two schools of thought. Mainstream economic models suggest that stopping immigration creates immediate and severe labor shortages, leading to inflation and slower economic growth. On the other hand, market-adjustment (or restrictionist) theorists argue that "labor shortages" are actually "wage shortages," and that restricting immigration forces the market to raise wages, increase domestic hiring, and invest in automation.

1. The Argument That Stopping Immigration Will Cause Labor Shortages

Most economists, central bank researchers, and business groups argue that immigration is vital to keeping the labor market functioning, particularly in developed nations with aging populations. Their arguments are built on several key factors:

•Demographic Decline: In countries like the United States, Canada, and parts of Europe, the native-born population is aging, and birth rates are well below replacement levels. Without immigration, the total working-age population would shrink, leaving fewer taxpayers to support social safety nets and retirement systems.

•Industry-Specific Exposure: Certain sectors are heavily dependent on foreign-born labor. In the U.S., for instance, immigrants make up a massive portion of the workforce in agriculture, construction, hospitality, and healthcare. Economists warn that stopping immigration or deporting undocumented workers would lead to immediate, severe worker shortages in these fields, leaving crops unharvested, slowing down housing construction, and straining elder care.

•Historical Evidence: Economic data from periods of reduced immigration supports this view. During the COVID-19 pandemic and subsequent policy changes (from 2017 to 2021), a sharp drop in net international migration significantly tightened the labor market. Federal Reserve research showed that this immigration shortfall raised the ratio of job vacancies to unemployed workers, contributing to persistent inflation.

•The "Lump of Labor" Fallacy: Pro-immigration economists emphasize that the economy is not a zero-sum game with a fixed number of jobs. Immigrants are not just workers; they are also consumers who buy groceries, rent apartments, and pay taxes, which in turn creates more jobs. Studies of immigration crackdowns have shown that rather than boosting native employment, removing immigrant workers often causes businesses to close or scale back, actually reducing jobs for native-born workers.

2. The Argument That Reducing Immigration Will Not Cause a True Shortage

Immigration restrictionists and free-market skeptics (such as researchers at the Center for Immigration Studies) argue that the concept of a "labor shortage" is a myth used by corporations to keep labor cheap. Their perspective is rooted in basic supply-and-demand economics:

•The "Wage Shortage" Theory: In a free market, a "shortage" of a good or service is resolved by raising the price. Restrictionists argue that if a business cannot find workers, it is not because workers do not exist, but because the business is refusing to pay a market-clearing wage. Stopping immigration, they argue, would force employers to compete for limited labor by offering higher wages and better working conditions.

•Activating the "Off-the-Grid" Domestic Workforce: Proponents of restricting immigration point out that there are tens of millions of working-age, native-born Americans who are currently "out of the labor force" (meaning they are neither working nor actively looking for work). They argue that a tighter labor market would entice these marginalized, less-skilled native workers back into employment.

•Incentive for Innovation and Automation: When cheap labor is abundant, businesses have little incentive to invest in productivity-boosting technologies. If immigration stops and labor costs rise, companies are forced to invest in automation, better training, and capital equipment. In the long run, this transition can lead to a more highly productive, higher-wage economy.

•Relieving Strain on Public Infrastructure: Restrictionists also emphasize the non-labor costs of rapid population growth, such as increased strain on public education, healthcare systems, housing supply, and municipal budgets. They argue that a smaller workforce is a fair trade-off for reduced public spending and cheaper housing.

Summary: What is the Likely Outcome?

Whether stopping immigration causes a "labor shortage" depends on the timeframe and how one defines a shortage:

1.In the Short Term: Yes, stopping immigration would almost certainly cause severe labor shortages. Businesses in labor-intensive industries would struggle to find workers, leading to service disruptions, lower overall economic output (GDP), higher prices for consumers (especially in food and housing), and business closures.

2.In the Long Term: The economy would restructure. Businesses would adapt by raising wages to attract domestic workers, automating repetitive tasks, or shrinking their operations. However, this restructuring would likely result in a smaller, slower-growing aggregate economy, albeit one that might feature higher wages for certain native-born, low-skilled workers.

Citations (15)

1facebook.comSocial media and video
facebook.com
Backs: “Demographic Decline: In countries like the United States, Canada, and parts of Europe, the native-born population is aging, and birth rates are well below replacement levels.”
2frbsf.orgGovernment
frbsf.org
Backs: “Demographic Decline: In countries like the United States, Canada, and parts of Europe, the native-born population is aging, and birth rates are well below replacement levels.”
3wes.orgNonprofits and think tanks
wes.org
Backs: “Industry-Specific Exposure: Certain sectors are heavily dependent on foreign-born labor.”
4cis.orgNonprofits and think tanks
cis.org
Backs: “Industry-Specific Exposure: Certain sectors are heavily dependent on foreign-born labor.”
5bakerinstitute.orgNonprofits and think tanks
bakerinstitute.org
Backs: “In the U.S., for instance, immigrants make up a massive portion of the workforce in agriculture, construction, hospitality, and healthcare.”
6equitablegrowth.orgNonprofits and think tanks
equitablegrowth.org
Backs: “In the U.S., for instance, immigrants make up a massive portion of the workforce in agriculture, construction, hospitality, and healthcare.”
7econlib.orgEncyclopedias and reference
econlib.org
Backs: “Economists warn that stopping immigration or deporting undocumented workers would lead to immediate, severe worker shortages in these fields, leaving crops unharvested, slowing down housing construction, and straining elder care.”
8forbes.comNews and mediaquality 0.83
forbes.com
Backs: “The "Lump of Labor" Fallacy: Pro-immigration economists emphasize that the economy is not a zero-sum game with a fixed number of jobs.”
9cfr.orgNonprofits and think tanks
cfr.org
Backs: “Immigrants are not just workers; they are also consumers who buy groceries, rent apartments, and pay taxes, which in turn creates more jobs.”
10cis.orgNonprofits and think tanks
cis.org
Backs: “The Argument That Reducing Immigration Will Not Cause a True Shortage. Immigration restrictionists and free-market skeptics (such as researchers at the Center for Immigration Studies) argue that the concept of a "labor shortage" is a myth used by corporations to keep labor cheap.”
11reddit.comForums and Q&A
reddit.com
Backs: “The Argument That Reducing Immigration Will Not Cause a True Shortage. Immigration restrictionists and free-market skeptics (such as researchers at the Center for Immigration Studies) argue that the concept of a "labor shortage" is a myth used by corporations to keep labor cheap.”
12ideaspace.comNot yet classified
ideaspace.com
Backs: “Restrictionists argue that if a business cannot find workers, it is not because workers do not exist, but because the business is refusing to pay a market-clearing wage.”
13cis.orgNonprofits and think tanks
cis.org
Backs: “Stopping immigration, they argue, would force employers to compete for limited labor by offering higher wages and better working conditions.”
14cis.orgNonprofits and think tanks
cis.org
Backs: “Activating the "Off-the-Grid" Domestic Workforce: Proponents of restricting immigration point out that there are tens of millions of working-age, native-born Americans who are currently "out of the labor force" (meaning they are neither working nor actively looking for work).”
15economicshelp.orgCommercial contentquality 0.84
economicshelp.org
Backs: “If immigration stops and labor costs rise, companies are forced to invest in automation, better training, and capital equipment.”