Will stopping immigration cause labor shortages?

Whether stopping immigration will cause labor shortages is a central question in modern economics. The short answer is yes, in the short to medium term, stopping immigration almost certainly causes labor shortages, particularly in specific sectors.

However, the long-term impact is more complex. How the economy responds depends on how businesses, wages, and technology adapt to a smaller labor pool.

1. Why Stopping Immigration Causes Labor Shortages

Most economists agree that a sudden or complete halt to immigration creates immediate labor shortages for several key reasons:

•Demographics and Aging Populations: In many developed nations (such as the U.S., Japan, and much of Europe), fertility rates are below replacement levels, and the "Baby Boomer" generation is retiring. Without immigration, the total working-age population shrinks, leaving fewer workers to support a growing number of retirees.

•High-Reliance Industries: Certain sectors rely heavily on immigrant labor because domestic workers are often unwilling or unavailable to do the work. These include:

•Agriculture: Planting and harvesting crops.

•Healthcare and Eldercare: Home health aides and nursing assistants, which are in increasingly high demand as populations age.

•Construction and Hospitality: Food service, hospitality, and building trades.

•STEM/High-Tech: High-skilled immigrants fill critical gaps in engineering, software development, and scientific research.

•The "Lump of Labor" Fallacy: Critics of immigration often assume there is a fixed number of jobs in an economy, meaning an immigrant "takes" a job from a native worker. Economists reject this idea. Immigrants are also consumers; they buy food, rent homes, and use services, which creates demand and jobs. When immigration stops, consumer demand slows down, which can actually lead to broader economic contraction and job losses for native-born workers.

2. How the Economy Adapts (The Counterarguments)

Proponents of restricting immigration argue that a labor shortage is not a permanent crisis, but rather a transition period that forces the economy to adapt in positive ways:

•Rising Wages: Classic economic theory suggests that if the supply of labor drops, the price of labor (wages) must rise. Employers, unable to find cheap foreign labor, will be forced to raise wages and offer better working conditions to attract domestic workers who were previously on the sidelines.

•Automation and Capital Investment: When labor becomes expensive or scarce, businesses invest in technology. For example, a farm might purchase expensive automated harvesting machines, or a restaurant might install self-ordering kiosks. This increases productivity, allowing the economy to produce the same output with fewer workers.

•Activating the Domestic Labor Force: Higher wages can encourage economically inactive native-born populations—such as retirees, students, or discouraged workers—to re-enter the workforce.

3. What Historical and Empirical Evidence Shows

Real-world examples suggest that while market adaptations do happen, they often come with significant economic pain, inflation, or structural decline:

•The U.S. Border Closure of the 1920s: When the U.S. heavily restricted immigration in the 1920s, economists found that it did not boost wages for native-born workers. Instead, in cities, the lost immigrant labor was replaced by internal migrants; in rural areas, farmers automated; and some labor-intensive industries, like mining, simply contracted and shrank.

•Post-COVID-19 Pandemic Recovery: During the COVID-19 pandemic, international travel restrictions halted global immigration. When economies reopened in 2021 and 2022, countries like the U.S. and the UK experienced severe labor shortages, particularly in hospitality, trucking, and agriculture. Mainstream economists and central bank officials pointed to this sudden immigration shortfall as a key driver of supply chain bottlenecks and inflation.

•The Case of Japan: Japan has historically maintained very strict immigration laws while facing a rapidly aging and shrinking population. While Japan successfully pioneered automation (using robotics in manufacturing and caregiving), it has still suffered from decades of stagnant economic growth and chronic labor shortages in service sectors, eventually forcing the country to ease its immigration rules to bring in foreign workers.

Summary

Stopping immigration will cause immediate labor shortages, particularly in agriculture, healthcare, hospitality, and high-tech sectors. Over time, the economy will attempt to adjust through higher wages, automation, and business contraction. However, economic research suggests these adjustments rarely fully offset the loss of workers, often resulting in higher consumer prices, lower overall economic growth, and reduced competitiveness globally.

Citations (9)

1equitablegrowth.orgNonprofits and think tanks
equitablegrowth.org
Backs: “The short answer is yes, in the short to medium term, stopping immigration almost certainly causes labor shortages, particularly in specific sectors.”
2econofact.orgAcademic
econofact.org
Backs: “The short answer is yes, in the short to medium term, stopping immigration almost certainly causes labor shortages, particularly in specific sectors.”
3stanford.eduAcademic
stanford.edu
Backs: “How the economy responds depends on how businesses, wages, and technology adapt to a smaller labor pool.”
4princeton.eduAcademic
princeton.edu
Backs: “How the economy responds depends on how businesses, wages, and technology adapt to a smaller labor pool.”
5wes.orgNonprofits and think tanks
wes.org
Backs: “Demographics and Aging Populations: In many developed nations (such as the U.S., Japan, and much of Europe), fertility rates are below replacement levels, and the "Baby Boomer" generation is retiring.”
6cis.orgNonprofits and think tanks
cis.org
Backs: “High-Reliance Industries: Certain sectors rely heavily on immigrant labor because domestic workers are often unwilling or unavailable to do the work.”
7nih.govGovernment
nih.gov
Backs: “Healthcare and Eldercare: Home health aides and nursing assistants, which are in increasingly high demand as populations age.”
8forbes.comNews and mediaquality 0.83
forbes.com
Backs: “Construction and Hospitality: Food service, hospitality, and building trades.”
9nber.orgAcademic
nber.org
Backs: “When immigration stops, consumer demand slows down, which can actually lead to broader economic contraction and job losses for native-born workers.”