Will stopping immigration cause labor shortages?

Whether stopping immigration will cause labor shortages is one of the most heavily debated questions in economics.

The consensus among mainstream economists and empirical research is that stopping or significantly reducing immigration does cause labor shortages, particularly in countries with aging populations. However, proponents of immigration restrictions argue that "labor shortages" are a misnomer and that a reduced labor supply forces positive adjustments in the economy, such as wage increases and automation.

The arguments and evidence for both sides of this debate illustrate the economic dynamics at play.

The Consensus View: Why Stopping Immigration Causes Labor Shortages

Most economists, central bank officials, and business leaders argue that immigration is vital to meeting labor demands. If immigration were to stop, several structural pressures would trigger widespread labor shortages:

1. Demographic Decline and Aging Populations

Developed nations like the United States, Japan, and much of Europe are facing declining birth rates and rapidly aging workforces. As the "Baby Boomer" generation retires, there are not enough native-born workers entering the labor force to replace them. Historically, immigration has filled this demographic gap by adding younger, working-age individuals to the population. Stopping this flow shrinks the overall workforce over time.

2. Deep Reliance in Key Sectors

Certain industries rely heavily on foreign-born labor. If immigration stops, these sectors immediately face severe staffing crises:

3. The Concept of "Complementarity"

Arguments for restricting immigration often assume that immigrants and native-born workers are perfect substitutes (competing for the exact same jobs). However, economic research shows they are highly complementary.
For example, foreign-born construction laborers or agricultural workers enable native-born managers, logistics coordinators, equipment operators, and business owners to keep their operations going. When the supply of immigrant labor vanishes, businesses often contract or shut down entirely, which actually leads to job losses or wage stagnation for native-born workers.

The Restrictionist View: The Argument Against "Labor Shortages"

Organizations that advocate for lower immigration levels, such as the Center for Immigration Studies (CIS), argue that a "labor shortage" is a misleading concept in a free-market economy. Their arguments include:

1. A Shortage of "Cheap Labor," Not Workers

Restrictionists argue that when employers complain of a "labor shortage," they actually mean a shortage of people willing to work for the low wages they want to pay. They contend that if immigration is stopped, employers will be forced to compete for native-born workers by raising wages, offering better benefits, and improving working conditions.

2. Encouraging Automation and Efficiency

When labor is cheap and abundant, businesses have little incentive to invest in costly technologies. Proponents of immigration limits argue that restricting the labor supply forces industries to innovate. For instance, a farm facing a labor shortage might invest in automated harvesting machinery, raising productivity and creating higher-skilled, higher-paying technical roles for domestic workers.

3. Drawing Marginalized Domestic Workers Back into the Labor Force

In many developed nations, a significant portion of the working-age, non-college-educated population has dropped out of the labor force entirely. Restrictionists argue that a tighter labor market—created by ending immigration—would provide the necessary economic incentive to pull these discouraged native-born workers back into employment.

What Recent Economic Data and Research Show

Real-world scenarios—such as the drop in immigration during the COVID-19 pandemic and subsequent policy tightenings—have provided economists with natural experiments to study these theories:

Conclusion

Stopping immigration does cause labor shortages in the real economy. While restricting immigration can theoretically incentivize companies to raise wages or automate, empirical evidence shows that these mechanisms rarely fully offset the losses. Instead, a sudden halt to immigration typically leads to persistent worker shortages in critical sectors like agriculture, healthcare, and construction, resulting in slower economic growth and higher inflation.