Will stopping immigration cause labor shortages?

YesSays it is contested

Whether stopping or severely restricting immigration will cause labor shortages is a central question in economic policy.

Most economists agree that stopping immigration will cause immediate and structural labor shortages in specific industries, particularly in developed nations facing aging populations. However, proponents of restricting immigration argue that these "shortages" can serve as a catalyst for positive economic adjustments, such as rising wages for domestic workers and increased investment in automation.

1. Why Stopping Immigration Causes Labor Shortages

Under the prevailing economic consensus, a sudden or complete halt to immigration creates severe labor supply shocks for several key reasons:

•Demographic Declines: Many developed countries (including the U.S., Japan, and much of Western Europe) have birth rates well below the replacement level. As the "Baby Boomer" generation retires, there are simply not enough native-born workers entering the labor market to replace them. Immigration is currently the primary driver of labor force growth in these nations.

•High-Reliance Sectors: Certain industries rely heavily on immigrant labor because they require physical, seasonal, or specialized work that domestic workers often avoid. These sectors include:

•Agriculture: Over a quarter of all agricultural workers (and more than half of crop-graders and sorters) are immigrants.

•Construction: Immigrants make up roughly 25% of the construction workforce.

•Healthcare & Caregiving: Immigrants account for over 15% of nurses, 28% of health-care aides, and a substantial percentage of medical doctors.

•Hospitality & Services: Restaurants, hotels, and cleaning services depend heavily on foreign-born labor.

•The "Complementarity" Effect: Immigrant and native-born workers rarely compete for the exact same jobs; instead, their roles often complement one another. For example, a shortage of low-skilled immigrant construction laborers will slow down or halt building projects, which in turn reduces the demand—and jobs—for native-born engineers, architects, managers, and plumbers.

•Real-World Precedent: The COVID-19 pandemic provided a natural experiment. When international travel and visa processing ground to a near-halt, the U.S. experienced a deficit of roughly 2 million working-age immigrants. Economists and Federal Reserve officials pointed to this sudden drop as a direct contributor to the severe post-pandemic labor shortages and subsequent inflation.

2. The Argument for Restricting Immigration: Why "Shortages" Can Be Seen as Beneficial

Proponents of tighter immigration controls argue that a lack of foreign labor is not necessarily a crisis, but rather an economic opportunity to improve the position of domestic workers:

•Upward Pressure on Wages: According to basic laws of supply and demand, a shortage of labor forces employers to compete for a limited pool of workers. To attract native-born workers, businesses must offer higher wages, better benefits, and improved working conditions.

•Incentives for Automation: When cheap labor is abundant, businesses have little incentive to invest in expensive machinery. A labor shortage can drive rapid technological innovation—such as mechanized harvesting in agriculture or automated service kiosks in hospitality—which ultimately boosts overall economic productivity.

•Mobilizing Sidelined Domestic Workers: High immigration levels can make it easier for companies to bypass domestic labor pools that have dropped out of the workforce. Tight labor markets force companies to recruit, train, and accommodate marginalized domestic workers, such as individuals with disabilities, those without high school degrees, or those residing in economically depressed regions.

3. What the Economic Data Shows

While both arguments have theoretical merit, empirical studies show that the negative effects of halting immigration generally outweigh the positive ones in the aggregate:

•Limited Long-Term Wage Gains: Research indicates that while stopping immigration might cause a brief bump in wages for specific low-skilled domestic workers, this effect is often short-lived. Rather than bidding wages up indefinitely, many businesses respond to prolonged labor shortages by reducing operating hours, canceling projects, moving operations abroad, or closing entirely.

•Economic Contraction: Economic modeling (such as studies conducted by the Penn Wharton Budget Model) suggests that severe restrictions on immigration or mass deportations shrink overall GDP. When the labor supply shrinks, the economy’s productive capacity decreases, leading to lower consumer spending, reduced tax revenues, and higher prices (inflation) for goods and services.

•Stagnant Domestic Job Growth: Because immigrant spending and business creation generate jobs for others, a drop in immigration actually correlates with less dynamic job growth for native-born workers.

Summary

Stopping immigration will cause labor shortages, particularly in vital sectors like agriculture, construction, and healthcare. While a tighter labor market can theoretically incentivize businesses to raise wages for low-skilled domestic workers and invest in automation, historical data suggests that a sudden, complete halt to immigration heavily disrupts supply chains, fuels inflation, and slows down overall economic growth.

Citations (13)

1migrationpolicy.orgNonprofits and think tanks
migrationpolicy.org
Backs: “Whether stopping or severely restricting immigration will cause labor shortages is a central question in economic policy.”
background, other, neutral. Claim: Whether stopping or severely restricting immigration will cause labor shortages is a central question in economic policy.
2cis.orgNonprofits and think tanks
cis.org
Backs: “Whether stopping or severely restricting immigration will cause labor shortages is a central question in economic policy.”
background, other, neutral. Claim: Whether stopping or severely restricting immigration will cause labor shortages is a central question in economic policy.
3csis.orgNonprofits and think tanks
csis.org
Backs: “Most economists agree that stopping immigration will cause immediate and structural labor shortages in specific industries, particularly in developed nations facing aging populations.”
attribution, other, points to yes. Claim: Most economists agree stopping immigration will cause immediate and structural labor shortages in specific industries, especially in aging developed nations.
4cmsny.orgNonprofits and think tanks
cmsny.org
Backs: “Most economists agree that stopping immigration will cause immediate and structural labor shortages in specific industries, particularly in developed nations facing aging populations.”
attribution, other, points to yes. Claim: Most economists agree stopping immigration will cause immediate and structural labor shortages in specific industries, especially in aging developed nations.
5econlib.orgEncyclopedias and reference
econlib.org
Backs: “However, proponents of restricting immigration argue that these "shortages" can serve as a catalyst for positive economic adjustments, such as rising wages for domestic workers and increased investment in automation.”
attribution, other, points to no. Claim: Proponents of restriction argue shortages can catalyze rising wages for domestic workers and more automation investment.
6cfr.orgNonprofits and think tanks
cfr.org
Backs: “However, proponents of restricting immigration argue that these "shortages" can serve as a catalyst for positive economic adjustments, such as rising wages for domestic workers and increased investment in automation.”
attribution, other, points to no. Claim: Proponents of restriction argue shortages can catalyze rising wages for domestic workers and more automation investment.
7americancompass.orgNonprofits and think tanks
americancompass.org
Backs: “However, proponents of restricting immigration argue that these "shortages" can serve as a catalyst for positive economic adjustments, such as rising wages for domestic workers and increased investment in automation.”
attribution, other, points to no. Claim: Proponents of restriction argue shortages can catalyze rising wages for domestic workers and more automation investment.
8econofact.orgAcademic
econofact.org
Backs: “Under the prevailing economic consensus, a sudden or complete halt to immigration creates severe labor supply shocks for several key reasons:”
evidence, other, points to yes. Claim: Under prevailing economic consensus, a sudden halt to immigration creates severe labor supply shocks.
9americanprogress.orgNonprofits and think tanks
americanprogress.org
Backs: “Immigration is currently the primary driver of labor force growth in these nations.”
evidence, other, points to yes. Claim: Immigration is currently the primary driver of labor force growth in these nations.
10equitablegrowth.orgNonprofits and think tanks
equitablegrowth.org
Backs: “Healthcare & Caregiving: Immigrants account for over 15% of nurses, 28% of health-care aides, and a substantial percentage of medical doctors.”
statistic, other, points to yes. Claim: Immigrants account for over 15% of nurses, 28% of health-care aides, and a substantial share of doctors.
11americanimmigrationcouncil.orgNonprofits and think tanks
americanimmigrationcouncil.org
Backs: “The "Complementarity" Effect: Immigrant and native-born workers rarely compete for the exact same jobs; instead, their roles often complement one another.”
evidence, other, points to yes. Claim: Immigrant and native-born workers rarely compete for the same jobs; their roles often complement one another.
12iza.orgAcademic
iza.org
Backs: “Incentives for Automation: When cheap labor is abundant, businesses have little incentive to invest in expensive machinery. A labor shortage can drive rapid technological innovation—such as mechanized harvesting in agriculture or automated service kiosks in hospitality—which ultimately boosts overall economic…”
evidence, other, points to no. Claim: When cheap labor is abundant, businesses have little incentive to invest in expensive machinery; shortages can drive automation.
13forbes.comNews and mediaquality 0.83
forbes.com
Backs: “While both arguments have theoretical merit, empirical studies show that the negative effects of halting immigration generally outweigh the positive ones in the aggregate: Limited Long-Term Wage Gains: Research indicates that while stopping immigration might cause a brief bump in wages for specific low-skilled…”
evidence, other, points to yes. Claim: Empirical studies show the negative effects of halting immigration generally outweigh the positive ones in aggregate.