Immigration is back in the US

Immigration is back, in the US at least. Over the past two and a half years, immigration into the American labour market has increased by 4mn workers, and the working age immigrant population has now finally reached its pre-pandemic trend level.

This is likely to be a central factor in strong employment growth, particularly in leisure and hospitality. It is also part of the story on increasing workforce participation, as well as being good news for the fight against inflation.

As Apollo’s chief economist Torsten Sløk put it in a recent note to clients, “immigration is a key reason that the US labour market is gradually moving from very overheated to less overheated. The fact that immigration is now moving to levels above 2019 is going to be very positive for the labour market, and for the Fed’s inflation challenge.” 

Aside from pulling more women into the workforce, increasing immigration is the only quick way to bolster the labour force in any nation. Birth rates are on the decline in most rich countries, and robots and job-displacing AI software come with their own economic and political disruptions.

In the US, immigration accounted for about half of the growth in the working age population between 1995 and 2014 according to Pew Research. Unfortunately, between Donald Trump’s “build a wall” jingoism and the Covid pandemic, there was then a sharp drop in immigrant workers. Over the course of four years, according to a February paper from the San Francisco Federal Reserve, the Trump administration took 472 executive actions aimed at reducing immigration, from increasing immigration enforcement to freezing refugee admissions to moving away from family immigration. Between 2016 and 2019, the number of new permanent residents dropped 13 per cent and the number of student F1 visas declined 23 per cent.

Covid didn’t help. Many laid-off workers lost visas or simply preferred to ride out the pandemic in their own countries. The two trends together fuelled a strong tightening in the labour markets, according to the San Francisco paper. The authors found that the drop in immigration from 2017 onwards resulted in a 5.5 percentage point increase in the vacancy to unemployment ratio in the US.

But happily, the recent uptick has resulted in a 6 percentage point reduction to that ratio. More than 900,000 immigrants became US citizens during 2022 — the third highest level on record and the most in any fiscal year since 2008, according to Pew. The largest numbers came from Mexico, India, the Philippines and Cuba, and the highest growth in flows were from Cuba, Jamaica, the Philippines, India and Vietnam.

Bottom line — the US seems to be returning to pre-Trump, pre-pandemic rates of immigration.

That’s great news not just for inflation, but for growth, labour force mobility and entrepreneurship. Immigrants are more likely to be self-employed and start new businesses than native born Americans. They are the heart of the ever-evolving American dream. In my own home town in Indiana, there are Spanish groceries, restaurants, nightclubs and dual language service providers to cater to a community of former migrant farm workers. A couple of generations on, they are increasingly middle-class and represent much of the entrepreneurial zeal in the area.

Labour mobility, once heralded as a big difference between the US and other rich nations, has been declining in recent years. There are many reasons for this — from the subprime crisis to large scale job losses in regions that were on the sharp end of globalisation or technological job destruction. New “place-based” economic research shows these factors tend to make people less mobile as they stay close to whatever family or community safety-nets they might have.

But migrants are risk takers — they go where growth is, fostering business expansion and alleviating bottlenecks to investment. This has the tendency to reduce income disparities across regions, which is something the US desperately needs. One 2020 paper by the Dallas Fed found that much of the fluidity in the US labour market today is down to immigrant flows rather than the movement of native workers.

Indeed, the Dallas Fed’s research points to the fact that the future of American growth exceptionalism (relative to Europe and other rich countries) may be largely down to the future of immigration. Dallas Fed economists did a long-run projection that included the growth contributions of immigrants and their children. They found that if immigration to the US were to continue at 2016 trend levels until 2060, the labour force would grow 0.45 per cent, eventually creating a 193mn person workforce — given that growth is basically people plus productivity, a larger workforce is key. Conversely, a 30 per cent decline in immigration would mean 180mn workers, and a 50 per cent cut would mean 173mn workers.

That means millions fewer people to pay taxes, fund entitlements and start new businesses. While immigrants represent 13.6 per cent of the US population, they start a quarter of new businesses. Indeed, a study by the American Immigration Council last year found that 43.8 per cent of the Fortune 500 companies were started by immigrants or their children. Anti-immigration, business-friendly conservatives in particular should think carefully about that figure.

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