U.S. President Joe Biden greets members of the U.S. Border Patrol at the U.S.-Mexico border in Brownsville, Texas, U.S., February 29, 2024.
Kevin Lamarque | Reuters
Immigration — both authorized and unauthorized — has helped the U.S. labor market maintain a strong upward trend in recent months without rekindling inflation, economists and analysts said. The effect was a favorable, if uncertain, situation for President Joe Biden ahead of the November election.
A blockbuster jobs report in May showed the U.S. economy added 272,000 jobs last month, well above the Dow Jones forecast of 190,000. Meanwhile, the Bureau of Labor Statistics reported last week that consumer prices remained flat in May and even fell slightly year-over-year.
These dynamics – a warming labor market and cooling inflation – are partly due to the increasing influx of immigrants.
“New immigrants flowed disproportionately into parts of the workforce that were particularly scarce in 2022, adding to labor supply where it was needed most,” Goldman Sachs analysts wrote in a note to clients in May.
A sign reading “Now Hiring” is seen at a FedEx location in New York City on June 7, 2024.
Michael M. Santiago | Getty Images
The May jobs report found that the government, leisure and hospitality, and healthcare sectors saw the greatest growth.
Keep inflation low
“The immigration surge is creating significant challenges for communities across the country, but it came at a very fortunate time to ease labor market pressures, as the Fed was working hard to do so by raising interest rates,” said Mark Zandi, chief economist at Moody’s told CNBC.
As a rule, in a hot labor market there is a tightrope walk that can easily lead to renewed inflation.
This is because higher employment growth brings with it the risk of labor supply depletion. This forces companies to raise wages to compete for workers, which increases production costs and ultimately leads to higher consumer prices and inflation.
But recent immigration spikes at the southern border and elsewhere in the U.S. have helped keep the labor pool full despite continued job growth.
“We have seen that the supply of labor has increased significantly as a result of immigration and the resurgence in labor force participation,” said Federal Reserve Chairman Jerome Powell last Wednesday at the central bank’s press conference following the widely expected decision to raise interest rates to leave unchanged.
Zandi also credited immigration with helping the United States maintain a positive GDP. “It reduced the need for further rate hikes and was probably crucial in helping the economy avoid a recession,” he said.
While Biden’s critics have focused on the high-profile political toll of the humanitarian crisis caused by migration spikes at the southern border, the picture economists paint of immigration is very different.
They say immigrants can ensure America’s economic recovery.
Acquisition of new jobs
Increased immigration flows have virtually doubled the number of new jobs the U.S. economy can absorb each month without overheating, according to a March analysis by the Brookings Institution.
Before the pandemic, congressional forecasters predicted that the U.S. labor market could add between 60,000 and 100,000 new jobs a month in 2024 without triggering a spike in inflation.
Based on this model, the 272,000 new jobs added to the U.S. economy in May would have set alarm bells ringing.
But the Brookings researchers recalculated the government’s estimates – this time taking into account the impact of immigrants on labor supply. They found that in 2024, the U.S. labor market could safely absorb between 160,000 and 200,000 monthly job gains with immigration.
According to the Brookings numbers, May’s labor market data would still be too hot for comfort, as would the 0.4% monthly increase in average hourly wages from April.
But the gap between the number of jobs created and the maximum number the U.S. economy can absorb without triggering inflation is much narrower than it would have been without the recent influx of immigrants.
U.S. President Joe Biden speaks about the economy at the International Brotherhood of Electrical Workers Local 26 union in Lanham, Maryland, on February 15, 2023.
Almond Ngan | Afp | Getty Images
Biden cited both the May jobs report and the robust consumer price index as evidence of what he calls a “great American comeback.”
“Under my watch, 15.6 million more Americans enjoy the dignity and respect that comes with a job,” Biden said in a statement on June 7. “Unemployment has been at or below 4% for 30 months – the longest period in 50 years.”
It was the latest iteration of Biden’s upbeat campaign pitch to voters about the U.S. economy.
For the White House, this is a critical argument for the president, part of a broader fight to change some Americans’ perception that Biden is responsible for the high cost of living.
Political hotspots
With the November election approaching, the positive impact that immigration appears to be having on the U.S. economy is being largely drowned out by louder voices on this complex issue.
However, everyone agrees that the outcome of the presidential election will have a major impact on border policy and the influx of American immigrants.
Biden’s latest executive action to tighten restrictions on asylum seekers could threaten the economic boost that immigration provides. But this policy still suffers from implementation failures and legal challenges, delaying its full impact.
Meanwhile, Republican former President Donald Trump has vowed that if re-elected, he would carry out mass deportations of 15 million to 20 million immigrants living in the United States without authorization.
Republican presidential candidate and former US President Donald Trump reacts during a campaign rally in Las Vegas, Nevada, USA, June 9, 2024.
Brendan McDermid | Reuters
It is difficult to quantify the massive impact Trump’s policies would have on the U.S. economy if they survive legal challenges and are actually implemented.
In the short term, however, analysts expect the labor market to have recovered enough from the pandemic to absorb a possible decline in immigration, although it would still impact U.S. productivity levels.
“With the labor market now more balanced, moderate immigration fluctuations are expected to have little impact on overall wage growth and inflation,” Goldman Sachs analysts wrote in a May report.
“Immigration levels, however, will continue to have a mechanical impact on the real economy, particularly potential employment and GDP growth,” they wrote.
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2024-06-17 13:35:49
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