Post-Pandemic Surge in Immigration Is a Key Reason for the Country’s Economic Growth, Economists Say
The spectacular job growth continues to drive the U.S. economy: the Bureau of Labor Statistics reported the creation of 303,000 jobs in March, where immigrants contribute to and fuel a strong labor market in the U.S. without driving up inflation.
Normally, such strong growth could lead to a spike in inflation.
If employers see increased demand for goods and services, they need to hire more workers, and if there aren’t enough, they have to raise wages, which increases the overall cost of running a business.
But while annual price growth, above 3%, remains above the Federal Reserve’s 2% target, it is still well below the 9% peak recorded in the summer of 2022.
Economists increasingly believe that the post-pandemic rise in immigration is a key reason the economy has been able to grow steadily without triggering inflation.
This is because newcomers have helped employers fill positions with wages that have kept a lid on overall price growth.
The Rise in Immigration Has Boosted the Growth of the Labor Force
As a result, it is unlikely that the strong demand consumers continue to show will drive prices up much, “if at all.”
In fact, so far, measures of labor market “tightness,” such as wages, “have continued to fall or move sideways, but not rise.”
“Won’t stronger growth prevent inflation from falling or even reignite it?” “We don’t think so.”
The Congressional Budget Office, a nonpartisan federal agency, was the first to cite the increase in immigration that began in 2022 as the main factor contributing to expanding the overall size of the U.S. labor force.
This year, the agency has increased its forecast for the size the U.S. labor force could reach in 2033 by 5.2 million people. Most of that increase is expected to result from higher projected net immigration.
The Brookings Institution, a nonpartisan research group, reached a similar conclusion earlier this month, stating that the economy can now tolerate a faster pace of job growth without increasing concerns over costs.
“Faster growth in the population and the workforce means employment can grow more quickly than previously thought without increasing inflationary pressures,” Brookings said.
Wendy Edelberg, a former Federal Reserve economist and current director of the Hamilton Project at Brookings, told NBC News that the net effect of immigration on inflation is not entirely clear but is likely marginal.
In fact, Federal Reserve Chair Jay Powell has made similar observations, saying the effect of the new wave of arrivals is “broadly neutral.”
What is clear, according to Edelberg, is that the increase in immigration will allow the economy to tolerate higher levels of job growth.
“Without immigration, if I had seen a 300,000 increase, I would have been totally baffled that wages weren’t higher,” she said, citing the March jobs report released Friday.
Wage data shows that the annual pace of growth in average hourly earnings has fallen to 4.1% in March, down from a post-pandemic peak of 5.9% in March 2022.
If labor supply and demand were truly out of sync, the pace of wage growth would be much higher, which would likely translate into greater overall inflation.
Instead, thanks to the rise in immigrants, businesses overall can tap into the growing workforce to meet continued demand for their goods and services without having to significantly raise wages to compete for workers.
For many sectors of the economy, from federal Social Security payments to local businesses that may be looking for workers or new customers, immigration is often a net positive, Edelberg says.
At the Same Time, It Tends to Put Pressure on State and Local Budgets
Immigration is the most sensitive issue facing President Joe Biden ahead of the November elections, as respondents in a Gallup poll rank it as the “most important problem” in the country. This is the first time it has held that position since 2019.
Republicans have called on Biden to take extreme measures to curb migrant entries, while former President Donald Trump has referred to them as “animals” who “poison the blood” of the United States.
Meanwhile, large cities like New York and Chicago face a crisis partly due to political maneuvers by Texas Governor Greg Abbott, which have involved sending migrants to those cities at a pace they are not equipped to handle.
But while the debate has focused on undocumented immigration, most immigrants arriving are authorized to work in the United States, according to Edelberg.
Additionally, they are more likely to spend a larger portion of their earnings.
“So they increase demand for goods and services and help supply labor,” she explained. “Thus, the net effect on inflation is actually small.”
Image: Telemundo
