Immigration and the Labor Market : A Pillar of the U.S. Economy

Introduction

Immigration has always been a key driver of American economic growth, and its relative weight in the total population has continued to increase since the Second World War, due to successive waves of refugees, encouraged by policies conducive to immigration such as the adoption of immigration laws abolishing the system of admission quotas based on national origin and stimulated by the growing wage differences, in real terms, between the United States and its southern neighbors.

Moreover, immigration is not just a social or cultural issue; it is a fundamental pillar of American economic competitiveness.

I – Immigration and the American labor market : a historical link

Migration flows have historically been a significant factor in population growth in the United States.Immigrants provide above all workforce in the United States through the growth of the labor force which strengthens the American workforce.

By definition, immigrants constitute an inflow of foreign-born people. Inflows and “outflows” due to mortality or emigration determine the stock of the foreign-born population.

Thus, foreign-born workers have helped alleviate labor shortages that threaten the American economy.

1 – Role of immigrants in the economic development of the USA

America’s economic strength has long relied on immigration, which forms the backbone of the American economy by supporting both the supply and demand sides of the economy, i.e. (job supply and consumer demand), which implies prospects for economic growth and development, which translate into :

• The vitality of the labor market;

• The contribution of complementary skills;

• Strengthen the workforce;

• Limiting tensions in the labor market;

• Moderation of wage inflation;

• The increase in production;

• Increased consumption;

• GDP growth;

• Stimulating entrepreneurship;

• Business creation;

• The genesis of tax revenues.

Moreover, immigrants, even without papers, and who are of the order of approximately 32.3 million dollars now represent 19.2% of the working population consume and pay taxes, there by contributing to the economic development of the United States.

So, according to the Congressional Budget Research Agency, the influx of migrants under Biden was expected to reduce the US deficit by nearly 900 billion dollars over ten years.

2 – Key sectors dependent on foreign workers (agriculture, construction, health, catering, high-tech)

With the fertility rate in the United States having fallen from 2.1 births per woman in 2007 to 1.64 in 2020, this means that to maintain the current level of its labor force, America would have to welcome 1.6 million migrants each year, and without immigration, the population and labor force would decline by about 0.5% per year.

“Indeed, immigration is at the heart of economic growth in the United States,” explains Michael Clemens, a researcher at the Peterson Institute for International Economics in Washington. Since 2020, only immigrants have helped alleviate the labor shortages that could have affected the American economy.

Which explains why several sectors depend structurally of the immigrant workforce, for example: Filipino doctors and nurses make up the bulk of the staff in urban hospitals, restaurants rely on Mexican waiters and dishwashers, taxis are driven by Arabs, Iranians, and West Indians.

Besides, this foreign-born population, working on American territory, represents nearly one in five workers, this is particularly the case in construction, hotels and restaurants, agriculture and the food industry, which employ hundreds of thousands of migrants, sometimes illegal.

Thus, in total, 11 million people are living in the United States without papers, the vast majority of them coming from Mexico, according to American authorities, and nearly 8.3 million of them were working in 2022, according to the Pew Research Center, the equivalent of 5% of the workforce.

Overall, the service sector was the largest source of immigrant labor, followed by transportation, construction, health care, and education.

3 – Contribution to innovation, entrepreneurship and demographic growth

Immigrant workers in the US constitute one of the most flexible, mobile and versatile workforces in the country, giving the country a comparative advantage.

In fact, the immigration structure is much more qualified in the United States because a third of immigrants have higher education, which allows for the continuous feeding of the sources of long-term growth that are innovation, entrepreneurship and integration into the global economy.

In this sense, it is worth remembering that the H-1B visa program, created in 1990 to accommodate 65,000 highly qualified workers per year, helped to catalyze American technological leadership.

Likewise, the entrepreneurial effects are equally remarkable. Immigrants start businesses at a rate three times higher than natives; more than half of U.S. startups valued at more than $1 billion were founded or co-founded by immigrants, many of whom arrived via H-1B visas.

Thus, the future consequences of immigration on the US economy will depend on the size of immigrant flows, their skill levels, and their distribution. The consequences on the economy will be all the more pronounced if they constitute a significant proportion of the total workforce.

II – Consequences of the labor shortage in the USA

In principle, immigration policy comprises two broad categories : that which aims to encourage international migration, and that which aims to reduce it. This second category is synonymous with “control” of immigration.

It should be noted that illegal immigration should play a less important role in the coming months, experts believe, given the policies implemented by the new administration.

Indeed, clandestine crossings to United States border have practically ceased since Donald Trump came to power, deportation the number of undocumented migrants is increasing, while there is also talk of with drawing the legal status of some 800,000 foreign workers.

This Donald Trump’s no-holds-barred approach, which envisages mass expulsions of migrants, could have a significant negative impact on the economy. This is particularly true because some sectors cannot function without this workforce.

1 – Most affected sectors: agriculture, hospitality, health, logistics, technology industry

Because of the Trump administration’s restrictive policies, construction and agriculture would lose one in eight workers, and hospitality one in fourteen, if undocumented workers were expelled from the country,estimated the American Immigration Council (AIC) in a recent report.

The effect would be even stronger on certain trades, with an impact of more than 30% for plasterers, roofers or painters or 25% for cleaning staff.

Furthermore, a joint report of the Brookings Institution and the American Enterprise Institute (AEI) estimated the impact on growth in 2025 at 0.4 percentage points if Mr. Trump carried out his threats.

In contrast, the artificial intelligence revolution demands unprecedented technical expertise at a time when global competition for skilled workers is intensifying. China is rapidly expanding its research capabilities, while America is restricting the talent that enables technological breakthroughs.

In general, costs vary depending on the sector :

A : Construction

In construction, where 28% of workers are immigrants, restrictions could delay infrastructure projects, increase costs, and slow the construction of housing and data centers for AI.

B : Agriculture

Agriculture facing constant labor shortages is even more vulnerable. She relies mainly on immigrant workers at a rate that reaches 73% about half of whom are undocumented, endangering food safety and supply chains.

C : Health

The health sector, already under pressure due to aging, relies heavily on immigrant practitioners, whose scarcity could exacerbate current shortages.

D : Scientific and technological sectors

Finally, the scientific and technological sectors, where immigration is a major driver of patent filings, are directly affected by the negative effects of the restrictions.

2 – Economic effects: rising wages, pressure on inflation, slow down in productivity

Indeed, halting immigration or resorting to mass deportations could have major economic repercussions. According to the Peterson Institute, deporting all 8.3 million undocumented workers could result in zero growth, depriving the economy of a flexible and generally cheap labor force.

Thus, a reduced labor supply would have the consequence of :

• Slow down investment;

• Increase production costs;

• Generate an increase in wages;

• Limit business creation;

• Slow down productivity;

• Increase inflation.

Far from redistributing opportunities, the restrictions reduce the overall number of jobs in the economy by harming not only immigrant communities but also native American workers.

Moreover, certain types of labor such as nurses and construction workers are not only crucial for replacing older people who are retiring, but they also improve the productivity of highly skilled professionals, including doctors, engineers, and teachers.

This is why welcoming more migrants could boost production growth in the United States.

At the same time, the aging of the American population is creating growing fiscal pressures that increased immigration could alleviate. More immigrant workers are needed to broaden the tax base and ease pressure on social security systems.

3 – Impact on American competitiveness and growth

Trump’s border closures and the surge in deportations are already weighing on the job market.

Thus, returning all irregular workers to the border could have a significant impact on GDP growth (up to 1.2% in 2028) while generating additional inflation of up to 0.6%.

In aggregate, this equates to an annual drop in GDP of 205 billion $—the size of Ireland’s economy—with each American losing 270$ a year. Native workers, who are supposed to be protected by these restrictions, would lose an average of 200$ in annual wages due to the decline in complementarity effects and slower growth.

Conclusion

Economic data shows that immigration restrictions come at a high cost in terms of growth, innovation, and fiscal stability. Immigration therefore acts as an economic multiplier, not a zero-sum game.

Moreover, the United States’ historic economic leadership is inseparable from its ability to attract global talent. Maintaining this advantage requires viewing immigration not as a burden, but rather as a strategic capability to be cultivated.

Ultimately, without immigration, the American miracle would fade. The country’s population would decline immediately, limiting any potential growth.