Immigration and a Shrinking US Labor Force
In 2006 Joel Garreau wrote “300 Million and Counting” in the Smithsonian. It was then in the United States we were at a replacement rate of 2.01. Joel and I exchanged emails on the topic. Immigration is an important factor influencing the economy.
The nation was barely replacing itself. It has dropped lower in 2024 to 1.6 replacement rate. While the current president is deporting immigrants (illegal and legal), the nation’s population is aging to the point of where there will a shortage of labor input. Much of the shortage will be the result of baby Boomers aging out.
Trump’s forceful deportation of immigrants will aggravate the labor shortage.
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The Impact of Immigration and a Waning US Labor Force on the economy
Working Population Growth in the US as portrayed in the graph below. It has been decreasing.
The Issue of the Working Age Populaltion
The growth of the working age population born in the United States has been slowing since 2000. This corresponds with an increasing number of native-born workers reaching retirement age while smaller generations of young Americans enter their working years.
Specifically, since 2020, the size of the population aged 18-65 born in the United States has shrunk. The decline is mostly amongst labor lacking a college education. Corresponding to the decrease in labor supply, unfilled job vacancies and labor shortages have been growing over the last 10 years. This is occurring in sectors like agriculture, construction, leisure and hospitality, and personal services. These are the sectors employing a large share of non-college educated workers whose demand has increased with a richer and aging population.
Immigration acts as a countervailing force in this demographic transition, with immigrants contributing to the growth of the US labor force and employment. Both occurring for college-educated (high-skilled workers) and for non-college-educated (lower-skilled ones) over the past several decades. But the contribution from immigrants to the size of the working-age population has also been slowing among immigrants with lower levels of education. This raises the question of the consequences for US labor markets and GDP if immigration does not continue to sustain workforce growth.
Some Supporting Facts
During the period from 2000 to 2023, the US-born working-age population has shown a slow – down in growth portending an eventual decline.
The working age range of 18 to 65 US-born population grew by 1.64 million people every year during the period 2000-2005. Such growth has steadily slowed, turning into a decline of 270,000 people per year by the 2020-2023 period (see chart above).
The trend is mostly due to the demographic transition of a large baby boom generation reaching retirement age and not being fully replaced by the much smaller generations entering the working-age group. A small increase in mortality rates of 50-65 years oldsters due to the Covid-19 pandemic accelerated this tendency slightly in 2020-2023.
These demographic forces are expected to continue to contribute to a lesser US labor force growth over the next decade. U.S. fertility rates have also been declining since 2007. Replacement rates currently are below the replacement rate of 2.1 births per woman.
The decline in the US-born working age population, due to the demographic transition, has been most dramatic among those with lower levels of education.
The US-born population of non-college educated 18-65 year-olds, has been shrinking every year since 2010. The population declined by more than 800,000 people per year in the 2015-2023 interval due to a combination of smaller cohort sizes and higher education in the later cohorts (see chart below).
Immigration has contributed substantially to the growth of the US labor force over the last 3 decades. The growth trends for immigrant workers have also varied by educational attainment.
From 1990 to 2000, immigrants added around 900,000 workers each year and contributing to one-third of the growth of the US labor force. Although immigrants have continued to add to the pool of potential workers in the United States, the net growth of working age immigrants (aged 18-65) slowed from about 900,000 per year in early 2000’s to 150,000 per year in 2015-19.
The slowdown in the labor input by the working-age population of the United States is driven by fewer non-college immigrants. While the net inflow of college educated immigrants in working age remained around 3-400,000 per year from 2000 to 2023, the inflow of non-college educated immigrants went from a positive 540,000 per year in 2000-2005, to a net decline of 220,000 per year in 2015-2019.
Current restrictive immigration policies do not allow non-college educated immigrants to enter the country and fill non-agricultural non-seasonal jobs, even if there is demand. A partial exception happened in 2022 and 2023, with more entries allowed under special visas, temporary status and asylum requests. Based on issuance of temporary visas and asylum seeker status, this episode is unlikely to happen again in the future. It may even be reversed over the next few years.
Generated by the special circumstances, the post-COVID bump produced an increase of 500,000 non-college educated working-age immigrants per year in 2020-2023. Only during this last period did the inflow of immigrants partially offset the decline of non-college educated natives in working age.
The declining growth of the working-age population has not been met by increasing rates of labor force participation among adults.
The data on the employment/population ratio over time does not show the group of natives in working age increasing in labor market participation: The share of the adult population that is employed has been steady around 60.5 percent over the last decade, with the exception of the swift drop and recovery during the COVID recession (here).
The decline in the US-born working-age population and the stable labor force participation rate implies a decline in US labor supply. This is revealed in an increasing number of job vacancies in the US.
The US economy has experienced increasingly tight labor markets for several years, with job vacancies that are hard to fill. With the exception of the Covid-recession in 2020, the number of unfilled job openings has exceeded the number of unemployed people in the United States since 2017 (chamber of commerce report 2024).
The unfilled vacancies measured at the end of each month have continued to grow, both overall and specifically in sectors depending on non-college educated workers. The construction and leisure and hospitality sectors are two important examples of sectors heavily dependent on non-college workers. These sectors have been experiencing increasing numbers of vacancies (see chart below).
The Results of Lower Population Growth
The decline in the size of the working-age population born in the United States, the resulting stagnant participation rates, and the growing demand for services like hospitality, food, construction, and health care labor will exacerbate labor market tightness. This can lead to labor shortages in various industries. Furthermore, such labor (unmentioned) which can be exported will increase the costs of product.
Without reform of legal immigration laws and a different outlook on a foreign population, non-college educated immigrants will not be able to fill this gap. As the mobility of US workers in response to employment opportunities and higher wages declining over the last decades; it is unlikely natives will fill many of these jobs. Non-college educated and older workers who are less likely to move. A likely result will be a slowdown in growth of the economy the sectors depending on immigrants: agriculture, construction, leisure and hospitality, and personal care. Those sectors will likely experience lower efficiency of their services, wage increases and price increases, as these services become more costly.
Recent research from the U.S. and elsewhere finds when labor markets are tight and firms have a hard time finding workers (as it has been the case in the US in the last 2 years); the opening to new arrivals through immigration helps firm growth and increases firm formation. Such increases in immigration have no negative impact on wages of natives. Ultimately, several studies find labor force stagnation, and aging of the population, can be important causes of slow economic growth and productivity stagnation.
Immigration and Waning US Labor Force Growth, Econofact, Alessandro Caiumi and Giovanni Peri
With the aggressive anti-immigrant policies by the current administration, we can expect to have higher noncollege educated labor shortages. This was already problematic and this administration is worsening the issues.
“we can expect to have higher noncollege educated labor shortages” and pressure on real wages for that cohort…which is why Biden opened immigration up and why Trump’s campaign to kick out a lot of immigrants is just a lot of hype. The movers and shakers-big businesses- need cheap labor and immigration is the only way to get it these days. In addition, Republicans need to keep the issue as a festering sore…so long as they can blame Democrats.
Maybe it’s the law of supply and demand? Judging by the value of an hour of labor against per capita production, the return on labor has been falling since the late 1970s, and it has continued its decline. Since the hour isn’t getting notably longer, there are two ways to increase the labor supply: immigration or raising children.
The latter has collapsed. No rational person would raise a child to live an even poorer, hard working life than their own. Traditional economists assume women will either behave irrationally on their own or can be compelled to.
Immigration continues, but with the return on labor continuing to fall, immigrants are perceived to be in competition for decreasing resources. If nothing else, immigrants made breaking the unions much easier in many industries.
Not all workers have experienced the same decline in their share of production. Workers at the low end have had it worst, but the threshold has been rising for decades. At one time, you needed to finish high school to get a decent cut. Then it was college. Now it’s an elite college and appropriate connections.
Basically, fewer and fewer people have been getting paid enough to consider producing a new generation worthwhile even as they are less and less open to immigration The price level goes down and the supply goes down with it, and somehow economists act surprised.
Perhaps this may help explain Labor’s role in costs, etc.
Kaleberg:
The need to have large families to support the family due to the size of a farm went away. Besides that, women decided on a different role other than child manufacturing.
In 2006, when Joel Garreau wrote an article “300 Million and Counting,” the birthrate was at 2.01 per family. A family was two adults and two children (or less one adult). Today the birthrate is at 1.6. We are not replacing ourselves.
Indeed and if anything, a large segment of the nation will be older and there will be a gap in people performing in the economy as Labor input. Having immigrants now will fill the gap. Typically, they have more children.
If they do not allow immigration, the nation is in for a severe lesson. I will not be here to see it.
So no, output by Labor is still increasing as shown in the graph and not decreasing. (Just got a new computer to replace my old one [8 years old] and it flies). There is still things which can be done to minimize cost and increase Labor output.
Unless manufacturing overseas can deliver product in a day or two, there is still a lot of cost to be avoided by manufacturing in the US.
Too much negativity. Thank you for the exchange Kaleberg. The nation can still reverse things.
I was Supply Chain and did manufacturing floor consulting with Ingersoll Engineers besides MRPII/ERP planning and consulting.