A surge in immigration last year helps explain the economy’s striking resilience — and if sustained, could allow the job market to keep booming without stoking inflation in the years ahead.
Immigration policy is deeply politically contentious, but there is a strong consensus among economic policymakers that the immigration increase is a key part of the labor supply surge that helped bring down price pressures last year even amid the economy’s robust growth.
New analysis from the Brookings Institution puts some hard numbers on the relationship between the rise in immigration and the labor market — finding an influx of workers is allowing the U.S. to sustain higher rates of payroll gains than forecasters thought it could before the pandemic.
“Faster population and labor force growth has meant that employment could grow more quickly than previously believed without adding to inflationary pressures,” economists Wendy Edelberg and Tara Watson write for the Hamilton Project.
Before the pandemic, forecasters estimated sustainable monthly employment growth would be between 60,000 and 130,000 in 2023 — a key reason why last year’s monthly average of 255,000 looked way too hot.
But Edelberg and Watson say that, accounting for higher immigration, the economy could have accommodated job growth between 160,000 and 230,000 in 2023 “without adding to pressure in the labor market that pushed up wages and price inflation.”
The authors estimate that, if immigration continues at the current rate, “employment growth of nearly 200,000 workers a month is consistent with a healthy, but not too hot, labor market” — roughly double what forecasters thought to be the case before the pickup in immigration.
“It seemed rather surprising to me that we could be so close to the inflation target, and employment growth would still be well above the pace I thought was consistent with a sustainable labor market,” Edelberg, a former Congressional Budget Office chief economist, tells Axios.
“What this tells me is monetary policy does not have to do as much as I thought to slow the labor market,” Edelberg adds.
The research uses immigration estimates from the CBO that suggest faster population and labor force growth in recent years not fully captured by the Labor Department (which uses Census population estimates).
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