'Expect additional long-term damage': U.S. labor shortage exacerbated by immigration slowdown

·4 min read

Immigration into America has slowed down tremendously, which may hurt the labor market and economic growth as the country tries to bounce back from the coronavirus pandemic, according to a new note from J.P. Morgan.

"Population slowdown threatens trend growth," the Nov. 12 note stated, highlighting the fact that due to more aging boomers retiring from the workforce and 3 million fewer immigrants in the country, trend labor force growth is going to be limited at only 0.1% per year and risks hurting overall GDP growth. 

J.P. Morgan
J.P. Morgan

The news wasn't surprising to many watching the labor market, who fault the previous administration's policies on top of the pandemic's impact on mobility for the bleak outlook.

“Immigration is crucial to growing the labor force and for economic growth, particularly in the medium and long term," Stuart Anderson, executive director of the National Foundation for American Policy, told Yahoo Finance.

Anderson added that the Trump administration's policies greatly limited legal migration and the pandemic worsened the numbers overall, contributing to a shortage of available workers. "If similar policies were to resume in 2025, expect additional long-term damage to U.S. economic growth and the American labor market," Anderson warned.

J.P. Morgan researchers noted that the Census Bureau estimated that the working age population (ages 16 to 64) peaked in 2019, and has been "falling for almost two years," as seen in the graphic below.

J.P. Morgan
J.P. Morgan

The estimates now put the working age population in 2021 at 2.5 million below expectations. 

The "vast majority" in the shortfall of these workers was a result of a decline in immigration to the U.S., the researchers added, "beginning during the Trump administration and continuing through the COVID pandemic."

Projecting from the Census Bureau's data, the researchers estimated that the international migration slowdown into the U.S. has resulted in 3 million immigrants "missing" from America, "a large majority of whom would have been of working age."

'Ample reasons for pessimism' around labor force

The drop is also paired with the fact that an extra 1.7 million Americans said they have retired (though some are now creeping back into the workforce, as previously reported by Yahoo Money).

J.P. Morgan contended that these retirees "might easily be drawn back by a tight labor market" and that the pandemic just brought the inevitable to the forefront.

Sora Jung takes a selfie after getting citizenship certificate at a ceremony held by U.S. Citizenship and Immigration Services on Tuesday, Nov. 9, 2021 in San Pedro, CA. (Irfan Khan / Los Angeles Times via Getty Images)
Sora Jung takes a selfie after getting citizenship certificate at a ceremony held by U.S. Citizenship and Immigration Services on Tuesday, Nov. 9, 2021 in San Pedro, CA. (Irfan Khan/Los Angeles Times via Getty Images)

Meanwhile, recent weekly jobless claims revealed a new pandemic-era low, signaling a tight labor market.

Near-record levels of job openings reflect the extent of the scarcities, and the quits rate surged to an all-time high of 3.0% in September, according to last week's Labor Department data.

Given this backdrop and a race among employers to hire talent, along with the weak immigration rates and the labor market, "there are ample reasons for pessimism around the rate of potential labor force growth," the J.P. Morgan researchers said.

The analysts expect immigration rates to bounce back eventually — but slowly, as the U.S. population ages. 

"We suspect that the working-age population of 16- to 64-year-olds in the U.S. will stay about flat in the next two years, which would be a slight pickup from the last two years, but still a dramatically smaller contribution to trend growth than in decades past," they wrote. 

Evegnii Nessirio, a Russian citizen who was scheduled for his citizenship interview, looks up information in Tukwila, Washington on March 3, 2020. (Photo by JASON REDMOND/AFP via Getty Images)
Evegnii Nessirio, a Russian citizen who was scheduled for his citizenship interview, looks up information in Tukwila, Washington on March 3, 2020. (Photo by JASON REDMOND/AFP via Getty Images)

This means the labor force will only grow at 0.1% per year, "making a rather dismal contribution to potential GDP growth," the analysts added.

Anderson suggested a number of ways for Congress to fix this shortfall and also prevent immigrants from skipping the U.S. for other destinations like Australia and Canada. 

“Measures in the reconciliation bill would help recover legal immigration numbers by allowing the use of unused family and employment-based green cards from previous years and permitting immigrants mired in long-term backlogs to pay a fee to gain permanent residence sooner," he said. "Those provisions would help the U.S. economy and labor force in the near term and in the future, particularly by encouraging high-skilled professionals to remain in the U.S. labor force rather than leave to work in Canada or elsewhere.”

Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.

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