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Illegal immigration is boosting the labor market and helping the US avoid recession, researchers say

career fair
Frederic J. Brown/AFP via Getty Images
  • Illegal immigration may be boosting the US labor market, helping avert a recession.

  • A Brookings Institution study argues that real immigration numbers are higher than most estimates.

  • Morgan Stanley's chief US economist recently cited illegal immigration as a positive labor-market force.

Here's a question that's been lurking beneath the stellar economic resilience in the US: How has the labor market stayed so strong?

Some researchers have an answer: illegal immigration.

Wendy Edelberg and Tara Watson at the Brookings Institution published a study that found immigrants living in the country illegally had helped boost the labor market, steering the US away from a downturn. Data from the Congressional Budget Office shows there has been a huge uptick — a net influx of 2.4 million — of "other immigrants" who don't fall under the category of lawful immigrants or those on temporary visas. The chart below shows how this figure has spiked from a level of less than 500,000 at the beginning of the 2020s.

CBO estimates of net immigration
CBO 2024

The study also found that immigration numbers surged to 3.3 million in 2023 — a higher estimate than that of most other major agencies. That, in turn, suggests that the US population and labor force have grown faster than reports from the Bureau of Labor Statistics suggest, Edelberg and Watson explained.


Their methodology involved looking at pre-pandemic labor-force-participation forecasts in tandem with new CBO estimates of net immigration. The researchers concluded that the 2023 labor market could've accommodated employment growth of 160,000 to 230,000 a month, markedly more than the original forecast range of 60,000 to 140,000.

It "could go some way to explain why employment growth remained so strong without more upward pressure on wages and price inflation," the study said.

The trend has been noticed by Morgan Stanley's chief US economist too.

"Immigration has been huge," Ellen Zentner said last week in a Bloomberg interview, referring specifically to illegal immigration. "It has boosted the labor force, it has boosted supply for labor, it has boosted job gains. That means the breakeven level for jobs has likely been just much higher than where we thought it was."

According to the Brookings researchers, pre-pandemic, the range of sustainable employment growth that would not cause inflation was expected to fall to 60,000 to 100,000 a month in 2024. But Zentner said the increased labor supply meant 200,000 to 250,000 would probably be a normal monthly pace of growth for the job market.

The labor market has recorded gains stronger than that, posting an addition of 275,000 jobs in February. But that strength has also been a key piece of the soft-landing narrative.

"How, in 2023, did we have such fast growth in the economy, better than 3%, while inflation decelerated, while wage growth decelerated?" Zentner said. "Because of much more labor supply and supply chains normalizing."

She added: "Over the medium term, this is a big positive for the economy."

Read the original article on Business Insider