Different estimates of net foreign immigration.
DR. BILL CONERLY USING DATA FROM CONGRESSIONAL BUDGET OFFICE AND CENSUS BUREAU

Immigration is saving the United States economy—maybe. Estimates of recent immigration from different government organizations vary widely, but the most plausible story has very high immigration stimulating job growth.

The strong performance of the economy in 2023 and so far in 2024 has been a great surprise to those of us in the economic forecasting profession. The Federal Reserve’s tightening should have slowed economic growth and perhaps sent us into recession. Instead, the second half of 2023 was very strong in terms of inflation-adjusted gains of gross domestic product. Over the long run, GDP has grown at annual rates of about two percent per year. But the last two quarters of last year came in at 4.9% and 3.4% annualized rates. Not only was the slowing-growth story unfulfilled, but just the opposite happened. First quarter 2024 GDP grew at a slower pace, but we’re still surprised by the resilience of the economy.

Immigration provides a plausible, though not certain, explanation. The economy was running labor-constrained even before the pandemic. The unemployment rate held fairly steady at four percent or less leading up to 2020. Business leaders’ reported that their greatest challenge was hiring and retaining workers. The pandemic disrupted the economy, but something like normalcy returned, with unemployment back under four percent for the last two years. Although some layoffs were occurring, especially in the tech sector, many businesses could not grow their workforces as they might have wished.

Simple economics suggests that shortages are impossible if prices and wages are flexible. But employers worried that the tight labor market might prove temporary. If they raised wages to attract more employees, they might want to cut wages sometime in the near future. But workers don’t take pay cuts very well. Managers believe it’s better to run with too few workers for a while than to alienate them in the future by lowering wage rates.

Then, just as the economy should have felt the impacts of higher interest rates, immigrants surged across the border. At least, that’s the Congressional Budget Office’s conclusion. Counting refugees, they put net immigration at 3.3 million in 2023. In contrast, the Census Bureau estimates 1.1 million net immigration last year. That’s a huge discrepancy between estimates from two government organizations. The big difference comes from CBO’s consideration of Border Patrol data. That would have been irrelevant in past years, but the number of encounters with migrants has soared in recent years. Many of them are released inside U.S. territory to await judicial proceedings regarding their status.

Other surveys (American Community Survey and the Current Population Survey) show lower increases in the foreign-born population, but those refugees may not be selected for survey participation.

The huge disparity between Census Bureau and Congressional Budget Office estimates dismays us who try to understand the economy. A 3x difference of opinion raises huge doubts about whether we really know what’s going on now and what the future holds.

Consider if the Census Bureau is right. The economy continues to face a tight labor market due to baby boomers aging out of the workforce. Lagged effects of the Federal Reserve’s tightening will slow economic growth and may soon trigger a recession.

On the other hand, if the CBO is correct then our labor force is growing at a much faster pace than expected. And the asylum-seekers will improve their ability to find work, whether they have proper credentials or not. Wage pressure for less-skilled workers diminishes and businesses are able to expand. The sectors that can employ low-skilled immigrants include construction and leisure/hospitality (especially restaurants). Health care is rapidly growing—or trying to—and there are plenty of low-skilled job opportunities there, but the employers may tend to be fussier about verifying eligibility for legal work.

More immigrants stimulate overall supply in the economy. Demand will also be boosted. Food and clothing needs of the immigrants can be accommodated easily. Demand for housing, however, will increase much faster than supply, stressing less-expensive residential sources. Overall, immigration is stimulative to the economy but triggers turmoil in various specific areas.

A favorable aspect of immigration now is that the people will mostly work in hands-on professions, which are less affected by new AI technology. For the overall economy, the CBO estimates paint a much brighter picture than do Census Bureau figures.

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