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Immigration is a major political issue ahead of the elections, especially illegal immigration. It’s also a vital economic issue these days. The workforce depends on immigrants to a greater extent than it typically has in the past, and that shows no sign of changing, as the number of native-born workers flattens and eventually shrinks.
The foreign-born share of the workforce: 19.2%. That’s up from 17.7% in 2019. Over the past four years, the entire increase in the labor pool has been driven by immigrants: 3.4 million of them, vs. 438,000 fewer workers who were born in the U.S. The growth is from a mix of legal and illegal immigration, with the lion’s share coming after pandemic-related restrictions ended.
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Most immigrant workers are here legally: 32 million of them are either naturalized citizens or green card holders who have been here awhile. By contrast, there are roughly 10 million immigrants who are here illegally and working or trying to work. Foreign workers fill many high-skilled jobs — such as doctors, engineers, tech workers, scientists, etc. — and lower-skilled positions like agricultural workers, custodians, food-service employees, construction crews, personal-care roles like health aides, and manufacturing workers.
Pay varies widely. Those with college degrees earn more on average than native-born workers with college degrees, likely because they tend to cluster in high-wage sectors like IT and medicine. Low-skilled foreigners earn less on average than people born here who don’t have college degrees: About 10% less, typically.
Why does this matter? The economy’s future growth depends on immigration. There simply aren’t enough native-born young adults joining the workforce to make up for those aging out. As in many countries, the fertility rate in the U.S. has been below the level needed to keep the population stable for many years now. Immigration has made up the difference, enabling the economy to keep growing. (The other driver of economic growth, productivity gains, is helping, but not enough.)
Whoever wins the presidential election will have to contend with this reality. Donald Trump has run on curbing immigration, both legal and illegal. That could ease the chaos at the southern border, but could also deprive employers of the legal foreign-born workers many industries rely on, worsening labor shortages. Joe Biden is unlikely to change course significantly if he wins reelection. That would imply more immigrants to hire, but also more illegal immigration problems while neglecting to hike visas for skilled immigrants, for which many firms are begging. Ultimately, Congress needs to act and reform our dysfunctional system, control the border and ensure enough legal newcomers to keep the economy growing. Unfortunately, the situation likely will have to get worse before lawmakers step up.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.
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