What is the Correlation Between the U.S. Labor Shortages and the Immigration Shortfall?

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As 2022 begins, the U.S. is experiencing labor shortages across a number of industries. A recent article “Labor Shortages and the Immigrant Shortfall” by Giovanni Peri, professor of economics at UC Davis, and Reem Zaiour, a doctoral economics student at UC Davis, shows labor shortages are a result of a dramatic drop in foreign labor supply growth. Sectors that are reliant on immigrant workers had significantly higher rates of unfilled jobs in 2021. If the decrease of foreign labor supply continues, the U.S. is at risk of a slowdown of economic recovery and growth. The piece was printed in the Econofact Record, and reprinted in CalMatters, Marketplace, and other publications and websites.

Number of immigrants reduced substantially

Between 2020 and 2021, the number of immigrants arriving in the United States decreased substantially. As a result of the COVID-19 pandemic, the Trump administration closed the borders with Mexico and Canada and placed restrictions on international arrivals at the start of 2020. Statistical estimates relative to the Fiscal year 2020 (from Oct. 1st, 2019 to Sept. 30th, 2020) indicate a decrease of immigrant visas by 45% and a decrease of nonimmigrant visas by 54% relative to the previous year.

Prior to 2019, the foreign-born population of working age (18 to 65) grew by about 660,000 people per year, as reported in data from the monthly Current Population Survey (see the first chart). However, by the end of 2021, the number of working-age foreign-born people in the United States was still somewhat smaller than it was in early 2019. Evaluating the current number of the immigrant workforce and comparing it to the 2019 growth trend there is a shortfall of about 2 million people. 

Although the U.S. is recovering from the economic crisis brought on by the COVID-19 pandemic and job creation has increased, many employers have difficulties filling job positions. Estimates suggest that an industry that had a 10% higher dependence on foreign workers than another industry in 2019 saw a 3% higher rate of unfilled jobs in 2021.

Entrepreneurship and firm creation are also at risk because of a decrease in the immigration workforce. A published article from 2020 shows that immigrants have a three times higher probability of starting enterprises than U.S. natives. 

Additionally, out of the loss of two million potential immigrants, one million would be college-educated. A recent study showed that college-educated immigrants are likely to work in the innovation sector of Science, Technology, Engineering, and Math (STEM). Research shows high-skilled STEM jobs are responsible for creating a job-multiplier effect at the local level. For each additional employed high-skilled worker up to 2.5 additional are created through local demand for goods and services. 

Losing foreign college students

The U.S. institutions of higher education will experience negative impacts through the loss of foreign college students. In the last two years, the number of international students has declined, with a 20% drop in 2020. International students, in particular graduate students, have largely contributed to U.S. research and innovation. Their absence could weaken the potential of those universities, research institutions, and businesses that depend on cutting-edge research and innovation.

The decline of immigrants in the last two years and the economic downfalls that have come with them show the importance of the immigrant workforce U.S.’s economic prosperity. Moving forward the government should facilitate the processing of non-immigrant and immigrant visas. Without an influx of immigrant workers, the U.S. economy could face detrimental consequences. 

This blog post highlights and summarizes the original article by Giovanni Peri, an economics professor at UC Davis, and Reem Zaiour, a Ph.D. economics student at UC Davis. You can access the full article here.


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