By
Derek Hamilton
December 04, 2024
One of the key focus areas of President-elect Donald Trump’s campaign was immigration. He has promised to address immigration in a forceful manner during his term, and much of what he proposes to do can be achieved through executive action. However, immigration is not only a political issue but also an economic issue.
One of the key inputs of an economy’s long-term growth is the growth of its labor force, and in developed economies, immigration plays a key role in that growth. Over the past three years, the US labor force has grown rapidly, with more than 6.5 million people joining the workforce. Individuals born outside the US accounted for more than half of that growth, even though the native-born labor force is roughly four times the size of the foreign-born labor force.
The chart below shows the foreign-born labor force continuing to grow rapidly, while the native-born labor force is essentially flat, illustrating that US labor force growth is heavily reliant on immigration. President-elect Trump appears likely to address immigration in two distinct ways:
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First, he wants to significantly slow the flow of people coming into the US. The Biden administration made it much easier for undocumented migrants to gain entrance into the US and eventually obtain work permits, resulting in a surge in immigration. While President Biden has pulled back on some of these policies, Trump will likely go further and severely limit inbound migration.
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Second, Trump has promised to increase the number of deportations of undocumented migrants currently residing in the US. While deportations have increased, the total number of deportations during the Biden administration has been the lowest in more than 20 years. While we are skeptical of Trump’s promises of mass deportation, we do believe the pace of deportations will significantly increase.
If Trump is successful in significantly slowing the flow of immigrants while increasing deportations, the US labor market could experience a negative supply shock, which could result in labor shortages in certain industries, potentially tightening the labor market and pushing wage growth higher. While other policies could be implemented to offset some of the negative impact, we worry the timing of such policies may come later, which could temporarily depress growth and boost inflation.
US civilian labor force: Foreign born vs. native born
Sources: Macquarie, US Bureau of Labor Statistics (BLS), US Department of State. Shaded areas represent recessionary periods.
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