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Without Immigration, U.S. Economy Will Struggle to Grow

Pia Orrenius and Chloe Smith

April 09, 2020

The coronavirus (COVID-19) pandemic has triggered dramatic, deteriorating economic conditions across the country. At some point, however, the effects of the shock will diminish. And the buffeted U.S. economy emerging from the health crisis will face some familiar structural challenges that predated the virus—among them, the slowing growth of its workforce.

Slowing labor force growth is the product of a number of factors—the aging of the U.S. population, retiring baby boomers and declining birth rates. But another element is immigration. Immigrants and their children contributed more than one-half of workforce growth in the past two decades.

This is of particular concern because of a recent sharp drop-off in immigration from what had been typical levels. Net international migration to the U.S. declined from more than 1 million people in 2016 to just fewer than 600,000 in 2019, a 43 percent drop, according to Census Bureau estimates (Chart 1).

Chart 1: Net International Migration to U.S. Declines 43 Percent Since 2016

Downloadable chart | Chart data

Less immigration and more foreign-born emigration have driven the recent decline. Measures of inflows include temporary and permanent immigrants, such as foreign workers and students and family members of U.S. citizens. They exclude transitory visitors, such as tourists, commuters and business travelers.

Immigration Usually Accompanies Economic Expansion

There have been previous periods of sharply declining immigration but not during economic expansions, as occurred in recent years. For example, net international migration fell by more than 40 percent between 2001 and 2010, a period that spanned two recessions. The U.S. economy expanded beginning in 2010, with growth picking up in the second half of the decade and unemployment rates reaching 50-year lows. Immigration typically accelerates when labor markets tighten, with employers turning increasingly to foreign-born workers to fill vacancies for which domestic workers are in short supply.

Declines Noted in Several Categories

Data suggest that legal inflows of immigrants who are likely to remain in the country permanently account for the largest numerical declines since 2016. Specifically, from fiscal year 2016 (12 months ended Sept. 30) to fiscal 2018, new arrivals of legal permanent residents fell 14 percent (89,351 people), and refugees declined 74 percent (62,584 people) (Chart 2).

Chart 2: Humanitarian and Family-Based Migration Decline Sharply Since 2016

Downloadable chart | Chart data

The number of refugees dropped sharply not because there are fewer refugees in the world, but because the U.S.-government-set refugee quota fell from 110,000 in fiscal 2017, to 45,000 in 2018, to 30,000 in 2019 and to 18,000 in 2020. The president, in consultation with Congress, annually sets refugee quotas, which provide a ceiling on the number of refugees resettled.

Refugees are typically those individuals and families referred by the United Nations High Commissioner for Refugees but also by U.S. embassies and nongovernmental organizations. Refugees allowed into the U.S. have often waited in refugee camps and are prescreened prior to arrival. After a year or so in the U.S., they qualify for legal permanent residence (green cards).

While it is clear why refugee inflows have collapsed, it’s harder to explain why new arrivals on green cards have suddenly fallen off. Most of the decline is in the immediate family category, especially among parents. U.S. citizens may bring in their foreign-born parents on green cards without limit. However, all visa applications filed by persons residing abroad, including for green cards, are subject to background screenings and consular interviews.

Tougher consular screening since 2017 may have deterred some applications and resulted in increased rejections. The federal government travel ban implemented in January 2017—at various times involving citizens of as many as 16 countries—may have also played a role in putting visas out of reach.

A new public charge rule that expands the factors immigration officers can consider when evaluating whether a visa applicant is likely to become dependent on welfare is too recent to have played a role in the decline since 2016. However, the new rule will likely stem the flow of future arrivals of family-based immigrants.

Waning Interest in Coming to U.S.?

It is also possible that the desire to immigrate to the U.S. has diminished. The number of visas issued in a given category is a function of supply (visas available) and demand (applications for visas). The drop-off in the demand for visas is apparent when looking at student (F-1) visas, for example (Chart 3).

Chart 3: Declining Demand for Student Visas Partly Offset by Lower Rate of Refusals

Downloadable chart | Chart data

Student visa applications and issuances are both down 43 percent since 2015. However, this change cannot be readily attributed to any recent U.S. policy, process or regulatory change. The drop-off began before 2016, and visa refusal rates are actually down, not up, since that time. Other factors that affect the demand for visas include schooling costs and home-country conditions.

For example, sharply lower oil prices in 2015–16 contributed to a steep drop in Saudi students studying in the U.S. Overall, new international student enrollment in U.S. universities is down 10 percent since peaking in the 2015–16 school year. Since foreign students often remain in the U.S. after employers here hire them, their reduced ranks contribute to slower workforce growth.

Meanwhile, the number of immigrants arriving on temporary work visas has not declined, likely a function of the tight U.S. labor market (Chart 4).

Chart 4: Temporary Worker Visas Steadily Rose During Past Decade

Downloadable chart | Chart data

There are annually more than 1 million temporary foreign workers, about one-third of them exchange visitors (J visas), one-fifth farm workers (H-2A) and another 10 percent seasonal low-skilled workers in nonagricultural employment (H-2B). The latter group includes landscapers, groundskeepers, and maids and housekeepers.

The other temporary workers are mostly high skilled, including those who come on H-1B visas (many of whom are in information technology), as well as intracompany transferees (L) and professionals under the North American Free Trade Agreement (TN). Some categories are capped, such as H-2Bs, and Congress has lifted those caps in response to labor shortages and employer lobbying. Other categories are uncapped, and volume rose as labor markets tightened.

Economic Implications of Less Immigration

The economy expands with growth in the labor force and its productivity. Due to the retirement of baby boomers and population aging in general, immigration will play an even larger role in workforce growth going forward than it has in the past. Absent offsetting increases in productivity growth, less immigration will, therefore, translate directly into slower gross domestic product growth.

A recent report illustrates the impact of reduced immigration on U.S. labor force growth through 2060. A long-run projection allows estimates to include the contributions of immigrants and their children. Estimates suggest that if immigration to the U.S. continued at 2016 levels, the labor force would grow at a 0.45 percent annual rate from 2016 to 2060, eventually creating a 193-million-person workforce. With a 30 percent decline in legal immigration, the workforce would grow 0.30 percent annually, and the workforce would total 180 million by 2060. A 50 percent decline in legal immigration would cut the growth rate by more than half, from 0.45 to 0.19 percent, and by 2060, there would be about 20 million fewer workers than in the base case.

Looking past the COVID-19 outbreak and resulting economic downturn, the U.S. economy should recover and regain its trend growth rate; this raises the prospect of eventually returning to the tight labor markets that prevailed in recent years. The aging U.S. workforce, declining birth rates and the retirement of baby boomers are immovable structural trends that will continue to suppress labor force growth in the long run. Immigration offers an option to mitigate such a restraint on the economy.

About the Authors

Pia Orrenius

Orrenius is a vice president in the Research Department at the Federal Reserve Bank of Dallas.

Chloe Smith

Smith is a research assistant in the Research Department at the Federal Reserve Bank of Dallas.

The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.

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