Bad government policies are gifts that keep on giving. That is the message Federal Reserve Board Chair Jerome Powell delivered in a recent speech. Powell cited Trump-era restrictions on immigration that have led to a continued worker shortfall. Economists say recent events are further evidence that a lower supply of workers—which anti-immigration advocates and organizations believe is a good thing—is damaging and even destructive. Admitting fewer foreign-born workers can—and has—lead to shortages and labor shortfalls that harm the economy by limiting output and contributing to inflation.
Keeping inflation low is essential for an economy. High inflation erodes the value of earnings and leads to a lower standard of living, among other economic problems.
In a November 30, 2022, speech at the Brookings Institution, Jerome Powell said, “The truth is that the path ahead for inflation remains highly uncertain. For now, let’s put aside the forecasts and look instead to the macroeconomic conditions we think we need to see to bring inflation down to 2 percent over time.”
“In the labor market, demand for workers far exceeds the supply of available workers, and nominal wages have been growing at a pace well above what would be consistent with 2 percent inflation over time,” said Powell. “Thus, another condition we are looking for is the restoration of balance between supply and demand in the labor market.
“Signs of elevated labor market tightness emerged suddenly in mid-2021. The unemployment rate at the time was much higher than the 3.5 percent that had prevailed without major signs of tightness before the pandemic. Employment was still millions below its level on the eve of the pandemic. Looking back, we can see that a significant and persistent labor supply shortfall opened up during the pandemic—a shortfall that appears unlikely to fully close anytime soon.”
Powell cited “excess retirements” as one factor that has contributed to the labor shortfall. However, he did not see any indication retirees would return to the labor market in sufficient numbers to reverse the trend.
“The second factor contributing to the labor supply shortfall is slower growth in the working-age population,” said Powell. “The combination of a plunge in net immigration and a surge in deaths during the pandemic probably accounts for about 1-1/2 million missing workers.
“Policies to support labor supply are not the domain of the Fed: Our tools work principally on demand. Without advocating any particular policy, however, I will say that policies to support labor force participation could, over time, bring benefits to the workers who join the labor force and support overall economic growth. Such policies would take time to implement and have their effects, however. For the near term, a moderation of labor demand growth will be required to restore balance to the labor market.” (Emphasis added.)
Catherine Rampell, a columnist at the Washington Post, pointed to an important footnote about Donald Trump’s immigration policies in Powell’s speech. “Due, at least in part, to pandemic-related restrictions on entry into the United States, total immigration has slowed substantially since the start of the pandemic, lowering the labor force by about 1 million people relative to pre-pandemic trends,” according to the footnote. “While lawful, nonpermanent immigration (for example, H-1B and H-2B visa holders) has bounced back considerably since earlier in the pandemic, these categories of immigration are generally still below 2019 levels. Meanwhile, lawful permanent immigration (that is, new green card holders) is also somewhat lower than in 2019 and well below levels that prevailed earlier in the 2010s.”
Economists Giovanni Peri and Reem Zaiour found there were 2 million fewer working-age immigrants because of the pandemic and U.S. immigration policies during the Trump administration.
In a recent column, Rampell correctly noted, “Visa issuances (for people newly receiving green cards, as well as those in other work-eligible categories) have rebounded this year, according to an analysis from the Migration Policy Institute. But the recent increase is still not up enough to offset the cumulative deficit of ‘missing’ immigrants who never arrived over the previous two years.”
Madeline Zavodny, an economics professor at the University of North Florida and a former economist at the Federal Reserve Bank of Atlanta, sees a lingering impact of policies enacted during the Trump administration since the policies restricted the entry of many workers. She told me, as Rampell alluded to, that even a return to earlier levels of immigration does not solve labor problems, pointing out that the “stock” of workers and the current “flow” are not the same thing. “Those years of smaller flows aren’t recouped when flows recover to what they were before,” she said. “The stock of immigrants is still pointing to fewer workers.”
Mark Regets, a labor economist and a senior fellow at the National Foundation for American Policy (NFAP), explains that reductions in immigration have been a “huge supply shock” to the U.S. economy. “Inflation occurs when the demand for goods and services grows faster than supply,” he said. “Increasing our ability to produce is the least painful way to control inflation. Increasing the supply of labor increases production, but immigrants also adapt to our needs in ways that add dynamism to the economy.”
During the Trump administration, Donald Trump (in 2020) issued proclamations that blocked the entry of most immigrants and temporary workers to the United States. He also enacted policies during his time in office that significantly reduced the number of refugees admitted and restricted admissions for family immigrants. Between FY 2016 and FY 2020, the annual level of legal immigration declined by 476,143. It fell by more than 150,000 between FY 2016 and FY 2019. Trump’s policies resulted in nearly 300,000 fewer refugees arriving in America between FY 2016 and FY 2021, according to an NFAP analysis.
Madeline Zavodny studied the impact of the sharp drop in international migration during the Trump administration, focusing on 2020. In an NFAP report, she found, “There is no evidence the entry of fewer foreign workers on temporary visas improved outcomes for U.S. workers.” This contradicts a central tenet of advocates for restrictive immigration policies.
“The research examined labor markets where more temporary foreign workers were employed prior to the pandemic and found the drop in H-2B program admissions did not boost labor market opportunities for U.S. workers but rather, if anything, worsened them,” writes Zavodny. “The results also do not indicate gains for similar U.S. workers in labor markets that had relied more on the H-1B and J-1 visa programs. . . .The ongoing shortages of workers in many labor markets reflect U.S. employers’ need for additional workers from both domestic sources and abroad.”
For more than a century, analysts point out, the anti-immigration movement has rested upon the mistaken belief only a fixed number of jobs exist and that admitting fewer foreign-born workers would lead to more jobs for U.S. workers. During the Trump administration, anti-immigration advocates saw their preferred policies enacted. As Federal Reserve Board Chair Jerome Powell noted, those policies contributed to inflation and have continued to damage the U.S. economy.