Improving Immigration to
Reduce Inflation

Inflation, driven by labor shortages that have left millions of jobs unfilled and created supply-chain bottlenecks, continues to challenge American families and businesses. Filling open positions in the job market and increasing productivity to match consumer demand is needed to reduce inflation and ameliorate the looming threat of recession.

Economists, policy experts, and business leaders agree that changes to immigration policy could have a substantially positive impact on reducing inflation by immediately filling open jobs, increasing production, and helping drive down prices. Allowing immigrants to gain status, have job mobility and naturalize is good for them and good for the economy overall.

Numerous other countries facing similar labor shortages as the U.S. are already making policy changes to increase immigration and grow their workforces; it would be wise for the U.S. to follow suit. On the other hand, failing to restore the U.S. immigration system could exacerbate the current inflationary trends and invite an even more dire economic crisis.

1| Steep declines in legal immigration helped fuel inflation

Demographic experts have been warning for years that current demographic trends in the United States would not be able to maintain economic growth and sustain the workforce. What was already expected to be a decade-long demographic decline was supercharged by the COVID-19 pandemic, costing the economy tens of millions of lost jobs.

One of the heavier blows to the U.S. workforce was a sharp decline in immigration through legal channels. From 2016 to 2020, annual immigration levels fell every year, declining by 40% overall, reaching the lowest levels since immigration caps were set in the early 1990s. The COVID-19 pandemic greatly accelerated this decline: for 2020 and 2021, new immigration fell significantly, in part because then-President Trump issued a ban on virtually all immigration that remained in effect until February 2021.

As a result, the U.S. workforce was left with approximately two million fewer working-age immigrants than if pre-pandemic and especially pre-Trump Administration levels had continued.

While many Americans have returned to work and unemployment has fallen to pre-pandemic levels, the actual number of people in the workforce is not enough to fill all open jobs. The Bureau of Labor Statistics reports that there are nearly twice as many open jobs as there are unemployed people looking for work. When companies cannot hire all the workers they need, it restricts production and the supply of goods and services they can offer. Meanwhile, demand for goods and services continues to increase as communities reopen. Increased demand and decreased supply mean higher prices for consumers, the clearest consequence of inflation.

2| Industries facing biggest labor crunches already rely heavily on immigrants

While this virtual collapse of legal immigration in recent years is not the sole cause of inflation and labor shortages, it has significantly contributed to them. To correct the decline, Congress should explore proposals to restore legal immigration and allow qualified immigrants already present in the U.S. to fill open positions in the labor market.

Many critical industries facing the highest labor shortages are well positioned to benefit from an increased number of immigrants in the workforce because they already rely significantly on immigrants.

According to FWD.us analysis, immigrants make up more than 20% of workers in critical industries like construction (25%), food service (21%), and professional services (21%), and more than 15% in manufacturing (19%), transportation (19%), and healthcare (17%).

Immigrant share of workforce, by industry

The agricultural sector is not included in the data above; however, this sector is also facing extraordinary shortages that could likely be reduced with immigration policy changes. Immigrants make up an estimated three-quarters of the farm workforce, yet leaders in the industry say they still need more workers. Without more workers, the agriculture industry could face worsening labor shortages in 2023, with food prices increasing even further after an already record year of rising food costs.

Boosting legal immigration and allowing more immigrants to fully contribute would have a relatively greater positive impact for these industries, both because a greater share of immigrants would be available to fill these jobs in particular, and because the shortages are so high that their reduction would have a more significant impact.

3| Immigrants already in the U.S. could immediately fill hundreds of thousands of open jobs

Adding workers to the labor market, including immigrants who are already in the U.S. but whose ability to work is limited by their status, would help reduce labor shortages and lessen inflationary pressures.

According to FWD.us analysis, immigrants could immediately fill nearly 400,000 open jobs if common-sense, bipartisan immigration measures were passed by Congress.

Estimated number of potential workers already living in U.S., by industry

Establishing a pathway to legal status for Dreamers who are currently prohibited from accessing DACA alone would add some 300,000 workers. Ensuring that such a pathway also includes children of immigrants in green card backlogs would add another 20,000 workers. Congress could also revive recent bipartisan proposals to retain international students graduating from U.S. colleges and universities with advanced STEM degrees, adding another 60,000 or so skilled workers next year. Most of these potential workers are finishing their studies or are on the sidelines of the labor force until they can receive work authorization.

Congress could also open a broader pathway to citizenship for the some 7 million undocumented immigrants already in the labor force but without work authorization. Expanding access to lawful employment for this workforce, which represents 4% of all workers in the U.S. economy, would not only provide certainty for them and their families, but also for their employers.

Restoring timely processing for immigration applications being reviewed by U.S. Citizenship and Immigration Services (USCIS) would unlock even more workforce potential. Roughly 8.5 million applications are pending with USCIS, more than 5 million of which have waited longer than the agency’s processing time goals. This includes more than 1.5 million requests to receive or renew work permits, nearly 800,000 green card applications, and roughly 740,000 naturalization applications. The pending caseload grew by 2.8 million over the course of the pandemic. While not every application represents a new worker, there is no doubt that reducing this backlog would mean more people getting to work more quickly. If Congress granted USCIS’ funding request, the backlog could be eliminated by 2026 at no extra cost to taxpayers.

4| Ending DACA and further restricting immigration would only further feed the fire

Allowing hundreds of thousands of qualified workers to fill open jobs would help reduce inflation; however, Congress is currently on track to do the exact opposite by allowing the DACA policy to end without any legislative solution.

Ending DACA would force more than half a million people out of the workforce; it would also permanently exclude the additional 400,000 individuals who qualify for DACA’s work authorization but have been barred from receiving it because of court orders.

Some 1,000 jobs would be lost each and every business day for the next two years if DACA ended and recipients lost work authorization, a likely outcome of ongoing legal challenges. That’s 22,000 DACA recipients forced out of work each month, including 1,600 DACA healthcare workers like doctors and nurses, 800 educational professionals like teachers and teacher aides, and 600 personal care workers.

Forcing well-educated and highly qualified workers out of critical jobs at this moment would feed the inflationary fire, with harmful ripple effects extending out to their families and communities. The picture could be even grimmer if newly elected and empowered Members of Congress follow through on promises to further limit legal immigration. Reducing immigration beyond the already diminished levels would hinder growth and shrink the workforce. Addressing labor shortages without immigrants would be incredibly difficult, as illustrated by proposals from anti-immigrant advocates to automate work, send jobs overseas, or tell Americans to “do it yourself.”

5| Restoring growth and preventing future challenges will require meaningful reform

Secretary of Labor Marty Walsh recently warned that failing to reform the immigration system and increase immigration levels would be disastrous: “I’ll tell you right now if we don’t solve immigration … we’re talking about worrying about recessions, we’re talking about inflation. I think we’re going to have a bigger catastrophe if we don’t get more workers into our society and we do that by immigration.”

Leaders in Congress can help address immediate and longer-term workforce challenges by working together on bipartisan legislation to expand legal immigration pathways, attract and retain highly skilled STEM graduates, provide certainty to the agricultural workforce, and establish a pathway to citizenship for undocumented immigrants living in the United States today, including DACA recipients and other Dreamers.

Economists have demonstrated time and again that immigrants and immigration are good for America. Smart immigration policy can help the U.S. reduce inflation and fight back a potential recession in the short term, and will be necessary to ensure that the U.S. economy continues to grow and lead the world into the future.