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Undocumented immigrants are boosting the labor market and helping the US avoid recession, experts say

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Frederic J. Brown/AFP via Getty Images
  • Undocumented immigration has boosted the labor market, helping steer the US away from a recession, some experts say.

  • A study from the Brookings Institution argued that total immigration numbers are higher than other major agencies estimate due to undercounting of undocumented individuals.

  • Morgan Stanley's chief US economist has also recently cited undocumented immigration as a positive labor-market force.

Here's a question that's been lurking beneath the stellar economic resilience in the US: how has the labor market stayed so strong?

Some experts have an answer: undocumented immigration.

According to a new study by researchers Wendy Edelberg and Tara Watson at the Brookings Institution, a glut of undocumented immigrants have helped boost the labor market, steering the US away from a downturn. Data from the Congressional Budget Office shows that there has been a huge uptick — a net influx of 2.4 million — of "other immigrants" who don't fall under the category of lawful immigrants or those on temporary visas.

CBO estimates of net immigration
CBO 2024

Adding it all together, immigration numbers surged to 3.3 million in 2023, the study found — a higher estimate than that of most other major agencies. That, in turn, suggests that the US population and labor force has grown faster than reports from the Bureau of Labor Statistics (BLS) suggest, Edelberg and Watson explained.

It "could go some way to explain why employment growth remained so strong without more upward pressure on wages and price inflation," the study said.

The trend has been noticed by Morgan Stanley's chief US economist too.

"Immigration has been huge," Ellen Zentner said about undocumented immigrants in a Bloomberg interview last week. "It has boosted the labor force, it has boosted supply for labor, it has boosted job gains. That means the breakeven level for jobs has likely been just much higher than where we thought it was."

According to the Brookings researchers, pre-pandemic, the range of sustainable employment growth that would not cause inflation was expected to fall to 60,000 to 100,000 per month in 2024. But the increased labor supply means that 200,000 to 250,000 is probably a normal monthly pace of growth for the job market, Zentner explained.

The labor market has recorded gains stronger than that, posting an addition of 275,000 jobs in February. But the strength in that pocket of the economy has been a key piece of the soft landing narrative.

"How, in 2023, did we have such fast growth in the economy, better than 3%, while inflation decelerated, while wage growth decelerated? Because of much more labor supply and supply chains normalizing," Zentner said.

She added: "Over the medium term, this is a big positive for the economy."

Read the original article on Business Insider