San Francisco Fed: The immigrant army may continue to "loosen" the labor market

According to a study by the Federal Reserve Bank of San Francisco, the tightness of the labor market in the United States is expected to continue to slow down due to the continuous influx of undocumented immigrants.

Economist Evgeniya Duzhak of the San Francisco Fed stated in a report published on the bank's website on Monday, "My estimates suggest that about one-fifth of the easing of labor market tightness in 2023 can be attributed to the surge in immigrant numbers." She added that given the delay in immigrants transitioning to the workforce and the latest estimates showing a strong influx of immigrants, this trend is expected to continue.

The San Francisco Fed's research updates the population forecasts released earlier this year by the Congressional Budget Office (CBO). The forecast shows that the wave of immigration is much larger than previously expected by economists, leading many forecasters to raise their expectations for the U.S. economic outlook.

Duzhak's estimates indicate that between October 2023 and January 2024, approximately 1.3 million undocumented immigrants will enter the United States. This will bring the total number of immigrants for the 2024 fiscal year to 3.8 million, compared to the CBO's latest estimate of 3.3 million.

In recent years, the U.S. has expanded humanitarian parole for approximately 640,000 people from Cuba, Haiti, Ukraine, and Nicaragua, and extended Temporary Protected Status to around 472,000 Venezuelans. While these individuals are eligible for immediate work permits, Duzhak predicts that many of them will continue to enter the labor market throughout 2024 due to delays in the processing.

The category of undocumented immigrants includes those who use legal channels through official entry points and those who attempt to cross the border and are arrested and receive a court notice. It also includes more difficult-to-track individuals, such as undocumented immigrants and those with expired visas.

To study the impact of immigration on the labor market, Duzhak compared the ratio of state-level job vacancies to unemployment rates with immigration-related court cases. According to the report, Florida, New York, Texas, and California had the highest number of new immigration court cases in 2022 and 2023, while Louisiana, Massachusetts, Utah, and Colorado also had significant per capita case numbers.

She wrote, "By examining the changes in immigration-related court cases in each state, I found that this strong influx of immigrants alleviated the tightness of the labor market." Duzhak pointed out that when immigration cases in a state doubled, as more workers joined the labor force, the ratio of vacancies to unemployment rate decreased by 16%. Economists predict that the number of immigrants this year will be similar to last year's level, and estimated in a report in February that the increase in immigrants will boost the U.S. economy by $70 trillion over the next decade.