Goldman Sachs: U.S. Immigration Plummets 80%, Reshaping Employment "Breakeven Point," AI Becomes the Biggest Variable in the Labor Market

Goldman Sachs' latest analysis indicates that the fundamentals of the U.S. labor market are undergoing a fundamental shift. Due to the immigration restriction policies of the Trump administration, net immigration has plummeted by 80%, this change is redefining the level of job growth needed to maintain a stable unemployment rate. The bank expects that by the end of this year, the U.S. will only need to add about 50,000 jobs per month to keep the unemployment rate unchanged, significantly lower than the current 70,000.

This sharp contraction in labor supply is a result of the comprehensive tightening of immigration policies. During the Biden administration, over 10.8 million illegal immigrants entered the U.S. By 2025, net immigration has dropped from an average of about 1 million per year in the 2010s to about 500,000. Goldman Sachs predicts that this will further decline to only 200,000 in 2026.

However, the performance on the labor demand side remains "fragile." Goldman Sachs points out that current job growth is narrow, and job vacancies continue to decline, having fallen to about 7 million, below pre-pandemic levels. The bank believes that the biggest downside risk facing the labor market comes from artificial intelligence, which may bring about faster and more disruptive structural adjustments, potentially dampening companies' willingness to hire and leading to unemployment numbers exceeding current expectations.

Tightening Immigration Policies Rewrite Job Growth Thresholds

Goldman Sachs detailed in its latest report the transmission path of the tightening of U.S. immigration policies on the labor market. The Trump administration significantly reduced immigration inflow through increased deportations, tightening visa and green card approvals, suspending immigration processing for dozens of countries, and canceling temporary protected status for certain groups, taking multiple measures to drastically cut immigration. Data shows that net immigration to the U.S. has dropped from an average of about 1 million per year in the 2010s to about 500,000 in 2025, with a further decline to 200,000 expected in 2026.

The sharp contraction in labor supply directly lowers the "break-even" job growth rate needed for the economy. Goldman Sachs estimates that by the end of this year, the U.S. will only need to add about 50,000 jobs per month to prevent the unemployment rate from rising, far below the current level of about 70,000. The bank noted in the report that as the influx of new labor into the economic system decreases, hiring no longer needs to be as robust as before to maintain a stable unemployment rate. The report states:

"A slight rebound is sufficient to maintain job growth at the break-even level."

Although Goldman Sachs' immigration forecast differs from the data of the Brookings Institution and the Congressional Budget Office, all three point to a clear downward trend. Additionally, Goldman Sachs raises a potential risk: stricter immigration enforcement may be driving more workers into informal or off-the-books employment. If this trend is true, official employment data will underestimate the true level of activity in the labor market, making the task of the Federal Reserve in assessing economic momentum more complex.

Demand Side Signals Continue to Weaken

Although the contraction in labor supply mathematically lowers the "break-even line" for job growth, this does not mean that the labor market itself is strong. Goldman Sachs describes the current performance on the demand side as "fragile," noting that job growth is increasingly narrow, primarily dominated by the healthcare industry, while job vacancies continue to decline Data shows that job vacancies have currently fallen to about 7 million, below pre-pandemic levels and still declining. The official data from the U.S. Bureau of Labor Statistics also confirms this trend, with job vacancies sliding towards the mid-range of 6 million by the end of last year. Goldman Sachs warns that the continued decline in job vacancies will increase the risk of a more significant rise in the unemployment rate, even if the growth in labor supply slows cannot fully offset this pressure.

The bank explains in its report that as the pace of new labor entering the economic system slows, hiring no longer needs to be as vigorous as before, which is sufficient to prevent the unemployment rate from rising. This logic implies that the seemingly weak employment data may increasingly mask a labor market that is merely maintaining the status quo rather than accelerating deterioration.

The resulting contradiction is that the "stability" of the labor market may increasingly resemble "weakness." With immigration slowing and labor growth tapering, the level of employment growth that was previously seen as a warning signal may now soon be sufficient to maintain market stability.

AI Becomes the Biggest Uncertainty

Goldman Sachs views artificial intelligence as the biggest downside risk to labor market prospects, not because it has already triggered large-scale layoffs but because it may marginally suppress hiring. So far, the bank estimates that the substitution effect related to AI has only cut 5,000 to 10,000 jobs from the monthly growth in the most affected industries. However, faster or more disruptive deployment could put greater pressure on demand.

Goldman Sachs wrote in the report:

"Our main concern about downside risks to the baseline forecast is that AI may see faster and more disruptive deployment. While a large amount of recent anecdotal evidence points to potentially faster adoption rates and corresponding unemployment, it is difficult to know how these will translate into macroeconomic outcomes."

The bank's data shows that in several sub-industries where AI is easiest to deploy, employment growth has already slowed and slightly turned negative, while company-level evidence indicates that AI is already reducing demand for workers. So far, this impact, while visible, remains "moderate."

Currently, Goldman Sachs expects the unemployment rate to rise only slightly to around 4.5%. The bank's chief economist, Jan Hatzius, stated in another report that the probability of an economic recession next year is a "moderate" 20%. The bank believes that the labor market is "taking early steps towards stability."

However, with the rapid development of AI technology and the potential for broader applications, this relatively optimistic forecast faces significant uncertainty. If the pace of AI deployment exceeds expectations, it could have a greater impact on the job market than currently estimated.