Increasing immigration into the U.S. could potentially fix the country’s growing labor force participation gap, according to a new note from Goldman Sachs.
“The gap between the number of available jobs and the number of available workers has allowed wages to rise at a rate well above the pace of wage growth compatible with the Fed’s inflation goal,” Goldman Sachs analysts wrote. “While reduced labor force participation is primarily behind the lower number of available workers, reduced immigration has also played a role.”
According to the U.S. Census Bureau, immigration into the U.S. decreased substantially in 2020, largely due to border closures stemming from the coronavirus pandemic.
Between 2010 to 2018, foreign-born workers “accounted for nearly 60% of the growth in the U.S. labor force, but growth in the foreign-born population slowed to around 100k/yr between 2019 and 2021.”
As a result, the U.S. population is roughly 2 million smaller than it would normally be while the labor force is about 1.6 million smaller.
"More recently, immigration has rebounded," Goldman noted. "Green card issuance to new arrivals has roughly returned to its pre-pandemic level, and temporary work visas have gotten close to normal levels in just the last few months."
'Broader legislative changes look unlikely'
Immigrants have previously proven to be a boon to the economy.
A pair of May 2021 reports from the bipartisan New American Economy found that “between 1996 and 2011, immigrants contributed $182.4 billion more to the Medicare Trust Fund than what the Fund spent on their health care. And between 2008 and 2014, immigrants contributed $174.4 billion more in health insurance premiums than was spent on them.”
And the H-1B program, which is the most common work program for foreign-born individuals, has been found to expand the number of job opportunities for American workers as well as immigrants since the program reduces the chances of employers moving jobs overseas.
New data from the Bureau of Labor Statistics found that foreign-born workers accounted for 17.4% of the U.S. labor force in 2021 and that the year-over-year increase in the number of those participating rose by 671,000 compared to their native-born counterparts.
"However, immigration rates would need to increase further to make up the shortfall in foreign born workers," Goldman analysts stated. "Immigration policies could make that difficult, as many immigration categories, including skilled and unskilled temporary workers, are limited by numerical caps that only Congress can change. While we would not rule out near-term congressional changes to the caps on lower-skilled workers in particular, broader legislative changes look unlikely."
5 potential courses of action that wouldn't require Congress
The Goldman note laid out five courses of action that the U.S. could take to boost immigration without having to rely on Congress.
These include reducing the administration's backlog and allowing more non-employment visa holders to work, along with recapturing unused visa allocation and broadening the use of extraordinary authorities, like raising the refugee cap.
Additionally, the note recommended expanding the number of limits in applications. Since spouses and minor children account for roughly 40% of total immigration visas issued under current caps, “such a change might still allow for around 175,000 newly arriving immigrants per year.”
Taken together, the Goldman Sachs analysts estimated, the Biden administration could "increase annual legal immigration by as much as a few hundred thousand without congressional approval using some of the less controversial steps immigration experts have proposed."
Those immigration policy changes could slightly ease the job-workers gap and help boost wage growth while helping with inflation and lagging labor force participation.
“The gap would need to close by around 2.5 million to return wage growth to the 4-4.5% range, a level that would be consistent with the FOMC’s inflation goals,” the analysts wrote. “Increased labor force participation might close 1-1.5 million of this over the next year. An increase on the order of a few 100,000 above the normal pace might be realistic, but a larger boost seems unlikely.”
But in the end, the note added, increasing immigration with current policy tools would make only a “modest dent” in the jobs-workers gap and would “leave most of the work of closing it” to the Federal Reserve.
Adriana Belmonte is a reporter and editor covering politics and health care policy for Yahoo Finance. You can follow her on Twitter @adrianambells and reach her at firstname.lastname@example.org.