The U.S. economy has seen a surge in job growth, with 303,000 payrolls added in March. Typically, such strong growth might lead to concerns about inflation, as businesses may need to increase pay to attract workers. However, annual price growth remains above the Federal Reserve’s target of 2% but is still below previous peaks. Economists believe that the post-pandemic increase in immigration has helped fill roles at levels of pay that have kept inflation in check. Measures of labor market “tightness,” like wages, have not significantly increased, indicating that inflation may not rise due to strong economic growth.
The Congressional Budget Office and the Brookings Institution have both pointed to the surge in immigration as a key factor in expanding the U.S. labor force. The CBO increased its projection of the labor force by 5.2 million people thanks to higher projected net immigration. The Brookings Institution stated that faster population and labor force growth have allowed for a quicker pace of job growth without adding to inflation pressures. This increased labor force has allowed businesses to meet demand without significantly raising wages. Federal Reserve Chair Jay Powell has also noted that the impact of the new wave of arrivals is neutral in terms of inflation.
Despite the surge in immigration being a divisive issue in the U.S., it has had a positive impact on the economy. Wendy Edelberg, director of Brookings’ Hamilton Project, noted that immigration has allowed for higher levels of job growth without causing high inflation. Wage growth has remained moderate, with the annual pace of average hourly pay growth declining in March. Immigrants, who are authorized to work in the U.S., contribute to increasing demand for goods and services while also supplying labor. The overall effect on inflation is small, as immigrants tend to spend a greater share of their labor income.
The debate around immigration has intensified, with Gallup survey respondents ranking it as the country’s “most important problem.” Republicans and former President Donald Trump have called for measures to stem the entry of migrants, while cities like New York and Chicago have faced challenges in accommodating migrant populations. However, the majority of immigrants entering the U.S. are authorized to work and contribute to the economy. While immigration can strain state and local budgets, it has overall been a net positive for the economy.
Immigration has allowed businesses to tap into a growing labor pool to meet demand without significantly increasing wages, which has helped keep inflation in check. The surge in immigration post-pandemic has been attributed to the growth in the labor force and has allowed for higher levels of job growth without adding to inflationary pressures. Economists and policymakers believe that immigration has played a crucial role in sustaining economic growth without fueling inflation. The impact of immigration on the economy is expected to remain positive, as immigrants contribute to both the demand for goods and services and the supply of labor.
