How Immigrants Tame Inflation

We desperately need new workers in a variety of fields (with unemployment at < 3.5%). We also need to secure our border and admit folks who are willing to work/pay taxes. I guess neither party can figure that out. Over their pay grade.

BTW, the US fertility rate is insufficient to maintain our population. Ergo, either we allow qualified workers (& their families) to enter the US, or our working-age population will fall, leaving an imbalance between retirees and the employable.

How Immigrants Tame Inflation

Labor shortages apply upward pressure to wages and thus prices.

By Justin Gest, WSJ

May 1, 2023 5:45 pm ET

One factor driving U.S. inflation has been largely ignored: migration. The Trump administration tried to reduce the number of immigrants entering the U.S. as soon as it took office in 2017, then halted all admissions in 2020 with the pandemic shutdowns.

Meanwhile, domestic mobility was transformed by professionals’ sudden ability to work remotely. Millions of office workers moved to more-attractive locales. Before the pandemic, employers in these hot spots would have recruited international migrants to meet incoming professionals’ needs. But without this reserve of labor, the flurry of domestic moves generated great imbalances in the labor market.

The U.S. metro areas with the highest inflation rates over the past two years largely aligns with the country’s most popular pandemic destinations. And there’s a strong association between the total flow of new residents to a state and low unemployment. Conversely, the U.S. metro areas with the lowest inflation over the past two years are the large, expensive cities that many urbanites sought to escape. When so many residents departed, there were fewer new jobs created, fewer unfilled positions, and therefore less upward pressure on wages among the people who stayed.

When my co-author and I examined this more closely for FWD.us, a pro-immigration group, we found that the most popular pandemic destinations had labor markets that were 31% tighter. Focusing on America’s 21 largest cities, we found that moving from the least popular pandemic destinations (New York, Los Angeles, San Francisco, Honolulu) to the most popular (Austin, Texas; Dallas, Phoenix, Tampa, Fla.) increases the metro area inflation by almost 2.5 points between 2021 and 2022. For the average U.S. household, this would be an annual increase of some $1,500.

Any industry that relies heavily on immigrant workers is likely to be acutely vulnerable to labor shortages and wage inflation when borders are shut. That includes food production, leisure and hospitality, and manufacturing. But in our analysis of different business sectors, we found that the construction industry is especially susceptible because the pandemic-induced domestic migration led to a particularly strong increase in the demand for housing construction.

Accordingly, we find that moving from the least popular pandemic destinations to the most popular spots is associated with increasing local home-price appreciation by almost 6.7 points between 2021 and 2022—more than $20,000 for a $300,000 home.

It’s well-established that immigrants fill labor shortages, promote economic growth and stimulate entrepreneurship and innovation. Our discovery of the link between migration and inflation highlights the way that immigrants also help labor markets be more responsive to local changes in demand and supply.

The pandemic gave the Trump administration the opportunity to experiment with a zero-immigration future. It didn’t go well for anyone.

Mr. Gest is an associate professor at George Mason University’s Schar School of Policy and Government and author, most recently, of “Majority Minority.”