The Immigration Economic Engine: Why Closing Borders is Triggering Massive Labor Shortages

This spring, if you pass any unfinished apartment complex in Phoenix or Houston, you’ll see the same thing: more idle equipment, fewer hard hats, and a project manager on the phone looking for someone who can hang drywall by Friday. Thousands of times around the nation, this little scene conveys a message that the political speeches do not.

The immigration debate has been framed as a matter of justice, security, or culture for almost ten years. The tedious, ledger-book portion of it—the economic portion—was moved to the bottom of the page. However, the ledger has caught up. Employers in the food service, construction, elder care, and agriculture sectors in particular feel that something fundamental changed when the borders tightened, and now the bills are coming in.

Even if you account for some measurement error, the numbers are startling. In comparison to the pre-pandemic trend, UC Davis researchers calculated that by the end of 2021, the US was short about two million working-age immigrants. Approximately 950,000 of them would have attended college. That gap is not marginal. It is comparable to a whole mid-sized city’s workforce disappearing in silence. Additionally, even though the headlines changed, the gap largely remained unchanged.

The long memory of economists who study this stuff is quite helpful. Policymakers rarely discuss the closest historical parallel, the quota laws of the 1920s. Immigration to the United States decreased by over 80% after Congress closed the door on migration from Southern and Eastern Europe. The expectation was that native-born workers’ wages would increase. They didn’t. Wages actually decreased in the labor markets most affected by the cuts, according to a team of economic historians led by Ran Abramitzky of Stanford. Farms automated more quickly than anticipated. The low-wage jobs did not disappear as cities shifted to higher-skilled manufacturing; instead, they were filled by internal migrants from poorer areas and by Mexican migrants whose quota had not been met, sometimes driving wages even lower. There are more unintended consequences than intended ones.

Even though the industries have changed, it’s difficult to avoid seeing remnants of that today. Rural counties’ hospitals are unable to staff night shifts. In Wisconsin, dairy farmers openly discuss how the math isn’t working. Mid-sized city restaurant owners no longer pretend that the closures are only temporary. The most recent labor data consistently demonstrates the same pattern: industries with the most persistent job openings today are those that relied most heavily on foreign-born workers in 2019. Retirement makes up a portion of that. A portion of it is workers negotiating for better hours by taking advantage of the tighter market. However, a significant portion—possibly the biggest portion—is simply fewer people showing up.

Europe is grappling with a different manifestation of the same paradox. While the EU as a whole tightens its asylum regulations, Germany has been hiring nurses from Ghana, Brazil, and the Philippines. It is deemed incoherent by critics. It is referred to as selective by defenders. In any case, it implies that the political discourse and the labor reality are no longer cohesive.

Investors appear to think that, as it did a century ago, the labor shortage will continue to push businesses toward automation. Robotic milking parlors, self-checkout at fast food restaurants, and AI-driven scheduling in warehouses are examples of this already. However, at least not yet, machines don’t pick strawberries, frame houses, or replace bedpans on a large scale. Furthermore, if a nation needs workers but refuses to allow them in, where does it expect them to come from? This is a forward-looking question that no one is quite sure how to respond to.

It’s easy to feel that the immigration debate has been debating the wrong issue for a long time as you watch this develop. The rhetoric has no bearing on the economy. Whether or not the shift is covered is important.