International Forecaster Weekly

IMMIGRATION HIATUS & RETIREMENTS DRIVE U.S. LABOR SHORTAGES

The nation’s worker shortage “has become a flywheel of doom, messing up our lives and society writ large,” according to Emily Peck. 

“And many of the underlying problems that led to this breakdown are bigger than the pandemic.”

Because of increased restrictions on immigration and travel that began with the pandemic in early 2020, the net inflow of immigrants into the U.S. has for all intents and purposes been in a 2-year hiatus. 

Guest Writer | January 19, 2022

By Dave Allen for Discount Gold & Silver

The nation’s worker shortage “has become a flywheel of doom, messing up our lives and society writ large,” according to Emily Peck. 

“And many of the underlying problems that led to this breakdown are bigger than the pandemic.”

Because of increased restrictions on immigration and travel that began with the pandemic in early 2020, the net inflow of immigrants into the U.S. has for all intents and purposes been in a 2-year hiatus. 

Two Million Less Foreign Workers

By the end last year, about 2 million fewer working-age immigrants were living here than would have been if pre-2020 patterns had continued unchanged. 

That’s according to a new study by Giavonni Peri and Reem Zaior at the University of California, Davis.

The professors estimate that about one half, or one million, of these potential workers would have been college educated (more on the significance of that later). 

Data on labor shortages across industries suggest that this dramatic drop in foreign labor supply is a likely contributor to the current labor shortages.

Most economists have been warning that those shortages will slow down employment recovery — and extend a labor market already in an extended recession — and overall economic growth.

Millions of immigrants plus older American workers and mothers are missing from the labor force today. 

Those shortages have led to problems like supply chain disruptions, school closures, poorer service from the hospitality industry, and surging childcare costs.

Labor Shortages Top Threat 

CEOs say labor shortages are the top threat to their businesses this year, in the latest survey from the Conference Board.

Some say the labor problems are broadly about Covid, but the root causes preexist the pandemic:

Lost Immigrants. There are about 2 million fewer working-age immigrants in the U.S. because of pandemic restrictions, according to Peri and Zaior’s calculations of census data.

The Great Retirement. Increased retirement and workers’ bargaining power are also playing an important role. 

The pandemic spiked retirement rates. Flush with cash from the booming stock market and concerned about their health, many older workers simply left the workforce.

There are 3.3 million more retirees as of October 2021 than January 2020, according to the St. Louis Fed. That number far exceeds pre-pandemic demographic expectations.

More generous unemployment and other stimulus benefits rolled out during the crisis may have discouraged workers from taking especially low-paying jobs in 2020 and early 2021.

But they don’t seem to be the cause of current shortages because most of those enhancements expired by last September. 

Recent anecdotal and other evidence finds a push by workers for more job flexibility, safety — and, yes, pay — causing resignations and contributing to unfilled job openings (4.5 million at the of 2021). 

Increased retirement rates also have contributed to the decline in available workers. 

A recent study by the Kansas City Fed found that an excess of retirements and reduced reentry of retirees to the labor force has increased the share of retirees relative to the labor force by 1.3 percentage points in the last 2 years.

That compares to an annual rate of increase or just 0.3 percentage points — or more than three-quarters less than — prior to the pandemic. 

These factors have affected labor availability, especially in low-paying, manual-intensive jobs in sectors as food services and hospitality. 

The chart above shows that the rates of unfilled jobs in those two sectors are well above what is predicted by the statistical correlation between the rate of unfilled jobs and an industry’s dependence on foreign workers — suggesting that other factors are at work in those sectors as well. 

The Rubber Meets the Potholed Road 

The loss of two million potential immigrants, of which a million are college educated, could impact productivity and employment in the long run. 

A separate study by Peri and others at the University of Chicago shows that college-educated immigrants are likely to work in the Science, Technology, Engineering and Math sectors.

These so-called STEM jobs are drivers of innovation and productivity growth. 

Additionally, research focused on the high-skilled STEM jobs shows that they’re responsible for creating up to 2.5 additional jobs for each additional employed high-skilled worker.

Those jobs are produced by local demand for goods and services and by companies expanding and hiring other workers. 

Thus, the loss of one million college-educated immigrants would likely leave the economy with lower productivity which translates to lower growth. 

In fact, the loss of college-educated immigrants implies 2.5 million fewer jobs in local economies where immigrants would have worked (1 million college-educated immigrants x 2.5 job multiplier). 

Back to Work?

Economists are hopeful that when it becomes safer to return to work, more Americans will in fact go back to work.

Labor economist Aaron Sojourner at the University of Minnesota believes if people are healthy and risks are low, they'll be more willing to get back to work. "It's a win-win," he says.

But unless there’s a new policy intervention by the President and Congress, there will still be a shortage of immigrant workers, which holds back other parts of the economy.

"We have lost two years of immigration and there is nothing in our system that allows us to catch up," Peri says.

Immigrant workers could help alleviate shortages in a range of industries, including childcare.

More childcare workers would have a downstream effect on the 1.5 million working mothers and older women, who've stepped out of the workforce to help with their grandchildren's care.

Peri and Zaior conclude that the shortfall of immigrants over the past two years harms the outlook for the economy. 

Further, they believe reduced numbers of foreign students and high-skilled immigrants are particularly concerning for the “long-run effects on productivity, innovation and entrepreneurship” in the U.S. 

In light of this, they say the federal government should — this year — increase the number of non-immigrant and immigrant visas to avoid further shrinking the number of immigrants.

What say you?