A labor shortage is slowing our recovery from the economic devastation caused by COVID-19. Excessive unemployment insurance checks, an expanded welfare state and immigration restrictions have reduced the supply of willing workers. There are 9.2 million vacancies and 9.3 million unemployed nationwide. As a result, employers are raising prices faster than wages and the economy is recovering more slowly than it should. Expanding legal immigration is one way to help.
Immigrants will fill vacancies and create additional employment opportunities for Native Americans, accelerating economic recovery. In economics parlance, immigrants increase both the supply and demand sides of the economy, which are accomplished in a number of ways. For example, according to the Kauffman Foundation, immigrants are about twice as likely to set up a business as native Americans. You at least occupy yourself and sometimes others too.
In fact, 45 percent of Fortune 500 companies were founded by immigrants and their children, even though they make up a quarter of the US population. And pretty much every large and successful company started out small. In New York City, for example, immigrants make up about 36 percent of the population but are about half of all small business owners. We need immigrants here not just to fuel our economic recovery today, but because they and their children will create many of the growth businesses of tomorrow.
Immigrants also increase demand by consuming the goods and services made by other workers. This additional purchasing power drives local businesses and increases job opportunities for other Americans. Some recent economic research has even found that each immigrant creates around 1.2 jobs for local workers, most of them for the low-skilled.
And it’s important to remember that immigrants don’t take jobs from locals. But immigrants rent apartments, buy groceries, and spend much of their money in the United States. Some immigrants send some of their income overseas to their families, but even that money eventually comes back to the United States in the form of exports to those countries.
American economic growth has been slower in recent decades, in part due to slower population growth. Americans have fewer children and immigration rates were moderate even before President Trump took office. This is a big problem because countries with shrinking populations are less innovative or not growing as fast as countries with booming ones.
Fewer people lead to fewer business startups, less innovation and fewer consumers to drive growth. Immigration can help reverse this decline. Cuts in unemployment benefits and other social benefits can also help get Americans back into work. Perversely, unemployment benefits and some social benefits pay workers when they are not working and often delay their return to work.
In fact, because young people are not entitled to social assistance or unemployment insurance, they have entered the world of work to an astonishing extent. The youth unemployment rate was 9.6 percent in May and 9.9 percent in June, lower than ever since the early to mid-1950s. However, young people cannot meet the demand on the labor market for long – especially not when the school year starts in autumn.
Along with the price hikes, some companies have also raised wages, but the slowdown in immigration cannot explain this reaction. In the past decade, Arizona has stepped up immigration enforcement to the point that hundreds of thousands of illegal immigrants have left the state. But their exit has not increased wages for workers left behind compared to states that have not passed such laws. A shrinking workforce does not lead to prosperity.
It is clear that immigrant workers, entrepreneurs and consumers can fuel economic recovery. The Biden government should do everything possible to increase the pace of legal immigration.
Alex Nowrasteh is Director of Immigration Studies at the Cato Institute and Director of the Herbert A. Stiefel Center for Trade Policy Studies.