America should thank immigrants for the ‘soft landing’

With numbers for January showing that inflation stands at 3.1 percent down from 9.1 percent inflation peak in mid-2022, the “soft landing” scenario — reducing the post-COVID era inflation without tipping into a recession—has become the most likely one. And in that context, especially as we stand on the precipice of the 2024 elections, it’s imperative to cast a spotlight on an often-overlooked reason of these dynamics: immigration.

The United States has witnessed an unprecedented influx of immigrants, with the number arriving from the southern border hitting record highs. Consistently, according to recent data, immigrants added about 1 million people to the U.S. population in 2023. This marks the second consecutive year that immigration has been a pivotal driver of population gains in the country.

A notable characteristic of these immigrants is their youthfulness: According to the U.S. Census, about 77 percent of the immigrants who arrived in 2021 were between 18 and 65 years old, compared to roughly 59 percent for the U.S. population as a whole. 

This demographic trend has a profound implication: A significant portion of these younger immigrants are poised to enter the labor force immediately as they arrive. Although many of them may not possess work visas, they will still join the labor force informally.

Immigrants tend to gravitate towards areas where they have existing networks, but also where job opportunities are plentiful. The past few years have laid bare the labor shortages faced by urban areas across America, with “help wanted” signs becoming a ubiquitous feature of the landscape. With tight labor markets almost everywhere, wherever these immigrants decided to go, they would easily find jobs and contribute to aggregate labor supply. In fact, using data on Venezuelan immigrants, I’ve documented that those who have crossed the southern border hold occupations that are in especially high demand across America

Overall, immigrants who entered the country had played a crucial role in alleviating tightness of the labor market by filling the excess job vacancies that have characterized the post-COVID overheated economy. This influx of labor helped temper the upward pressure on wages, reducing the chances of spiraling inflationary pressures of wage hikes leading to price hikes leading to more wage hikes, and so on. In fact, in the presence of more active pro-immigration policies (such as, for instance, reducing backlogs in the immigration system) the Federal Reserve could have avoided some hikes in the interest rates, as Ricardo Hausmann and I argued back in 2022.  

Beyond their contribution to the labor market, immigrants can influence the economy through their consumption habits, of course. But here is another important aspect that characterize recent immigrants: with limited access to credit and the need to save a chunk of their salaries (often sent abroad as remittances), their consumption is often in line with—or even below—their earnings, helping to bring down aggregate demand, further easing inflationary pressures.

This dynamic has been integral to the U.S. to ease supply constraints without boosting consumer spending. It underscores the importance of the recent inflow of an immigrant workforce.

As the 2024 elections loom, the discourse around immigration is likely to be dominated by short-term strategies focused on border control. However, it’s crucial to engage in a more nuanced conversation about the long-term necessity of immigrants in the U.S. workforce. The country is facing a continuous need for a diverse immigrant workforce across all types of occupations, coupled with an aging population and deteriorating age-dependency ratio — challenges not unique to the U.S. but common to developed nations worldwide.

The narrative around immigration is often mired in controversy, but once again, the evidence speaks for itself. The role of immigrants in contributing to a soft landing post-COVID is a testament to their importance, not just as workers, but as integral contributors to the nation’s prosperity.

As such, during the upcoming election season, Americans must demand long-term solutions to migration centered around maximizing gains of those inflows that will inevitably continue for the foreseeable future. These solutions must acknowledge the underlying truth that America’s economic success does not only benefit from immigration, it depends on it. 

Dany Bahar is an associate professor at Brown University, a senior fellow at Harvard growth lab and a non resident senior fellow at Brookings Institution.