- Nobel Prize-winning economist Paul Krugman attributes job growth and low inflation in the US post-pandemic economy to immigration, as foreign-born workers have expanded the labor force without fueling inflation.
- Data shows that immigration to the US rebounded in 2022, resulting in 3.1 million more immigrant workers compared to pre-pandemic levels, while the native-born labor force has shrunk.
- Increased labor force participation among women, including mothers, and productivity growth, along with the availability of labor, have helped keep inflation in check and contributed to the US outperforming other advanced countries in job creation and economic growth.
Additional Coverage:
A major economic mystery in the post-pandemic US is how employers continue to add jobs every month despite a tight labor market and rising inflation. Nobel Prize-winning economist Paul Krugman believes the answer lies in immigration. Krugman explains that the growing labor force, largely driven by foreign-born workers, has allowed employers to hire without fueling inflation. He emphasizes that the availability of foreign-born workers has contributed to the US outperforming other advanced countries in terms of job creation and economic growth.
Data reflects the impact of immigration on the labor force. Immigration to the US initially decreased under the Trump administration but rebounded in 2022. As of now, there are 3.1 million more immigrant workers in the labor force compared to pre-pandemic levels. Meanwhile, the native-born labor force initially rose but has since shrunk. Experts suggest that the availability of labor has contributed to the cooling of the tight labor market.
The Federal Reserve closely monitors the job market and considers it when deciding on interest rates. Amidst the surge in pandemic inflation, the economy is still growing and inflation has fallen. Andrew Hunter, deputy chief US economist at Capital Economics, attributes this to the rebound in the labor force, productivity growth, and increased labor force participation among women, especially mothers. This has helped keep inflation in check, a surprising outcome not anticipated by many.
Contrary to the belief that foreign-born workers are taking away jobs from Americans, Krugman argues that they are not perfect substitutes for American workers. Immigrants often have different skills and work in different industries, creating space for the economy to grow and leading to higher employment among native-born Americans. For instance, immigrants in the care sector enable middle-class women to participate more in the workforce by taking care of their children and homes.
Immigration has also had other positive impacts. It has helped narrow the gender pay gap in high-powered industries and made it easier for people to access affordable home health care and landscaping services. Aaron Terrazas, chief economist at Glassdoor, explains that immigration policies need to balance different constituencies and make deliberate choices about prioritizing higher worker pay or lower end-user prices in different industries.
Immigrants not only contribute as workers but also as consumers, with their consumer demand creating a driving force in the economy. Immigrants have higher rates of starting businesses, which in turn employ others. Krugman highlights the example of a Bosnian refugee who started the successful Chobani Yogurt company in Utica. He states that the inflow of immigrants aids the dynamism and vitality of the US economy.
While Krugman does not advocate for fully open borders, he believes there is still room for the US economy to benefit from immigration without causing an oversupply of workers. Apollo Chief Economist Torsten Slok suggests that the native-born workforce still has “missing workers” due to deaths during the pandemic and the missing growth afterward. This shows that there is potential for further job growth in the US economy.