Immigration and U.S. Labor Market Tightness: Is There a Link?

As of April 2023, the job vacancy rate was 6.1%, which means that 6 out of every 100 jobs in the U.S. were unfilled. The vacancy rate is a key measure of labor market tightness, and it remains substantially elevated relative to its pre-pandemic level. In 2019, it averaged around 4.5%.

While there have been many possible explanations for continued labor market tightness—such as increased retirements, more people caring for children or family, and decreased immigration—no consensus has been reached on why the labor market remains so strong.

In this blog post, we explore the hypothesis that pandemic-related interruptions to immigration are responsible for the rise in the vacancy rate.The data for this post come from two sources: the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS) and the Census Bureau’s American Community Survey. The JOLTS data provide the measure of labor market tightness, the vacancy rate, which is calculated by dividing the number of job openings by the number of employed persons plus the number of job openings. A higher vacancy rate means there are more jobs available and a tighter labor market.

Gauging the Shortfall in Foreign Workers

In 2020 and early 2021, then-President Trump issued several executive orders preventing those with temporary work visas from entering the United States. When combined with travel difficulties, the number of foreign-born workers in the U.S. noticeably declined.

To calculate the drop in foreign-born workers, we followed the method of Giovanni Peri and Reem Zaiour used in their 2022 working paper. The figure below shows the number of working-age foreign-born workers who are not U.S. citizens in the country using data from the Current Population Survey (CPS); for the purpose of this post, these workers will be called “foreign workers.”

We created a linear time trend for the number of the foreign workers (dotted line) using data from 2011 to 2019. We then calculated the gap in foreign workers in 2020 and 2021 as the difference between the linear trend and the actual number observed in the CPS. We found that the U.S. was missing an average of about 1.39 million foreign workers in 2021 relative to the expected level based on the pre-pandemic trend.

However, the level of immigration has begun to return to its pre-pandemic trend. Referencing the CPS data, we can see that the number of foreign workers has recovered in 2023.

The Shortfall in Working-Age Foreign Workers

SOURCES: Current Population Survey and authors’ calculations.

How did this shortfall in foreign workers affect labor market tightness in 2021? Adding these workers back into the labor market would have lowered the average vacancy rate in 2021 to 5.49% from the actual rate of 6.38%.

Effect of Missing Workers on Vacancy Rates across States, Industries

Next, we examine whether states or industries more exposed to the drop in foreign workers also experienced larger increases in their vacancy rates. For the preceding section, we utilized the CPS for its up-to-date sample. For the remainder of this post, we will use the American Community Survey (ACS) for its larger sample size.

The number of employed working-age foreign workers is similar between the ACS and the CPS, with the CPS averaging about 12.7 million between 2011 and 2019 and the ACS averaging 12.75 million over the same time period. The gap in workers in the ACS is also substantial. If following the pre-pandemic trend, there would have been 13.38 million foreign workers in the U.S. rather than the actual 12.32 million workers in 2021.

We replicated this methodology to calculate the gap in foreign workers for each state and industry in the ACS. We divided the number of missing workers by the total number of employees in the state or industry to account for differences in the size of a state or industry.

The two figures below show the percentage point change in vacancy rates between 2019 and 2021 versus the number of missing workers as a share of employment for industries and states. In neither case is there a statistically significant relationship between the change in vacancy rates and the number of missing workers. (Though the line of best fit is upward sloping for the industries case, it is not statistically significant, meaning that, on average, the industries with more missing workers did not see larger increases in the vacancy rate.)

The Relationship between the Vacancy Rate and Missing Foreign Workers in 2021, by Industry

The Relationship between the Vacancy Rate and Missing Foreign Workers in 2021, by State

SOURCES FOR BOTH FIGURES: Job Openings and Labor Turnover Survey, American Community Survey and authors’ calculations.

NOTE FOR BOTH FIGURES: Each dot represents a state or sector. For ease of reading, only select states and sectors were labeled.

This lack of correlation does not necessarily mean that that there is no causal link between the decline in the number of foreign workers and continued labor market tightness. There are a number of reasons why the lack of correlation could obscure the true impact. For example, if foreign workers in the U.S. move from industries with low vacancy rates to industries with high vacancy rates, then the latter industries might appear to be unaffected by immigration shortages.

Conclusion

The tight U.S. labor market can be attributed to many different factors, with several sources documenting the potential impact from slowing immigration.See the Kansas City Fed’s May 2022 Economic Bulletin “Immigration Shortfall May Be a Headwind for Labor Supply” and Goldman Sachs’ May 2022 article “Could Immigration Solve the US Worker Shortage?” Using data from the ACS and JOLTS, however, we found limited support for the hypothesis that immigration shortages have had a substantial impact on labor market tightness.

Notes

1. The data for this post come from two sources: the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS) and the Census Bureau’s American Community Survey. The JOLTS data provide the measure of labor market tightness, the vacancy rate, which is calculated by dividing the number of job openings by the number of employed persons plus the number of job openings. A higher vacancy rate means there are more jobs available and a tighter labor market.
2. See the Kansas City Fed’s May 2022 Economic Bulletin “Immigration Shortfall May Be a Headwind for Labor Supply” and Goldman Sachs’ May 2022 article “Could Immigration Solve the US Worker Shortage?”