The Effect of COVID-19 Immigration Restrictions on Post-Pandemic Labor Market Tightness

Abstract

During the COVID-19 pandemic, there were unprecedented shortfalls in immigration. Concurrently, as the economy recovered, the labor market became tight, with the number of vacancies per unemployed worker reaching two, more than twice its pre-pandemic average. In this article, we investigate whether these two trends are connected. We find no evidence to support the hypothesis that the immigration shortfalls caused the tight labor market, for two main reasons. First, while the immigration deficit peaked at about two million workers, this number had largely recovered by February 2022, just as labor market tightness was increasing. Second, we do not find that states, cities, or industries most impacted by immigration restrictions also experienced larger increases in labor market tightness.

Introduction

During the COVID-19 pandemic, there was an unprecedented slowdown in immigration. Travel restrictions and border closures were some of the earliest measures implemented to stop the spread of COVID-19. Subsequent immigration restrictions were implemented with the more explicit goal of protecting domestic workers during the economic recovery from the COVID-19 recession. In April 2020, President Trump issued an executive order suspending all work visas, citing a “risk to the labor market during the economic recovery” (Trump, 2020b). These actions led to a large drop in immigrant workers.

During the economic recovery from the COVID-19 recession, the labor market became unprecedentedly tight. By March 2022, there were 2 job openings for every unemployed worker. The vacancy-to-unemployment ratio, or the VU ratio, is a common measure of labor market tightness. Before COVID-19, between 2015 and 2019, the VU ratio averaged 0.93 (U.S. Bureau of Labor Statistics, 2024).

The simultaneous decline in immigration and increase in labor market tightness led many researchers and policymakers to question the role of the immigration slowdown in causing labor market tightness. For example, in a speech at the Brookings Institution in November 2022, Chairman Powell claimed that the economy was facing a current labor force shortfall of 3.5 million people, of which “the combination of a plunge in net immigration and a surge in deaths during the pandemic probably accounts for about 1-1/2 million [1.5 million] missing workers” (Powell, 2022).

In this article, we examine whether the decline in immigration during the COVID-19 pandemic is responsible for the tight labor market during the recovery. To do this, we construct measures of missing immigrant workers in the aggregate and across cities, states, and industries. Our findings do not support the hypothesis that these missing workers significantly affected labor market tightness for two reasons. First, we find that the number of missing workers is not large enough to have had a significant aggregate impact, and this number had recovered before labor market tightness increased. Second, we find no evidence that cities, states, or industries that were most impacted by the immigration restrictions also had the largest increase in labor market tightness.