Declining Immigration: A Threat to U.S. Economy?

Archive edition · Market data and company circumstances reflect 22 March 2025, when this newsletter was sent.

What Immigration Decline Means for U.S. Growth

Immigration has long been a critical driver of the U.S. economy, providing labor, innovation, and demographic growth. Over the past three years, immigration numbers have surged, fueling economic expansion, stabilizing labor markets, and filling key roles across industries. However, as 2025 progresses, a significant decline in immigration is expected, potentially reshaping the economic landscape.

According to Goldman Sachs, net immigration is projected to slow to approximately 750,000 individuals per year. While this decline remains only moderately below pre-pandemic levels, it marks a notable shift from the heightened influx seen recently. The broader economic impact of this shift will depend largely on the policy decisions made by the current and future administrations.

Economic Impact: Growth and Jobs

The US economy thrives on a steady inflow of workers and consumers. Immigration contributes significantly to workforce expansion, entrepreneurship, and demographic stability, preventing the kind of stagnation seen in aging populations like Japan and certain European nations. But with a projected slowdown in immigration, economic growth may also see a mild deceleration.

Goldman Sachs estimates that the slower pace of immigration will contribute 30-40 basis points less to potential GDP growth compared to the elevated levels of 2023-2024.

However, relative to pre-pandemic immigration levels, this reduction is just about 5 basis points—a much smaller impact. While this suggests that the overall effect on economic expansion may be limited, there are nuances to consider:

• Labor Force Growth: During its peak, immigration added approximately 100,000 new workers per month above normal levels. That figure has since dropped to around 40,000 and is expected to return to pre-pandemic levels by 2026. A slower-growing workforce could pose challenges for businesses reliant on immigrant labor, particularly in industries already facing worker shortages.
• Entrepreneurial Contributions: Immigrants play a crucial role in founding startups and small businesses. Reduced immigration could dampen new business formation and innovation, potentially leading to slower productivity growth.
• Consumer Demand: With fewer new entrants to the economy, overall consumer spending—particularly in housing, retail, and services—may experience slower growth.

How Will the Job Market React?

The US labor market has been undergoing a significant transformation post-pandemic, with high demand for workers in certain sectors and automation reshaping traditional job roles. With immigration slowing, what will this mean for wages, unemployment, and industry-specific labor shortages?

The effects on wage growth and inflation should be modest since the labor market has largely returned to balance. The unemployment rate currently stands at 4%, and labor demand remains robust, with historically low layoff rates and high job openings.

However, the following trends may emerge:

With these factors in mind, businesses must adapt to potential labor shortages by investing in automation, workforce training, and alternative hiring strategies.

• Tighter Labor Markets in Key Sectors: Industries heavily dependent on immigrant labor—such as construction, agriculture, and hospitality—may see more pronounced shortages, leading to wage increases in those fields.
• Enforcement and Worker Availability: Stricter immigration enforcement could deter unauthorized workers from seeking jobs, exacerbating shortages in industries that have long relied on undocumented labor.
• Unreported Unemployment: Some undocumented immigrants may avoid employment surveys due to fear of enforcement measures, leading to underreporting in official statistics.

Which Sectors Suffer Most?

While the overall impact of declining immigration may be muted at the macroeconomic level, certain industries are particularly vulnerable. Immigrants—both legal and unauthorized—make up a substantial portion of the workforce in agriculture, food processing, and construction. Here’s how each sector may be affected:

Agriculture

The agricultural sector has historically relied on seasonal and migrant workers to meet labor demands, particularly in states like California, Texas, and Florida. Immigrants make up about 15%-20% of the workforce in crop production and food processing. A decline in available labor could lead to:

• Lower agricultural output, leading to supply shortages
• Increased food prices due to production bottlenecks
• Potential reliance on automation and alternative labor sources

Construction

The construction industry is another major employer of immigrant workers, particularly in roles requiring physical labor. Reduced immigration could result in:

• Delays in housing and infrastructure projects
• Rising construction costs due to labor shortages
• Increased demand for vocational training programs to fill gaps

Hospitality and Services

Hotels, restaurants, and cleaning services have traditionally relied on immigrant labor. With fewer workers available, businesses in these sectors may:

• Struggle to meet customer demand
• Raise wages, potentially increasing service prices
• Explore automation and self-service solutions to reduce labor dependency

The Role of Policy and Enforcement

The degree to which immigration declines—and its economic impact—will depend largely on policy decisions. The Biden administration has already implemented increased border security and moderate deportation measures, but a potential Trump administration could take even stricter action.

Key Policy Considerations

Disclaimer: This newsletter was written as of February 25, 2025, and is being sent on March 22, 2025. Market conditions, prices, and other relevant data may have changed since the original publication date.

• Increased Deportations: Projections indicate around 500,000 deportations annually, offsetting some new immigrant arrivals.
• Expanded Border Security: The government is expected to allocate over $100 billion for enforcement, including hiring more border patrol agents and expanding detention facilities.
• Visa and Green Card Policies: While enforcement is tightening on asylum seekers and unauthorized immigrants, visa and green card holders are less affected—at least in the baseline scenario.

Archive note

This article preserves the analysis in our weekly newsletter sent 22 March 2025. Market prices, forecasts and company circumstances reflect the time of publication and may have changed.

This material is general information, not personal financial advice or a recommendation to trade. Investing and trading involve risk, including loss of capital.