The easing of the labor market can be largely attributed to immigration spike, study finds

A new report from the Federal Reserve Bank of San Francisco projects that 3.8 million undocumented immigrants could enter the U.S. in fiscal year 2024, a considerable contrast with the Congressional Budget Office's (CBO) January forecast of 3.3 million total immigrants for the same period.

The Federal Reserve's report links uses updated data and CBO methods to provide the new figure. As Evgeniya A. Duzhak, the report's author explains:

"Following the CBO's methodology, I use newly released DHS data to estimate the inflow of undocumented migrants for the first four months of fiscal year 2024 beginning in October 2023. I assume the same rate of visa overstays and unlawful entrants as in 2023. The estimate already exceeds the annual numbers typically encountered before the pandemic. Annualizing the numbers as of January produces an estimate of 3.8 million for fiscal year 2024."

Most notably, the new research attributes about in the ratio of job vacancies to unemployed individuals to immigration spikes. As the author of the report, Evgeniya A. Duzhak, explains:

"Some new migrants entered the labor force and likely filled job openings, which reduces vacancies. Conversely, some of the migrants, being new to the labor market, are likely to be unemployed, which increases the unemployed rate. Offsetting these channels, migrants add to consumer spending, which expands the U.S. economy and thus vacancies. Overall, my estimates suggest that around one-fifth of the easing of labor market tightness in 2023 can be attributed to the spike in immigration.

Duzhak noted that, since immigrant inflow varies by region, "some states attract more immigrants and therefore have a different response in the local vacancy-unemployment ratio."

In that regard, Florida, New York, Texas, and California received the highest volumes of immigration cases in 2023 while in per capita terms, Louisiana, Massachusetts, Utah, and Colorado were most affected, indicating significant labor market changes in these states due to migration."

The study also concludes that the impact in the labor market will probably continue growing throughout the year: "given the delays in migrants transitioning to the labor force and updated estimates pointing to a continuing strong inflow of migrants, further declines in the Vacancy-unemployment ratio are likely in 2024."

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