Bold claim upfront: immigration, especially in its current form, can drive economic growth in ways many observers overlook—and this is where the debate gets controversial. Here’s a clear, beginner-friendly rewrite of the original material with added clarity and context, while preserving the key information and overall meaning.
A new Federal Reserve paper challenges a familiar narrative about immigration and the economy. It argues that while the Trump administration aimed to sharply reduce unauthorized immigration and enjoyed political support for that goal, the Biden administration’s more permissive approach brought a different set of economic effects. Specifically, the researchers say that the large influx of unauthorized workers under Biden’s policies expanded the U.S. labor force, particularly benefiting sectors that faced labor shortages such as manufacturing and construction. The study also suggests that the current crackdown would likely slow employment in these same industries, where employers struggle to find workers.
What would this mean in practical terms? If fewer workers are available, residential construction could slow down just as the United States grapples with a significant housing shortage. Builders may need to raise wages to attract workers like carpenters, framers, and electricians, which could push home prices higher and potentially delay the completion of new housing. Data centers that support AI development could also face delays due to labor scarcities.
The article, titled “Unauthorized Immigration Effects on Local Labor Markets,” appears as an economic letter on the San Francisco Fed website. It was written by Daniel Wilson, a vice president in the Economic Research department, and summarizes a longer study by Wilson and Xiaoquing Zhao of the Dallas Fed. The authors collected data on the arrivals and departures of unauthorized, working-age immigrants to estimate net immigration across all 3,100 U.S. counties. Their analysis focuses on two time windows: March 2021 to March 2024, when immigration entries were unusually high during the Biden era, and March 2024 to March of the previous year, a period characterized by stricter enforcement under the Trump administration. They derived these figures from immigration court records, which they argue cover the majority of unauthorized immigration.
A key clarification they offer is that unauthorized immigrants are not legally “illegal.” Often, they arrive at ports of entry and receive notices to appear in immigration court, typically with cases pending for one to three years. While their asylum or removal proceedings unfold, they are allowed to stay in the United States, at least temporarily. The authors note that most of these individuals ultimately remain in the country as their cases proceed. The study then links inflows to clusters of counties that function as employment hubs—geographic areas where people commute to jobs—and to Census data on non-farm employment in those areas. They also adjust their net immigration estimates by accounting for working-age adults who may not interact with federal agents.
One natural question is whether a boom in a single metro area—think rapid homebuilding in one city or a surge in data-center projects—could explain the rise in employment. In other words, is the employment growth driven by new demand or by a larger supply of labor? The researchers found that immigrants tend to settle in places where people from their home countries already reside. For example, if 10% of Hondurans live in Chicago, about 10% of annual immigrant entries tend to settle there as well. This pattern helps Wilson and Zhao isolate the effect of immigrant arrivals on local employment, separating it from broader demand factors in the local economy.
The 2021–2023 period was marked by a particularly large influx, with roughly 3.5 million unauthorized immigrants entering the U.S. during that span. The authors estimate that about 70% of the working-age group had jobs in their home countries, and they found similar employment rates among those in the United States. Their takeaway is striking: they estimate that a one percentage-point increase in unauthorized immigration as a share of local employment is associated with a 0.92 percentage-point increase in local employment. In plain terms, new workers appear to fill gaps rather than compete directly with native workers; they effectively create new employment opportunities by expanding the labor supply where jobs are available.
Beyond the Fed study, the Congressional Budget Office (CBO) also emphasizes immigration’s importance for future U.S. growth. The CBO notes that slow immigration acts as a headwind for expanding the economy. The authors highlight a demographic challenge: as the U.S. population ages, the pool of native-born workers will not grow quickly enough to sustain past levels of economic expansion. The CBO’s 10-year economic outlook (updated February 11) shows a sharp rise in labor-force growth during the Biden years (from about 0.7% pre-pandemic to roughly 1.6%), driven in part by immigration. However, the forecast for 2026–2034 projects much more modest gains (around 0.4%), meaning the labor force will add far fewer workers than in the post-2020 surge. Overall, the CBO projects that national income will grow around 1.8% annually from 2027 to 2036, substantially below the 2.3% rate seen in 2010–2019.
In discussing these findings, it’s useful to revisit economist Milton Friedman, who championed immigration as a driver of economic growth. Friedman argued that unauthorized immigration can be especially potent because new arrivals are often disinclined to rely on unemployment benefits and are highly motivated to work. He suggested that immigrants “take jobs that residents of this country are unwilling to take,” helping the economy in ways that traditional labor supply measures might miss. In light of the Fed study, Friedman’s perspective—long celebrated for identifying labor-market dynamics—appears to have a point worth reexamining in contemporary policy debates.
Bottom line: immigration policy isn’t just a social or political issue—it has tangible implications for the pace of American economic growth, the availability of homes, and the expansion of industries like manufacturing, construction, and data infrastructure. As policymakers weigh immigration reform and enforcement, the question remains: should the United States pursue faster immigration to fuel growth and fill labor gaps, or should it tighten borders to address other concerns? What do you think the best path is, and why?
