Another Robust Employment Report: What Does Immigration Have to Do with It?
Former JPMorgan Chase Global Chief Economist (Ph.D. in Economist) & Current BrightQuery Chief Economist
Another Robust Employment Report: What Does Immigration Have to Do with It?
The latest employment report came in +303k in March relative to an expected Bloomberg consensus reading of +215k versus +270k in February (previously reported as +275k), following a stronger-than-expected March ADP report, +184k versus +155k in February.
The average hourly earnings yearly growth rate eased to +4.1% in March compared to +4.3% in February. To better understand the dynamics behind this deceleration, we examine the impact that immigration may have on average hourly earnings.
Another closely watched figure is the labor force participation rate, which increased to a stronger-than-expected 62.7% in March versus 62.5% in February. Increased immigration tends to boost this rate over time. The reason for this phenomenon is straightforward: immigrants tend to be younger, and younger workers tend to have a higher labor force participation rate!
The estimated numbers of net immigration into the United States by the nonpartisan Congressional Budget Office are significant: (see below) +3.3 million in 2024, +2.6 million in 2025, and +1.8 million in 2026. Not surprisingly, the labor force surged by +469k in March compared to the conventional view that the average monthly labor force growth is +100k! Immigration tends to boost the labor supply as these workers receive authorized work permits.
Source: (Nonpartisan) Congressional Budget Office
The Wall Street Journal (affiliated with Fox Business) recently reported that the increase in U.S. immigration may have raised the U.S. labor supply after the Mexican Border was reopened on Nov. 21, 2021, after the global pandemic emergency ended. Without taking a position on the merits of immigration, our nonpartisan analysis explores the impact of U.S. immigration on the growth of average hourly earnings.
As the number of immigrants grew, many cities rushed to secure expedited work permits (see my previous Substack), especially for those seeking asylum, to minimize the government budgetary impacts of supporting those families. Since many of these immigrants needed to learn English and obtain new skills, the types of jobs they settled on were often jobs that local Americans and well-established immigrants with cemented roots would not be rushing to fill.
Analysis From Personal Experience
My father was an immigrant who came to this country without a formal education and couldn’t speak English. My dad's first job was as a dishwasher, and he worked the remaining days of his life as a waiter to support our family. My dad worked multiple part-time jobs, and by the time I reached the young age of 10, he passed away (at the age of 46) from a severe stroke after working several consecutive 18-hour days to cover our rent after one of his previous employers cut the number of his part-time hours, and we fell behind on our rent.
Part-time Jobs for Economic Reasons
The employees are highly motivated to work to survive. Many employers offer immigrants these last-resort jobs because they are trying to minimize paying worker benefits or want greater flexibility in adjusting the hours worked as needed to react to changes in demand conditions. Not surprisingly, many workers who take these jobs must hold multiple part-time jobs to support their families, which is why the BLS has reported a recent uptick in the number of multiple job holders.
As this job category expands, average hourly earnings may not rise as much because these workers are vulnerable and do not significantly impact wages. They are not in a solid position to make wage demands; they are just happy to land a job! Although I will not judge anyone with a different opinion, I will say that my dad never complained about his jobs that paid below the minimum wage (those were the rules for restaurant workers); his solution was to take on additional part-time jobs to make ends meet.
Our nonpartisan analysis below finds “Smoking Gun” evidence that the increase in the supply of part-time workers for economic reasons had no positive impact on average hourly earnings. This evidence supports the view that the surge in immigration dampened the growth in average hourly earnings needed to slow inflation. Of course, the numbers are noisy from month to month. In March, the number of part-time workers for economic reasons dipped by -68k.
Source: The Bureau of Labor Statistics
Part-time Jobs for Non-Economic Reasons
In contrast, other U.S. workers may choose pleasant part-time jobs not motivated by economic conditions. These jobs are embraced by individuals who want to work fewer hours and tend to be associated with less harsh working conditions. Some of these individuals may be semi-retired individuals or choose to work part-time at a library or office while their kids are at school.
Here, we find that the supply of part-time workers for non-economic reasons positively correlates with average hourly earnings. In March, part-time jobs for non-economic reasons jumped by +503k and the month-over-month gain in average hourly earnings accelerated to +0.35% in March versus +0.17% in February! That differs from what we see in the other category, which immigrant workers heavily represent, like my dad! Most importantly, the data shows that the positive correlation jumped after the U.S. border was reopened after the global pandemic emergency was lifted in November 2021!
Source: The Bureau of Labor Statistics
Summary and Concluding Thoughts
Although we leave it up to the reader to decide whether to support or oppose immigration into the U.S., our latest non-partisan analysis supports a recent Wall Street Journal article that found that the recent surge in immigration boosted the U.S. labor supply.
In our latest analysis, we went one step further. We examined the relationship between the supply of part-time jobs for economic reasons (heavily represented by U.S. immigrants) and average hourly earnings. We found that increases in this employment category did not positively impact average hourly earnings.
In fact, after the surge in immigration after the global pandemic emergency was lifted, we observed a more significant negative correlation between the increase in this employment category and average hourly earnings.
That is interesting because the supply of part-time workers for non-economic reasons is heavily represented by non-immigrants who often choose to work fewer hours for convenience. Not surprisingly, we found that increases in this labor component exhibited a strong positive correlation with average hourly earnings!