Vanishing Workforce: How Deportations Could Suppress U.S. Unemployment Rate

Former Global Chief Economist for JPMorgan Chase (Ph.D. in Economics) & Current Global Keynote Speaker

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As the economy downshifts from a robust 2.8% growth rate in 2024 to a projected 1.5% in 2025, one would typically expect a corresponding rise in the U.S. unemployment rate. After all, slower growth usually leads to weaker hiring, softer business activity, and rising unemployment. Yet, the evidence suggests that if aggressive U.S. immigration enforcement, deportations, and cancellations of Temporary Protected Status (TPS) and U.S. immigrant work permits persist, any future increases in the U.S. unemployment rate resulting from slower economic growth may be suppressed.

Such phenomena were highlighted by a T. Rowe Price study, which estimates that the U.S. labor force could be reduced by as much as 2.1 million by mid-2025. If this were to occur, albeit we are still waiting to see this in the data, the reduction in the labor force could suppress the unemployment rate even if job growth slows.

Although the monthly change in the U.S. labor force has decreased from a peak of 2.1 million in January 2025 to a decline of -625 thousand in May 2025, its yearly growth rate remains positive at 1.6%, down from a peak of 2.0% in January 2025. Nonetheless, the recent aggressive measures to suspend TPS and temporary work permits imply that we might start to see further weakness in late 2025 or 2026. In other words, while T. Rowe Price may have been premature in predicting a sharper decline in the U.S. labor force, if recent actions persist, we are likely to witness those effects later this year. Another concerning development is the recent speculation that staff cuts by DOGE may be undermining the quality of U.S. labor market data, indicating that the data we are relying on could be inaccurate.

Additional Color on Today’s Jobs Report

Today’s (June 6, 2025) employment report revealed a gain of +139 thousand in nonfarm payrolls, accompanied by a downward revision of 95 thousand over the past two months. This offers compelling evidence that U.S. immigration policy is influencing U.S. labor markets. The U.S. labor force decreased by -625 thousand, while the U.S. labor force participation rate fell below expectations to 62.4. U.S. immigrants typically have a higher labor participation rate than U.S.-born individuals, mainly because they need to support their families and because these groups are generally younger than the usual profile of U.S.-born individuals. Younger cohorts typically sport a higher labor force participation rate.

Source: U.S. Bureau of Labor Statistics

As U.S. immigrants are removed from the U.S. labor market, one would expect job openings to increase, which is also happening.

Source: U.S. Bureau of Labor Statistics

If one expects that reduced immigration will put upward pressure on wages, today’s 3.9% (stronger than expected) gain in average hourly earnings is consistent with the view that reductions in labor supply will put upward pressure on wages.

However, from a nonpartisan perspective, it is worth noting that one month’s data is insufficient for drawing a definitive conclusion, and not everyone will be upset if wages increase and benefits current workers, unless one believes that achieving the Federal Reserve’s 2.0% target is essential.

Mounting Deportations

Deportation figures during President Trump’s administration indicate a noticeable uptick, although it is not unprecedented. In April 2025, Immigration and Customs Enforcement (ICE) deported over 17,200 individuals—an increase of 29% from April 2024 under President Biden, when 13,300 individuals were deported.

As of April 2025, the Trump administration has reported approximately 140,000 deportations. While this figure seems significant, it’s essential to recognize that at the current rate, it would take over 35 years to honor the President’s campaign promise to deport up to 20 million individuals. President Biden’s administration also experienced a notable increase in removals, with more than 271,000 people deported in fiscal year 2024—the highest in over a decade.

The Disappearing Workforce: TPS and Work Permit Revocations

In March 2025, the Trump administration ended the humanitarian parole program that had assisted over 500,000 Venezuelans, along with significant numbers from Cuba, Haiti, and Nicaragua. This action effectively canceled legal work permits and deportation protections for hundreds of thousands of immigrants who had entered the U.S. on humanitarian grounds.

Up to 1 million immigrants could face deportation due to revised policies affecting Temporary Protected Status (TPS) and humanitarian parole. Losing legal status not only leads to physical removal but also results in an immediate loss of work authorization, income, and economic contribution. The overall effect is a direct blow to labor supply, particularly in industries that heavily rely on immigrant labor.

Labor Supply and the Unemployment Rate

The U.S. unemployment rate is determined by two key factors: the number of unemployed individuals and the size of the labor force. When people are deported, lose work permits, or are otherwise removed from the labor market, they are no longer included in either category. This reduction in the denominator of the unemployment equation artificially lowers the rate, even if actual job losses are taking place.

This effect is not merely theoretical. In a February 2025 report, T. Rowe Price estimated that immigration restrictions and deportations could reduce the U.S. labor force by 2.1 million people by mid-2025. Paradoxically, this suggests that the unemployment rate could remain stable—or even decline—despite an economic slowdown.

Sector-Specific Vulnerability

The impact is especially pronounced in labor-intensive industries where immigrant workers are overrepresented:

• Agriculture: Immigrant workers account for nearly 75% of crop farmworkers. Deportations and the cessation of work permits are forcing farms to leave produce unharvested or transition to mechanization if they can afford it.

• Hospitality: Hotels and restaurants, already struggling with pandemic-era labor shortages, may encounter increasing wage pressures as the labor supply diminishes.

• Construction: There is a shortage of skilled and semi-skilled labor, as undocumented and TPS-protected workers are being deported.

• Home Health and Elder Care: A rapidly aging population meets reduced labor availability, resulting in increased costs and potentially causing care disruptions.

With fewer workers, these sectors will encounter challenges in meeting the rising demand for labor, which means they will need to increase wages and contribute to higher inflationary pressures.

Economic Ripple Effects

It’s a mistake to view this labor supply contraction in isolation; the broader economy experiences indirect consequences.

• Job Losses for U.S.-Born Workers: Deporting or removing 1 million immigrants doesn’t merely eliminate 1 million jobs. Research shows that for every 1 million unauthorized immigrants deported, approximately 88,000 U.S.-born workers lose their jobs due to diminished demand and the loss of complementary roles.

• Consumer Demand Slump: Immigrant workers spend a significant part of their income locally. Their departure diminishes demand in housing, retail, transportation, and services, hindering overall economic growth.

• Higher Prices: The labor shortage leads to increased wages in affected sectors, which in turn drive prices up, particularly in the food, hospitality, and construction industries. During a period of slowing economic growth, this could lead to stagflation pressures.

• Reduced Entrepreneurship: Immigrants start businesses at higher rates than native-born Americans. Their removal hinders the formation of small businesses and job creation, as these firms account for nearly 80% of all job openings.

Source: U.S. Bureau of Labor Statistics

Misleading Metrics: Why Low Unemployment Doesn’t Equal Strength

As we approach 2026 with projected GDP growth dropping to just 1.5, the typical expectation would be an increase in the unemployment rate as businesses reduce hiring. However, if millions vanish from the U.S. labor force, the unemployment rate statistics may convey a misleading sense of economic stability.

For example, if the labor force decreases by 2 million or more due to deportations and revoked work permits, the official unemployment rate could remain stable or rise only slightly, simply because fewer people are available or legally permitted to work.

Summary and Concluding Thoughts

The U.S. economy is transitioning from a rapid post-pandemic recovery to slower economic growth. Against this backdrop, U.S. immigration policy will influence labor force dynamics and unemployment trends.

Over the next few years, deportations are expected to reduce the U.S. labor force and potentially exaggerate the strength of the U.S. labor market. As work permits for undocumented workers are rescinded and fewer immigrants cross the border, America's economic engine will lose workers, labor market productivity, and aggregate demand.

Yes, the unemployment rate may remain low. However, it would be a mistake to celebrate that figure without understanding what’s driving it: fewer workers, not more jobs.

After delivering an in-person client presentation this week to 1200 individuals, one person approached me following my keynote presentation and told me, “Immigration is not merely a cultural or political issue, it’s an economic one, with profound consequences for growth, stability, and opportunity in the years ahead.”

As always, we recognize that U.S. immigration policy is a highly contentious issue. Therefore, our goal is to present all the facts in a nonpartisan way, allowing readers to understand the trade-offs and decide which side they wish to support.