Strong job growth continues to drive the U.S. economy, with the Bureau of Labor Statistics reporting that payrolls increased by 303,000 in March.
Typically, such strong growth can signal that inflation is likely to accelerate. When an employer determines that the demand for a good or service will increase, it will need to hire more workers, and if there is a shortage of workers, it will need to increase wages, thereby reducing business operations. Increases overall costs.
However, annual price increases exceeded 3%, still above the Federal Reserve’s 2% target, but still well below the 9% peak seen in summer 2022. There is.
Economists increasingly believe that the post-pandemic surge in immigration is a key reason the economy has been able to grow steadily without pushing up inflation. This is because new immigrants help employers play a role in wage levels that keep overall prices from rising. .
Goldman Sachs’ chief U.S. economist, David Mericle, said in a note to clients on Friday titled “Why we can have strong growth and low inflation” that rising immigration is boosting labor force growth. He said that As a result, prices are unlikely to rise significantly “if at all” due to strong demand from consumers to continue showing elsewhere, he said.
Indeed, so far, indicators of a “tight” labor market, such as wages, “continue to trend down or flat rather than up,” Mericle said.
“Would stronger growth prevent inflation from falling or cause it to flare up again?” he wrote. “We don’t think so.”
The Congressional Budget Office, a nonpartisan federal agency, cited the immigration surge starting in 2022 as a key factor driving the overall size of the U.S. workforce.
Earlier this year, the agency increased its projections for what the U.S. labor force will be in 2033 by 5.2 million people. Much of that increase is expected to come from a projected increase in net immigration.
The Brookings Institution, a nonpartisan think tank, reached a similar conclusion earlier this month, saying the economy can now tolerate a more vigorous pace of job growth without increasing cost concerns.
“Accelerating population and labor force growth means that employment can grow faster than previously thought without increasing inflationary pressures,” Brookings said.
Wendy Edelberg, a former Federal Reserve economist and current director of the Hamilton Project at Brookings, told NBC News that the ultimate impact of immigration on inflation is not entirely clear, but likely He said it was a small amount. Indeed, Federal Reserve Chairman Jay Powell expressed a similar view, calling the impact of the new wave of arrivals “mostly neutral.”
Edelberg said what is clear is that a surge in immigration allows the economy to tolerate higher levels of job growth without overheating.
“If we had seen an increase of 300,000 people without immigration, we would have been completely baffled by the lack of wage increases,” he said, referring to the March jobs report released on Friday.
The annual pace of average hourly wage growth reached a post-pandemic peak of 5.9% in March 2022, before slowing to 4.1% in March, according to wage data.
If labor supply and demand are truly out of sync, wages will likely rise even faster, leading to higher overall inflation.
On the contrary, the surge in immigration allows companies as a whole to leverage the new workforce to meet continued demand for their goods and services without having to significantly raise wages to compete for workers. be able to fulfill it.
Edelberg said immigration is typically a net benefit for many parts of the economy, from federal Social Security payments to local businesses looking for workers and new customers.
At the same time, she says, they tend to put a strain on state and local budgets.
Immigration now ranks as the most volatile domestic issue facing President Joe Biden, with Gallup poll respondents naming it the country’s “most important issue.” It has maintained that position for the first time since 2019. Republicans are urging Biden to take extreme measures. While blocking immigrants from entering the country, former President Donald Trump called them “not human beings” and “animals.”
Meanwhile, big cities like New York and Chicago are facing a crisis caused in part by a political stunt by Texas Gov. Greg Abbott to send in migrants at a rate they can’t handle.
But while the discussion focuses on illegal immigration, Edelberg said the vast majority of immigrants entering the country are actually authorized to work in the United States.
Additionally, they are more likely to spend a larger proportion of their labor income.
“So they increase demand for goods and services and help supply labor,” she says. “So the net impact on inflation is actually small.”
