The deportation economy is backfiring on American workers, top economist warns

The U.S. labor market is currently experiencing a complex dynamic that reflects the intersection of immigration policy and economic stability. As the Trump administration implemented aggressive deportation strategies, it inadvertently created a scenario where the jobs that immigrant workers vacated are not being filled by native-born Americans. This paradox raises important questions about the sustainability of the American workforce and the broader implications for economic growth.

The Current Labor Market Landscape

In July 2023, the U.S. economy reported a loss of 23,000 jobs, a stark contrast to the declining unemployment rate. This apparent contradiction—where unemployment decreases even as job availability declines—can be partly attributed to the shrinking labor force. According to Diane Swonk, chief economist at KPMG, the phenomenon may stem from what is being termed the "deportation economy." With hundreds of thousands of workers being removed from the labor pool, the remaining workforce is grappling with the resulting job vacancies and economic strain.

Sector-Specific Impacts of Deportation Policies

The Healthcare Sector

Historically, the healthcare industry has been a cornerstone of the U.S. labor market, particularly during the post-pandemic recovery. However, in July 2023, healthcare added only 22,000 jobs, significantly below the previous year's average monthly gain of 36,000 jobs. The implications of this slowdown are particularly concerning given the industry's reliance on immigrant labor.

A report from PHI, a research organization focusing on the direct care workforce, highlights that 28% of direct care workers in the U.S. are immigrants—an increase from 21% in 2011. With an aging population and an urgent need for nearly a million new positions in the direct care sector over the next decade, the reduction in immigrant workers poses a significant threat to the viability of this critical industry.

Social Assistance Services

Beyond healthcare, social assistance services—such as daycare and support for the elderly and disabled—are also feeling the pressure. These sectors are traditionally dominated by immigrant labor, and as the labor market contracts, the services that these workers provide are increasingly at risk. The consequences of this labor shortage are especially pronounced as states enact cuts to Medicaid, the largest payer for long-term care in the U.S.

Swonk warns that without adequate staffing, the burden of care may shift to family members, leading to an increase in unpaid care—an often-overlooked aspect of the labor market. AARP’s recent report estimates that family caregivers provide $1 trillion worth of unpaid care annually, with 59 million Americans dedicating an average of 27 hours per week to caregiving. This shift not only strains family dynamics but also further diminishes the workforce, as individuals who might otherwise participate in the labor market are forced to stay home.

The Ripple Effect on the Native-Born Workforce

The implications of the deportation economy extend beyond the immediate loss of jobs. Bill Adams, chief U.S. economist at Fifth Third Bank, underscores a worrying trend: native-born workers are not stepping into the roles vacated by immigrants. This is particularly evident in sectors such as construction, where immigrants represent 26.3% of the workforce, and one in three tradespeople, according to the National Association of Home Builders.

When contractors lose sufficient workers due to deportation, projects can be delayed, leading to a cascading effect that impacts all workers involved. Research from economists Chloe East and Elizabeth Cox reveals that areas experiencing larger increases in ICE arrests not only saw a drop in employment among undocumented immigrants but also among native-born workers. For every six undocumented male workers displaced from the labor market, one U.S.-born male worker also lost their job.

This trend is especially pronounced in the construction sector, where employment among U.S.-born men with a high school degree or less fell by 3% following ICE enforcement actions. Swonk emphasizes that foreign-born and native-born workers complement each other in the labor market rather than simply substituting for one another, affecting the entire ecosystem of regional economies.

Broader Economic Implications

The consequences of the deportation economy are far-reaching and multifaceted. As sectors that rely on immigrant labor struggle to maintain adequate staffing levels, the resulting services shortfall could lead to increased costs for consumers and a decline in overall economic productivity. This is particularly concerning in industries where demand continues to rise, such as healthcare and construction.

The labor shortage may also exacerbate wage inflation, as employers are forced to offer higher salaries to attract a dwindling pool of native-born applicants. While this might seem advantageous for workers in the short term, it could ultimately lead to increased costs for goods and services, further complicating the economic landscape.

The Path Forward: A Call for Balanced Solutions

As the U.S. grapples with the implications of its deportation economy, it is crucial for policymakers to consider balanced solutions that address labor shortages while also respecting the contributions of immigrant workers. Comprehensive immigration reform could play a pivotal role in stabilizing the labor market and ensuring that industries critical to the nation's economy are adequately staffed.

Initiatives that provide pathways to legal work status for undocumented immigrants could help mitigate the immediate labor shortages while also allowing for the integration of these workers into the formal economy. Additionally, investing in training programs for native-born workers in sectors facing high demand could help bridge the gap and ensure that jobs are filled effectively.

Conclusion

The deportation economy in the U.S. presents a complex challenge that intertwines immigration policy with economic realities. As sectors reliant on immigrant labor face increasing pressures, the implications for native-born workers and the broader economy cannot be overlooked.

Navigating this intricate landscape requires a nuanced approach that recognizes the value of both immigrant and native-born labor. Only through comprehensive reforms and targeted support can the U.S. hope to create a resilient labor market that benefits all its workers, ensuring that the economy can flourish in an increasingly competitive global landscape.