Fall 2005
Immigration Policy Center
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Below is the executive summary for this publication.
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The U.S. economy faces a demographic challenge to its future economic growth. Among the native-born population, fertility rates are falling, workers are growing older and better educated, and labor force participation rates are flattening. However, the economy continues to create a large number of less-skilled jobs that favor younger and less-educated workers. These divergent trends present an obstacle to continued labor force growth, which is an essential component of economic growth in general. Barring unlikely increases in productivity growth rates, expansion of the workforce is crucial to sustained growth in the labor-intensive industries that generate the greatest number of less-skilled jobs.
Immigration fills this gap between native labor supply and domestic labor demand, especially in less-skilled occupations for which relatively few native-born workers are available. Immigrants are more likely than the native-born to be younger, to have only a high-school education or less, and to participate in the labor force. As a result, they comprise a disproportionate share of workers in less-skilled jobs and, according to federal employment and workforce projections, will continue to do so over the coming decade. Thus immigration has become an engine of labor force growth and, hence, economic growth in many industries and the U.S. economy as a whole.
Despite the critical role played by foreign-born workers in many less-skilled job categories, the current immigration system offers very few visas that are designed or available for these workers. Nearly all of the visa “preference” categories that do exist for workers in less-skilled jobs are subject to numerical caps that fall far short of meeting the labor demands of the U.S. economy. The result is that a large number of prospective employment-based immigrants are crowded into a small number of highly limited visa categories, or are forced to pursue immigration opportunities through an already overburdened family-based system.
LABOR FORCE GROWTH IS CRITICAL TO ECONOMIC GROWTH
The Bureau of Labor Statistics (BLS) assumes that the U.S. Gross Domestic Product (GDP) will increase by 3 percent a year between 2002 and 2012. The rising economic output necessary to sustain this level of GDP growth can come from increases in 1) productivity growth, 2), labor force participation or 3) labor force growth. In light of the current flattening or decline of labor force participation rates and productivity growth rates, labor force growth will play a particularly critical role in maintaining GDP growth.
Productivity Growth Rates: The United States has been experiencing a productivity boom, with output per hour worked growing at 3.7 percent a year between 2001 and 2004. High immigration, especially of unskilled workers, usually is not associated with periods of high productivity growth. However, the late 1990s demonstrate that it is possible for periods of relatively high immigration to be accompanied by high productivity growth. Nevertheless, the consensus of economists is that sustainable productivity growth will be around 2.6 percent per year over the coming decade.
Labor Force Participation Rates: Labor force participation rates measure the proportion of the population age 16 and older that either is employed or seeking employment. If the labor force participation rate of the population rises, then the labor force will expand even if the population itself is not growing. However, this is not the trend in the United States. In 2004, the labor force participation rate of the native-born population was 65.5 percent, higher than most developed countries, and projected to remain flat.
Labor Force Growth: Labor force growth is the product of two factors: labor force participation and population increase. Given that labor force participation rates in the United States are unlikely to increase, population growth will be the primary source of labor force growth in the years to come. Population growth, in turn, can come from two possible sources: rising birth rates or immigration. In light of the demographic trends of the native-born workforce, immigration will continue to play a critical role in providing the workers needed to sustain overall economic growth.
IMMIGRATION IS KEY TO LABOR FORCE GROWTH
Natural population increase is unlikely to provide sufficient workers to sustain the labor force growth needed to maintain overall economic growth. The fertility rate in the United States currently averages between 2.0 and 2.1 births per woman, with 2.1 considered the minimum required to replace the existing population. As a result, growth of the population and thus the labor force increasingly will depend on immigration.
Immigration Projections: BLS devotes special attention to immigration in projecting future labor force growth, noting that growth in particular age groups of the labor force must come from immigration, since the U.S. workers in some age groups, such as those 25 to 34 in 2012, are already born. In calculating the labor force growth resulting from immigration, BLS uses the Census Bureau’s “middle series” projections, which assume that immigration will average 1.1 million per year between 2002 and 2012. After subtracting out-migration, the Census Bureau estimates that net immigration will average 850,000 a year during this period. If historical trends continue, one-half, or a total of 4.25 million, of these immigrants will join the U.S. labor force. Thus, immigration is expected to account for a fourth of total projected labor force growth.
Undocumented Immigration: According to estimates from the Pew Hispanic Center, the number of immigrants arriving in the United States from 2000 to 2004 averaged approximately 1.3 million per year, which is very close to the estimates used by BLS. However, more than half of these arrivals—53 percent—were undocumented. If this disconnect between the labor force needs of the U.S. economy and legal limits on immigration continues, then roughly 1 in 8 new workers joining the U.S. labor force over the coming decade would be undocumented immigrants.
IMMIGRATION IS VITAL TO THE LESS-SKILLED WORKFORCE
BLS expects that between 2002 and 2012 the number of U.S. jobs will increase by 21 million, and that there will be a total of 56 million job openings after accounting for worker turnover. Many of these jobs will favor workers with age and educational profiles for which the native-born labor force is not well matched.
The Native-Born Workforce is Increasingly Unlikely to Fill Less-Skilled Jobs: The native-born population as a whole is growing older and successive generations of native-born workers are better educated. Between 1994 and 2004, the proportion of the native-born labor force age 25-44 fell from 63.3 percent to 52.9 percent, while the proportion of native-born workers age 25 and older with a high-school diploma or less fell from 44.3 percent to 37.8 percent. While relative youth is not a requirement for many jobs, it is an asset in those less-skilled jobs that are physically demanding or dangerous. And although the trend towards a more highly educated native-born workforce obviously is a positive development, it presents a serious challenge to those sectors of the economy that employ workers with less education.
The U.S. Economy Continues to Demand Workers in Less-Skilled Jobs: The shifting demographics of the native-born workforce would present less of an economic challenge, at least in the short term, if the number of less-skilled jobs was not expanding. However, BLS projects that 98 percent of projected employment growth between 2002 and 2012 will be in industries with numerous sub-sectors characterized by jobs that do not require high levels of education. One such sector of high growth is construction, in which the number of jobs is predicted to rise by over one million to 7.7 million. In 2004, 65.5 percent of construction workers had a high-school diploma or less education.
Immigrant Workers Complement the Native-Born Labor Force: On average, foreign-born workers tend to be younger than their native-born counterparts and a larger proportion have relatively little formal education. In 2004, immigrants made up more than a quarter of all 25–34 year-old workers with a high-school diploma or less, and more than half of 25–34 year-old workers without a high-school diploma. As a result, immigrants provide a needed source of labor for the large and growing number of jobs that do not require high levels of education.
Immigrants Are a Vital Part of the Less-Skilled Labor Force: Immigrants comprise a disproportionately large share of workers in many of the less-skilled occupations which BLS predicts will experience high job growth or many job openings in the coming decade. In 2004, 15 percent of all U.S. workers age 16 and older were born abroad (16 percent of male workers and 12 percent of female workers). However, the foreign-born share of workers was highest in less-skilled occupations such as farming, janitorial services, construction, and food preparation, where between 20 and 38 percent of workers were immigrants.
CONCLUSION
If the U.S. economy is to maintain at least 3 percent annual growth over the coming decade and beyond, the U.S. labor force must continue to expand. Without an adequate supply of workers, future economic prosperity and the rising standard of living that Americans have come to enjoy will be at risk. However, the rising demand for labor is unlikely to be met solely by a native-born population that is growing steadily older and has already achieved high levels of participation in the labor force. Since few additional workers can be culled from the native-born population, immigration has become a critical source of labor force growth. Yet current U.S. immigration policies remain largely unresponsive to labor demand. While policymakers continue to debate the relative merits of various immigration reform proposals, immigration beyond current legal limits already has become an integral component of U.S. economic growth and will remain so for the foreseeable future. A sensible immigration policy would acknowledge this reality by maintaining and regulating the flow of immigrant workers, rather than attempting to impose outdated immigration limits that actually would undermine U.S. economic growth, if they were enforced successfully.
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