The Importance of Immigrant Labor to the US Economy

The Importance of Immigrant Labor to the US Economy
Labor Day 2024

As US citizens and residents celebrate Labor Day, it is important to recognize the contributions immigrants—both legal and undocumented—make to the national economy. Legal immigrants work in a variety of occupations, from skilled scientists and engineers to health-care and home care workers. Over eight million undocumented immigrants also provide important labor to our economy in many fields, such as agriculture, construction, and service.

Despite calls to deport all undocumented persons in our nation, such an operation would cause a severe strain on US citizens, as labor shortages would accrue and inflation would rise. Moreover, federal, state, and local budgets would be reduced, as taxes paid by undocumented workers would be lost, including their contributions to the Social Security and Medicare systems.

The following offers a profile of immigrant laborers in the US economy and measures their economic and fiscal contributions to the United States. It also argues that legalizing the undocumented workforce, instead of deporting them, and creating legal avenues for immigrant workers would serve the best interest of the United States and the US citizenry.

Immigrants in the Labor Force. According to the US Bureau of Labor Statistics, in 2023, foreign-born workers, including the undocumented, accounted for 18.6 percent, or 29.1 million, of the US labor force, up from 18.1 percent in 2022. The labor force participation rate of the foreign-born increased to 66.6 percent, almost five percent higher than the native-born population (61.8 percent).

Foreign-born workers were mainly employed in service occupations, construction, transportation, and material moving occupations, with native-born workers employed in management, professional, and sales and office occupations, making their roles in the labor force largely complementary. Almost half (47.6 percent) of the foreign-born workforce was Hispanic, with about a quarter (25.1 percent) being Asian.

According to estimates from the Center for Migration Studies of New York (CMS) and other groups, as many as 8.3 million undocumented immigrants work in the US economy, or 5.2 percent of the workforce. They work in construction (1.5 million), restaurants (1 million), agriculture and farms (320,000), landscaping (300,000), and food processing and manufacturing (200,000), among other occupations. [1] Unauthorized workers hail from Mexico (30 percent), Central and South America (20 percent), and Central and Eastern Asia (15 percent). Occupations which will continue to demand undocumented workers over the next decade include cooks, home health/personal care aides, delivery and taxi drivers, and medical/therapy assistants.

In New York State, CMS estimates a total of 470,100 undocumented workers, with 56 percent coming from six countries: Mexico, Ecuador, Guatemala, El Salvador, China, and the Dominican Republic. They work as construction workers (29, 500), maids/housekeepers (20,900), cooks (16,800), home and personal care aides (16,800), janitors (13,600), and delivery drivers (13,400), among other occupations.

Potential Labor Shortages. In order to grow, the US economy will continue to need immigrant workers in certain industries. A Federal Reserve Bank of Dallas study found that immigrant laborers have helped grow the post-pandemic economy, spurring job growth while also keeping down inflation.

Many important industries will require immigrant labor well into the 21st century, as an increased number of US citizen workers retire and birth rates drop. A post-pandemic study found that the decrease of 2 million immigrants between 2019 and 2021 had a profound detrimental impact on several industries, including hospitality and service, health-care, construction, and agriculture.

Over the long-term, without immigrant labor, these industries would face labor shortages. The Bureau of Labor Statistics predicts a shortage of about 135,000 health-care workers by 2036, with immigrants currently filling 15.6 percent of nursing positions and 28 percent of health-care aide slots. The agricultural sector relies heavily on immigrant labor, with over 25 percent of agricultural workers and 54.3 percent graders and sorters of agricultural products immigrants.

In construction, a study found that the construction industry could face a shortfall of 500,000 workers in 2025. In 2023, over 25 percent of construction workers were immigrants. Immigrants also start businesses. Despite making up 13.8 percent of the population, immigrants represent one in five entrepreneurs who started businesses, producing $110 billion in revenue in 2022 alone.

Moving forward, the United States will continue to need immigrant labor in many industries, as several studies have found. Lower levels of immigration have led to a slowdown in the economy and in the rise in inflation.

Fiscal and Economic Contributions of Immigrants. The fiscal and economic contributions of immigrants are often overlooked, but their payments into the federal, state, and local tax systems and into Social Security and Medicare benefits US citizens.

According to the American Community Survey (ACS), immigrants paid $382.9 billion in federal taxes and $196.3 billion in state and local taxes in 2022. Undocumented immigrants, using Individual Tax Identification Numbers (ITIN) numbers, paid $59.4 billion in federal and $13.6 billion in state and local taxes in 2022. Undocumented immigrants also paid $25.7 billion in Social Security taxes, $6.4 billion in Medicare taxes, and $1.8 billion in unemployment insurance in 2022, programs for which they are ineligible.

In an economic sense, immigrants and their labor contribute to the growth of the overall economy. The Congressional Budget Office recently found that immigrants will add $7 trillion to the economy over the next ten years. Because of a projected surge of 5.2 million immigrant workers by 2033, the Gross Domestic Product (GDP) will grow by $8.7 trillion over the same time period, with federal taxes increasing by $1.2 trillion and federal deficits decreasing by $900 billion.

Policy Solutions

Given the need for immigrant workers and their valuable fiscal and economic contributions to the nation, lawmakers and a new administration should enact reforms to the immigration system which maximize the ability of immigrants to work and help the US economy.

Path to citizenship. Although opponents of immigration reform have called providing the undocumented population a “path to citizenship” an “amnesty,” or “giveaway,” such a policy would provide economic and fiscal benefits to the nation by allowing undocumented workers to fully develop their talents and contribute more to the economy. According to economists, legalizing the undocumented population would contribute $1.2 trillion to the US economy over ten years and $184 billion per year in federal, state and local taxes.

An increase in legal avenues in the US immigration system. In the current US immigration system, the number of legal avenues for workers is limited and does not meet the demands of today’s labor market, especially in the need for low-skilled workers. The creation of legal avenues would 1) establish more certainty in the labor market, as employers could plan and invest in their businesses with more confidence; 2) ensure that the maximum amount of taxes are collected from immigrants; and 3) reduce the flow of undocumented persons seeking to work in the United States, which is in the best interests of the migrant and the nation.

Oppose mass deportation plans. Republican presidential nominee Donald Trump has called for the mass deportation of the undocumented population, a plan which could have devastating moral, fiscal, and economic consequences for the nation. According to estimates, the plan could cost over $500 billion to implement and would sacrifice billions in tax revenue per year. It also would lead to labor shortages and reduce the GDP by $5.1 trillion over the next ten years.

The evidence shows that the US economy and the US citizenry benefits from the labor of immigrants, including undocumented immigrants. It argues for a reform of the US immigration system which emphasizes legal immigration and legal status for immigrants, so they can fully contribute their skills for the benefit of all.

[1] These are estimates based on the 2022 American Community Survey.

September 2, 2024