Leverage Immigration to Address US Labor Shortages

This brief is part of “Election 2024: Policy Playbook,” a series by Rice University and the Baker Institute that offers critical context, analysis, and recommendations to inform policymaking in the United States and Texas.

The Big Picture

• Beginning in 2018, the United States economy started to have more job openings than unemployed or available workers. 
• This struggle to hire workers has affected critical sectors of the U.S. economy, including agriculture, construction, hospitality, healthcare, and manufacturing.
• The labor shortage has decreased somewhat since the pandemic recovery, but it remains significant.
• Immigrant workers have been a pillar of the American economy for decades. Tapping into their skills would be an effective way to ease the labor shortage.

Summarizing the Issue

When there are more job openings than available labor, the U.S. cannot produce at full capacity, which slows down its economic growth. Labor shortages also result in inflationary pressures. As employers compete for workers, the only way to recruit or retain them is by raising wages. This increase in labor costs must be added to the cost of production, ultimately raising the final price of goods and services. If the U.S. wants to foster its economic growth and control inflation, it must focus on easing the labor shortage.

Expert Analysis

The shortage of labor is clearly seen by comparing the difference in the available job openings with the numbers of unemployed workers (Figure 1). To highlight recent statistics:

• In 2022, the gap between job openings and unemployed workers was around 5.2 million, with an average of 1.9 job openings per unemployed worker.
• In 2023 the equivalent figures were 3.3 million, with 1.5 job openings.
• So far this year (through June 2024), the number of unfilled jobs decreased to an average of 1.8 million — 1.3 open jobs per unemployed worker. 

Figure 1 — Job Openings Versus Number of Unemployed Workers, 2015 to June 2024

The U.S. economy has experienced declining labor force participation for many years, leading to a reduced workforce. This trend is expected to persist in the coming years. Comparing the labor force participation rate of 63.3% in February 2020 (before the pandemic) to May 2024’s rate of 62.5%, this translates to around 2.1 million missing workers.

Contributing Factors

The U.S. labor shortage is, in part, caused by the aging of the workforce and workers retiring faster than they can be replaced. In addition, U.S. fertility rates have been declining for years — so fewer younger workers are available to replace those retiring. Another factor was the drop in immigration from 2016 to 2021, due to policies implemented by the Trump administration. It was not until 2022 that U.S. net international migration began to increase again, partially alleviating the labor shortage.

Current Landscape

The labor shortage is severe in almost all states and across numerous industries. Many have more job openings than before the pandemic. A couple of examples from important industries:

• So far in 2024, the construction industry needs 501,000 more workers than it usually hires and in 2025, it will need approximately 454,000 new workers. 
• By 2030, the manufacturing industry will have 2.1 million unfilled jobs, potentially costing the U.S. economy $1 trillion.

This shortage affects — and will continue to affect — the productivity of other industries as companies cannot find workers. It will also make the U.S. economy less competitive globally.

A Potential Solution: Immigrant Workers

Immigrant workers, documented and undocumented, have been a pillar of the American economy for decades. As well as being employees and consumers who generate wealth and pay taxes, they often invest in job creation by starting new companies. They have demonstrated their value to essential sectors of the U.S. economy by contributing to their growth and competitiveness.

Immigrant participation in the U.S. labor market increased from 14.8% in 2005 to 18.6% in 2023. However, their share in some sectors is even more significant. For example, they represent around 37% of the workforce in farming, forestry, and fishery. More detailed analysis shows that, in the agricultural sector alone, around 41% are undocumented and 23% are documented (primarily with H-2A visas). In construction and extraction, they represent approximately 34% of the workforce. In some states, such as California and Texas, immigrants make up 40% of the construction workforce.[1] 

Factors such as the aging workforce and lower birth rate are difficult to address in the short term: A more immediate solution to the labor shortage is to allow more foreign-born workers into the U.S. in an orderly and legal manner. This means providing more nonimmigrant, and even more migrant, visas and creating new visa rules based on the labor needs of different industries.

Policy Actions

The following policy recommendations would help alleviate America’s current labor shortage:

1. Increase the cap on visas issued according to the estimated labor shortage in specific sectors. For example, the H-2B visa for non-agricultural workers has a current cap of 66,000 workers, a number that could be increased.
2. Update the list of professionals eligible for TN visas. This list, for skilled Mexican and Canadian workers, is based on current labor shortages.
3. Make it easier to obtain visas in critical industries. Some visas are complex and expensive to issue. This should be changed to provide the necessary workers for and when the industries that need them.
4. Reinstate the Deferred Action for Childhood Arrivals (DACA) provisions. This will allow undocumented youth to work and ensure that investments already made in their education are not wasted.
5. Pass legislation that improves visa programs in critical sectors to alleviate labor shortages. For example, the Farm Workforce Modernization Act (agriculture) and the Workforce for an Expanding Economy Act (construction and hospitality).

The Bottom Line

The U.S. is facing an ongoing labor shortage that is hampering its economic growth and contributing to inflationary pressures. Allowing more foreign-born workers into the U.S. in an orderly and legal manner is an effective way to ease this shortage.

Note

[1] The figures in this paragraph are the author’s own estimates using data from BLS.

This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual author(s), and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.