Immigration Policies and Their Impact on the US Labor Market: An Economic Overview

Economists are pointing out that the current administration's immigration enforcement policies are adding increasing pressure to an already weakening labor market. A survey by foreign media predicts that data released by the US Department of Labor will show an increase of 110,000 non-farm payroll jobs in July, lower than the 147,000 in June and lower than the average of 130,000 jobs per month so far this year.

Amid the uncertainty brought about by tariff policies, businesses are reducing their demand for labor. The shrinking number of unemployed workers is directly inhibiting job growth, especially in industries heavily reliant on foreign labor, such as agriculture, construction, restaurants, and food manufacturing.

Department of Labor data shows that employment in the food manufacturing sector, which saw a significant rise after the pandemic, has almost stagnated this year. The construction industry added only 35,000 new jobs in the first half of 2025, compared to 104,000 in the same period last year. Capital Economics wrote in a report: "The tightening of immigration has begun to have a more significant impact on labor supply."

Declining Workforce and Increasing Immigration Restrictions

According to foreign media statistics, the US labor force shrank by 130,000 in June, bringing the total decline since the beginning of the year to 364,000. The labor force participation rate fell to 62.3% last month, the lowest since December 2022. Dante DeAntonio, an economist at Moody's Analytics, noted that one of the main reasons for the decrease in labor supply is the accelerated retirement of baby boomers, but he emphasized that "the immigration issue is currently the main driver."

Data from Capital Economics shows that the number of immigrants detained by ICE (Immigration and Customs Enforcement) has increased from an average of 15,000 per month in 2024 to nearly 40,000 in early June of this year. Goldman Sachs added that the scale of deportations has also risen from an annualized rate of 400,000 at the beginning of the year to about 600,000 recently. In addition, approximately 100,000 immigrants voluntarily leave the United States each year.

Meanwhile, a Goldman Sachs report shows that the annualized number of immigrants entering the United States for asylum or humanitarian reasons was only 300,000 in May and June of this year, far lower than the 1 to 2 million last year. Capital Economics pointed out that the total number of foreign workers in the United States has decreased by more than 1 million in the past four months. Moody's cites Department of Labor data stating that a record 5.4 million people left the labor market in May alone. The US Supreme Court recently overturned a ruling requiring immigrants to prove they would face harm in a third country before being deported, which may further increase arrests and deportations in July.

Labor Shortages and Their Impact on Businesses

Under the current administration's policies, many immigrants have lost their "Temporary Protected Status," which allowed them to remain in the United States due to security issues in their home countries. "This has caused businesses to lose a significant portion of their workforce," said Amy Peck, an attorney in Nebraska. She added that many foreign workers hold low-skilled jobs such as dishwashing and factory handling. "Even with higher wages, it is difficult to attract domestic workers," she said. Restaurants have had to close early or merge branches, while manufacturers have reduced shifts. "They are trying to come up with creative ways to deal with the labor shortage, and the situation is quite serious," Peck concluded.

This situation can be seen as a setback. A report by the National Policy Foundation showed that immigrants contributed 88% of the US workforce growth from 2019 to 2024, alleviating the severe labor shortage after the pandemic and helping to curb inflation. However, data from the Congressional Budget Office and Goldman Sachs indicates that net immigration to the United States (including entries and exits) remained between 2.6 million and 3.3 million people annually from 2022 to 2024 and has now fallen to 500,000, far lower than the 900,000 before the pandemic.

In June of this year, the proportion of foreign workers in the US workforce fell to 19.1%, compared to 19.8% in March. Marisa DiNatale, an economist at Moody's, noted: "Companies in some affected industries are finding it difficult or impossible to replace lost workers. This not only leads to higher labor costs, but also forces companies to raise prices to absorb the pressure, further exacerbating inflation." She expects that immigration-related labor shortages could reduce the potential annual economic growth rate of the United States from 2% to 1%.

As a result, the US labor market is experiencing a "split." In industries such as construction, hospitality, and agriculture, employers are suffering from labor shortages due to tightened immigration policies. Conversely, in white-collar jobs, companies are reducing hiring due to increased economic uncertainty, making it difficult for job seekers to find positions.

Overall, the decrease in labor supply has largely offset the impact of weak demand, leading to a slight decrease in the unemployment rate in June from 4.2% to 4.1%, which is close to its historical lows. However, economists generally expect the unemployment rate to rise to 4.2% in July. Capital Economics believes that the stable unemployment rate may make the Federal Reserve less hasty in cutting interest rates this year, even if job growth slows significantly. But DeAntonio believes that even if the unemployment rate remains stable, if new jobs decline significantly, the Federal Reserve will eventually be forced to take action.