Giving Compass' Take:

• Harry J. Holzer explores how immigration will interact with other labor market forces including demographics, automation, and alternative staffing.

• How can funders use this information to develop funding strategies to build an economy that works for everyone? 

• Learn about an effort to upskill the immigrant workforce. 

The U.S. labor market will be buffeted by at least three major sets of changes over the next few decades. The country will see major shifts in the following characteristics of the market:

  1. Demographics. The native-born population and workforce will age and shrink, and the presence of racial and ethnic minorities in the workforce will rise; this is due in part to declining birth rates and the retirement of baby boomers, as well as contin- ued immigration.
  2. Automation. While the technology-driven mass unemployment feared in some cir- cles will not materialize, worker displacement rates will likely rise, and more work- ers will need to make major skill adjustments, especially among the less educated.
  3. Alternative Staffing. The traditional employer-employee relationship will become less common as firms rely more heavily on independent contractors and other forms of outsourced human resource functions (with workplaces becoming increasingly “fissured” among multiple employers). More broadly, companies will likely continue the trend of instituting a set of workplace practices that focuses primarily on lower- ing labor costs rather than investing in worker skills and quality.

Together, these forces will generate some rising productivity and perhaps higher average earnings. But they will also lead to rising inequality between skilled and unskilled workers, lower economic growth, and a shrinking workforce as displaced workers and those facing lower wages withdraw from the labor market. Employers will also more frequently encounter tight labor markets as demand for workers shifts rapidly toward new sectors, or jobs in existing sectors require new skills, and workers need time to obtain the education and training to meet demand.

In this context, increased immigration can provide many benefits to the U.S. economy. It can benefit consumers by helping to reduce the costs and increase the availability of important goods and services, especially those such as health and eldercare where demand will rise rapidly as the population ages. Immigration can also contribute some balance to the federal budget as baby boomers retire and pay much lower taxes while drawing heavily on Social Security and Medicare. And finally, it can raise economic growth by replenishing a labor force that would otherwise diminish.

The precise impact of immigration on the U.S. economy and its workers, however, will vary depending on the industries they enter and the characteristics of the workers involved. Highly educated immigrants will make especially notable contributions to economic productivity and dynamism by making it easier for employers to fill jobs requiring high or specialized skills, and also by launching start-ups and otherwise driving innovation. But in some contexts, less-educated immigrants appear to be substitutes for native-born workers without a college education—precisely those workers who have been hardest hit by other forces, such as technological change, globalization (e.g., imports and labor offshoring), and the weakening of unions; in such cases, immigration can add a bit to the earnings inequality that is already rising in the United States, though the scale of this effect is hotly disputed.