he US economy is demanding too many workers. There are about twice as many job vacancies across the United States as people looking for jobs. The unemployment rate remains at a historic low, and the labor force participation rate is on the rise.
Having many more job openings than workers has led to record-high quit rates and wage increases exceeding productivity growth, contributing to broad-based inflation and causing the US Federal Reserve to raise interest rates sharply in an effort to cool off the economy’s insatiable appetite for labor. The Biden administration’s immigration policy has exacerbated these labor shortages, forcing the Fed to raise interest rates more aggressively than it otherwise would.
By restricting the number of workers, the administration is limiting the economy’s potential output and reducing the level of spending that is compatible with it. Higher immigration, on the other hand, could lead to lower interest rates, increased output, and greater demand. In fact, higher immigration and lower interest rates are pretty much in everybody’s interest. Domestically, it would facilitate the growth of startups, help small and medium-size firms find workers, boost stock and bond prices, and weaken the super-strong dollar, thereby improving the economy’s competitiveness and boosting exports. And lower US interest rates and higher demand would facilitate global growth, enable emerging and developing countries to lower their own interest rates, bolster capital flows and remittances, and increase American imports.
But if the potential gains are so great, why is the US not welcoming more immigrants? Part of the problem is America’s inadequate and outdated 1986 immigration law, which has left little space for skilled worker visas and even less for necessary so-called unskilled workers. Without sufficient legal pathways, it is no surprise that the US now has about 13 million undocumented immigrants living within its borders; one can only imagine how much smaller the US economy would be without them.