How much the US labor market benefits from immigration

The rate of unemployment is up. But is the recent US labor market really an indicator for slowing economical growth? Goldman Sachs says no. The uptrend of unemployment is rather a cause of immigration. Since more people are coming to the U.S. there are more people that need to look for and find a job. Problem is that not everyone gets a job immediately.

The labor market this and last year

Goldman Sachs believes that the U.S. economy will rise even faster than originally expected. The reason for that is apparently that more immigration adds more workers to the U.S. labor force.

Last year in the fourth quarter economic growth was at 2.4% which is more than the originally expected 2.1%. Now Goldman Sachs sees the US economy at a annualized growing rate of 2.7%.

“One reason why the GDP growth was stronger in 2023 is that immigration wan well above the recent historical average, boosting the size of the labor force and potential GDP”

Ronnie Walker, Goldman Sachs economist

Immigration in the US

According to research from Goldman, immigration was 1.5 million above the trend in 2023 and will come to 1 million above trend in 2024. This has a big impact on the labor market since a lot of immigrants go into the market and with that strengthen the U.S. economy. This leads to economical growth of the country and the higher-than-expected growth all across the economy.

But immigration also leads to an increase of unemployment rate. Since people have to look for jobs before they get one and not get accepted immediately. This lead to an increase in the unemployment rate from 3.7% to 3.9%. It is to say though that the reason for the unemployment is far from bad news.

The influence of immigration on US labor market

Even though the unemployment is rising it is not likely a sign of a slowdown in the labor market. It is more likely a factor of the constantly rising economy. The reason immigration plays a big role in the economy is that the U.S. does not have much capabilities for more growth in the economy but with more workers the overall growth is more likely.

“This demographic shift promises to inject much-needed dynamism and diversity into the workforce, offering a more balanced and sustainable path forward for the economy”

Greg Daco, EY chief economist