Trump’s Immigration Crackdown Threatens to Stall Job Market Momentum
The foreign-born workforce contracted in June, the government reported Thursday, marking the third straight month it has fallen even as employers defied expectations and added 147,000 overall jobs. That risk is rising because the GOP’s “Big, Beautiful Bill” contains $150 billion to ramp up border security and deportations.
The solid monthly job gains that the White House is touting as the “Trump effect” are in danger of fading as the president’s hardline immigration policies chip away at the supply of foreign-born workers.
White House officials insist that the decline won’t dent the economy because the megabill will encourage more Americans to enter the workforce. Many economists disagree, predicting that the immigration crackdown will hurt the labor market.
Now, as President Donald Trump’s deportations start to show up in the economic data, we’re about to find out who’s right.
Decline in Immigration Signals Looming Trouble for Employers
Economists believe that the labor market’s breakeven rate — the number of jobs that businesses must add to keep unemployment in check — will decline with the abrupt end of the Biden-era immigration surge. Even if the jobless rate stays near its current level of 4.1 percent, a slowdown in payroll growth would pose a hurdle for the economy, they say. Federal Reserve Chair Jerome Powell is among those recently warning that economic growth could diminish.
“If the job market slows, then we should expect economic growth to follow,” said Daniel Zhao, the lead economist and senior manager at Glassdoor’s economic research team.
White House Stands Firm: “Plenty of Labor Supply”
Trump and top administration officials attribute the labor market’s expansion under President Joe Biden to an unchecked flow of undocumented immigrants across the Southern border. Trump has made reversing that tide a centerpiece of his second term, ordering politically explosive Immigration and Customs Enforcement workplace raids and planning new detention centers and more border control.
On Tuesday, he toured a Florida holding facility for undocumented immigrants dubbed “Alligator Alcatraz.”
“We need more agents to arrest them. We need more beds to hold them. And we need more transportation contracts to move them out of the country,” Trump’s border czar, Tom Homan, said earlier this week. “This bill is going to give us more resources to do more of the great things the Trump administration is doing.”
Stephen Miran, Trump’s top economist and the chair of his Council of Economic Advisers, rejects the consensus, saying in an interview that there’s an ample supply of native-born workers to pick up the slack. The unemployment rate for workers between the ages of 20 and 24 is north of 8 percent — roughly double the national average — and more than 14 percent of working-age teenagers are unemployed.
Major elements of the president’s tax bill, including eliminating taxes on overtime, are intended to boost the supply of available labor, Miran added. And the labor pool could also see gains if the legislation pushes unemployed — or underemployed — individuals on Medicaid back into the workforce.
“It’s a fallacy to think that we have no domestic substitute for immigrants,” Miran said. “There’s plenty of labor supply waiting to be brought in by the right incentives for firms to hire them — and for them to work — but they’ll never come in if you just provide an infinite flood of non-Americans willing to work for slave wages.”
Economists Warn of GDP Risk, Labor Shortages
Still, Deutsche Bank economists told clients this week that dwindling immigration could push the breakeven rate down to as low as 50,000 jobs per month. That estimate is in line with what Labor Department officials believe is necessary to keep the unemployment rate from rising, and well below the massive nonfarm payroll totals that some economists assumed were necessary to keep pace with the expanding immigrant population under Biden.
Slower employment growth also implies that the economy can’t expand as quickly without overheating. And the “underlying demographics aren’t favorable,” Aditya Bhave, a senior U.S. economist and managing director at Bank of America, told reporters on Tuesday. If immigration tails off, “where are the people going to come from to do the jobs?”
Miran acknowledged that uncertainty around the administration’s policies could lead to “weaker numbers for a period of time.” But the CEA chair said he “would not see such weakness as indicative of a deep underlying problem in the economy.”
Long-Term Outlook: Fewer Immigrants, Slower Growth
Nevertheless, many economists say immigrant workers are critical to offsetting the effects of an aging domestic population. Even while the labor force participation and unemployment rates for younger adults both improved during Trump’s first term, it’s far from clear whether that would adequately account for demographic challenges that are expected to arise if net migration slows to a trickle.
Population growth is expected to ease in the coming decades, according to the Congressional Budget Office. A separate 2024 analysis by the nonpartisan federal agency estimated that the post-pandemic jump in immigration would have a positive effect on economic output — albeit with lower average wage growth — while leaving inflation virtually unchanged.
The right-leaning American Enterprise Institute published research on Wednesday projecting that net migration to the U.S. could flatline — or decline — in 2025, which it said would shave 0.3 to 0.4 percentage points from gross domestic product. And Trump himself noted recently that he’s concerned about how the recent crackdown could affect farmers and hospitality businesses.
Fed chief Powell has identified immigration-related declines in the labor force as a potential obstacle to future growth.
“When you significantly slow the growth of the labor force, you will slow the growth of the economy,” the Fed Chair told lawmakers last month.
“It’s not for us to have a view on immigration policy,” he added. “Growth will slow — and actually is slowing — and that’s one of the reasons.”