Immigration's Role in Rising Unemployment Wanes

Over the past year, an influx of non-citizen labor force participants has boosted worker supply and, consequently, the U.S. unemployment rate. The share of jobless adults is calculated based on the share of total labor force participants, so when new workers enter the job market, unemployment will go up as it takes time for firms to absorb these jobseekers. Both Morning Consult’s U.S. Unemployment Index and the Bureau of Labor statistics’ unemployment rate have risen substantially over the past year, driven by slower hiring at a time when the labor force is growing – in part due to immigration.

This latter factor – more workers overall – is generally considered a positive development for economic growth, as the size of the labor force impacts total potential output. The impact of immigration therefore adds a layer of nuance to the recent rise in unemployment: While higher rates of joblessness are typically a negative sign for the economy, in this case the increase appears partly driven by this “good” factor of more worker supply overall. 

However, Morning Consult’s data suggests the influence of non-citizen workers on the unemployment index level has been declining in recent months as the influx of new workers slowed. In fact, the average unemployment index level over the past 12 weeks for non-citizens barely changed compared with the average level over the prior 12-week period, even as the index for U.S. adults overall increased 3.3 points during this time.

This pattern of fewer new non-citizen workers may portend a more stable labor supply, reducing some of the ambiguity around nearterm shifts in unemployment. Going forward, rising unemployment could be less attributable to growing labor force participation from immigration, and more clearly indicative of weakening labor demand. 

Non-citizens have played a more prominent role in rising unemployment lately

Morning Consult’s data is consistent with other sources in finding that the influx of non-citizen workers, a proxy for immigration, has played an increasing role in driving up the unemployment rate. While the share of non-citizens remains small relative to citizens, making up about 4% of Morning Consult’s 2024 sample so far, this group reports higher labor force participation and unemployment rates compared to citizens. Over the past year, the discrepancy between adults’ overall unemployment and that of citizens has widened, as the non-citizens’ contribution to the total unemployment index value increased.

Regional labor differences could be driven in part by immigration patterns

Notably, these immigration impacts on the labor market may also be contributing to regional divergences. The South and West regions have diverged from the Northeast and Midwest with relatively strongly upward trends in unemployment index levels. The same regions that have experienced a swifter rise in unemployment also tend to be more common destinations for foreign-born non-citizens, according to Census Data. Among states with citizenship status data available, the South and West had a 7.8% share of foreign-born non-citizens among their combined populations, compared with a 5.6% share overall in Northeast and Midwest states. The unemployment indexes in the South and West each increased by over 20 points in the past year, while the Northeast and Midwest indexes grew by more modest margins of 13 and 11 points, respectively.

Immigration impacts on unemployment may be fading

The non-citizens’ impact on rising unemployment may be waning, however. The contribution level by this group to the overall unemployment index peaked in March 2024, and the share of U.S. adults reporting as non-citizens has eased to its lowest point yet in 2024 as of September. So far this year, Southwest border crossings have also appeared to be on the decline, according to data from U.S. Customs and Border Protection. The most recent unemployment index data for the South and West showed a slight downtrend, narrowing the gap between these regions and the rest of the country.  

With a tapering influx of immigrants – plus factors like more restrictive remote work policies adding additional barriers to labor force participation – labor supply may remain more stable, after generally trending higher since the pandemic. Further absorption of unemployed workers will depend on the pace of firms’ hiring. Job openings have been declining as hiring has cooled substantially, even while layoffs haven’t picked up. 

Going forward, the strength of jobs growth may depend on which of several competing factors wins out. On the negative side, softer consumer demand may discourage expansion for consumer-reliant businesses–a significant segment of the labor market given that about two thirds of overall gross domestic product (GDP) is driven by consumer spending. More promisingly, however, the Federal Reserve at their September meeting announced a relatively large 50 basis point rate cut, and expectations are for at least one more cut before year-end. Fed rate cuts serve to stimulate the economy, potentially encouraging businesses to maintain or increase hiring rates as borrowing costs fall and opening up more room in budgets to allocate to employees. Firms expecting more robust business conditions ahead may be incentivized to expand their workforce to meet future needs.