Rebound in Immigration Comes to Economy’s Aid

The inflow of foreign-born workers, which had slowed to a trickle in the years up to and including the pandemic, is now rising briskly as the U.S. catches up on a backlog of visa applications and the Biden administration accelerates work permits.

This week, it said it would offer work permits to 470,000 Venezuelan migrants. The effect of that action won’t be immediate since it is taking an average of 12 months to issue the applicable work permit. Still, it is one of a series of executive actions that has had the effect of boosting the inflow of foreign-born workers.

That is helping ease labor shortages and wage and price pressure. While that alone doesn’t remove the risk of recession, it makes it a bit easier for the Federal Reserve to bring inflation down without a significant rise in unemployment—a so-called soft landing.

This year, average monthly growth in the foreign-born labor force is about 65,000 higher compared with 2022 on a seasonally adjusted basis, a Goldman Sachs analysis found. After plunging at the start of the pandemic, the size of the foreign-born labor force has rebounded, nearing 32 million people in August.

Foreign-born workers’ share of the labor force—those working or looking for work—reached 18% in 2022, the highest level on record going back to 1996, according to the Labor Department. It has climbed further this year to an average of 18.5% through August, not adjusted for seasonal variation.

The jump in the share of foreign-born workers in the labor force reflects an easing in immigration backlogs that accumulated during the Trump administration and at the onset of the Covid-19 pandemic.

U.S. consulates around the world shut down when the pandemic broke out and, because of staff attrition and local country restrictions, took longer than most offices in the U.S. to reopen. As a result, visa issuance plummeted.

It took several years to reopen consulates to their prepandemic capacity; some posts, especially in India, are now dealing with yearslong waits for visa appointments as a result.

By 2022, though, the U.S. granted more than a million work visas, hitting a 25-year high, according to an analysis of government figures by USAFacts, a nonpartisan data provider. It issued nearly 500,000 green cards to immigrants moving to the U.S. permanently, the highest total since 2018, government data show.

In addition, the administration has made unprecedented use of a little-known immigration power known as humanitarian parole to quickly and legally let in hundreds of thousands of people from places such as Ukraine, Afghanistan and Venezuela.

All of this is making a palpable difference to employers who have struggled to find and retain workers.

Two years ago, Veselka, a Ukrainian diner in Manhattan’s East Village renowned for its pierogi, was so short on cooks and wait staff that owner Jason Birchard was ready to cut the restaurant’s hours and end table service.

Then last year, the war in Ukraine broke out. The Biden administration launched a program to sponsor Ukrainian refugees to live and work temporarily in the U.S.

Birchard, who is third-generation Ukrainian American, immediately looked into the new program. He said he thought it was the right thing to do to bring Ukrainians to safety, but also hoped he could find some new cooks.

Since then, Birchard has sponsored 10 Ukrainians, mostly extended family members of his existing employees, and eight now work at his restaurant.

“One of my biggest challenges postpandemic was hiring. Not so anymore," he said. “It’s been a win-win for me."

Starting in 2021, the demand for workers picked up rapidly as the economy reopened and consumers spent pent-up savings and stimulus checks. But employers found many workers they had laid off in the early months of the pandemic had moved, retired, changed industries or were too wary of Covid to go back to work.

By March 2022, the number of vacant jobs surged to a historic high of 12 million, double the nearly six million unemployed, according to the Labor Department. Openings have since fallen to a still-high 8.8 million in July, roughly 50% more than the unemployed.

The falloff in migrant inflows compounded the shortage, especially in industries such as construction, healthcare and restaurants. A study by the Federal Reserve Bank of San Francisco found that declines in net international migration raised the ratio of job vacancies to the unemployed by roughly 5 percentage points between 2017 and 2021.

By 2022, increasing migration had lowered the ratio by 6 percentage points, the analysis found.

Increased immigration by itself won’t alleviate the worker shortage. Nonetheless, Fed officials see it as assisting the inflation fight by improving the balance between the supply and demand for workers. In August, Fed Chair Jerome Powell cited the rebound in immigration to prepandemic levels as a factor helping boost labor supply.

After raising interest rates to a 22-year high of between 5.25% and 5.5% in July, the Fed left rates unchanged at its meeting this week amid hopes easing inflation and a cooling labor market will make further increases unnecessary. After the meeting, Powell described the labor market as merely “tight," a downgrade from “very tight" in July. “Supply and demand conditions continue to come in better balance," he said.

One reason immigration has helped the supply of labor is that a greater proportion of newcomers join the labor force. Since early 2020, the foreign-born participation rate, now roughly 67%, has grown above its prepandemic average by 1.5 percentage points, while that for native-born Americans remains 0.5 points below, Goldman found.

Tim Krupa, an economist at Goldman, said the rise in foreign-born workers’ participation likely reflects the draw of wage gains and plentiful jobs, particularly in industries such as construction and services. Those industries have seen faster wage growth than the economy overall.

Giovanni Peri, an economist and director of the Global Migration Center at the University of California Davis, said that while increased immigration is helping ease labor-market tightness, that is “because there was a backlog." He said more lasting relief to worker shortages in some industries requires a more deliberate policy change, “which, as of now, doesn’t seem to be there."

Congress hasn’t updated existing work-visa categories or any other major aspect of the immigration system for 33 years. Any discussions to increase temporary or permanent employment-related immigration have been mired in a political fight over the southern border.

Since about 2014, hundreds of thousands of migrants a year have crossed into the U.S. illegally to seek asylum, citing violence and poverty at home. More than two million migrants attempted to enter the U.S. illegally in each of the past two years.

Migrants aren’t immediately eligible for work permits in the U.S. The process for those applying for asylum can take as long as 18 months. Still, most quickly join the labor force, often illegally.

When the U.S. military withdrew from Afghanistan, the government evacuated roughly 80,000 Afghans, most of whom entered the U.S. on a two-year grant of humanitarian parole. A month after Russia invaded Ukraine, the administration launched the initiative that enabled Birchard, the restaurant operator, to sponsor and hire Ukrainian refugees.

The administration has more recently used the same power to create an alternative path for migrants thinking of entering illegally for Cubans, Haitians, Nicaraguans and Venezuelans.

The administration has expanded the use of some work visas, such as for seasonal farm work, both at the urging of industry and as an alternative path for migrants who might come illegally. This week’s offer of work permits for Venezuelans, however, was primarily driven by Democratic mayors and governors who said it would allow migrants to move out of city-run shelters and support themselves.

Jonatan Ochoa, a migrant from Colombia now living at a shelter in New York City, took odd day-labor jobs the first few months after arriving in the U.S. until he was able to apply for a New York state driver’s license. Now, he works as a delivery driver for a catering company in Brooklyn, which pays him about $950 every two weeks. It is about half the salary he would earn, he estimates, if the company had hired him legally to work.

“All I really want is for my kids to get ahead," Ochoa said. “I want them to see me as a responsible father, someone who did what I needed to get them a better life."

Write to Amara Omeokwe at amara.omeokwe@wsj.com, Michelle Hackman at michelle.hackman@wsj.com and Matthew Riva at matthew.riva@dowjones.com