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One of the key economic puzzles in the post-pandemic United States is the conundrum of how employers continue to add jobs each month, despite the tightest labor market in decades and record-high inflation gradually subsiding. Nobel Prize-winning economist Paul Krugman attributes this phenomenon to immigration, pointing out that the increase in the labor force, driving job creation without igniting inflation, is primarily due to the availability of foreign-born workers. He highlighted that the U.S.'s ability to outperform other advanced countries is closely tied to its rapid growth, largely facilitated by immigrant workers.
Following a slight dip in immigration at the beginning of the Trump administration and a significant drop in 2020 due to COVID-induced lockdowns, there has been a resurgence in immigration, reflected in the labor force data. As of the current month, there has been a substantial increase of 3.1 million immigrant workers in the labor force since the pre-pandemic period, compared to a native-born labor force that initially rose to 1.5 million above the pandemic level but has since contracted to below those levels.
“The aftermath of the pandemic-era shutdowns of immigration was one of the tightest labor markets we’ve ever seen, and it started to cool as labor became more available,” Aaron Terrazas, chief economist at Glassdoor, told Fortune. “Correlation isn’t causation, of course, but it’s a natural way to think about it.”
That’s a big deal for the Federal Reserve because the Fed has been laser-focused on the job market as it decides where to take interest rates — even though workers’ raises are only partly responsible for the pandemic inflation surge.
“The economy is not only continuing to grow but it seems to be accelerating; inflation has fallen from about 9% to nearly 2% again. A big part of that is the big rebound we’ve seen in the labor force and productivity growth,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics, who also points to the increased labor-force participation of women, and mothers in particular, as a surprise factor. “That’s helped to keep growth strong and also keep inflation down. That’s something not many people were predicting.”
But doesn’t the addition of 3 million foreign-born workers mean that those jobs aren’t going to American-born workers? Well, no, Krugman says.
“They're not stealing American jobs,” he said on the Daily Blast.
Foreign-born workers tend to have different skills and work in different industries, so “they're not perfect substitutes for American workers," Krugman added. "What they do is they open up space to run the economy hotter, and almost certainly actually lead to higher employment among people born here?"
Here’s one example of how that might work. Immigrants are heavily represented in the care sector, as nannies, au pairs, home health aides, and nursing-home assistants. By caring for middle- and upper-class Americans’ children and homes (at a fairly low cost), immigrants allow middle-class women to do more paid work in the workforce.
In fact, immigration has helped narrow the gender pay gap in high-powered industries without requiring a drop in birth rates among middle-class native-born women, according to a National Bureau of Economic Research working paper by Patricia Cortés. Immigration also makes it easier for people to age in place by lowering the costs of home health care and landscaping, a different NBER paper found.
“That’s a market intervention that makes those services available for middle-class and upper-earning households, but [it creates] competition for people providing services as well,” said Terrazas. Other examples include the lower-paid ranks of health care, as well as agriculture, where low food prices are made possible by the backbreaking work and low pay of thousands of immigrants and temporary foreign workers.
“We don’t have one immigration policy; we have different policies at different skill levels,” Terrazas added. Choosing the “right” amount of immigration necessarily means balancing different constituencies, and making deliberate choices about which industries should prioritize higher worker pay and which should focus on lower end-user prices, he said.
Of course, immigrants aren’t only workers, but “people with lives and families,” Terrazas said. “Immigrants are also consumers; they have kids, and families, and they go to school and use roads and parks and recreational facilities.”
This consumer demand is another force driving the economy forward, by creating demand for goods and services. And immigrants tend to start businesses at higher rates than native-born Americans, including businesses that then employ other people. Krugman illustrated this with an example from his childhood home in Utica, where a Bosnian refugee started the now-thriving Chobani Yogurt company. (“It's actually Bosnian yogurt,” Krugman quipped.)
“It turns out that the dynamism, the vitality of the U.S. economy is very much aided by the inflow of immigrants,” he said.
None of that means we should be advocating for fully open borders, Krugman made pains to note. But it suggests that the U.S. economy has a long way yet to go before the supply of workers becomes too much to handle.
As Apollo Chief Economist Torsten Slok wrote recently, the native-born workforce in the U.S. still has about 5 million “missing workers”—including people who died during the pandemic—as well as the missing growth after it.
“These 5 million missing workers are the reason why the labor market is tight and why wage inflation is likely to remain elevated,” Slok wrote. “Put differently, there is still plenty of room for job growth.”
University of Kansas professor Misty Heggeness has developed a Taylor Swift curriculum called Swiftynomics 101 to teach economics using the pop star's impact on the NFL's business. This curriculum analyzes the economic effects of Taylor Swift's relationship with Kansas City Chiefs tight end Travis Kelce. The idea was suggested by Lynn MacDonald, an economics professor at St. Cloud State University Center for Economic Education.
The curriculum uses the Swift-NFL case study to explain the Theory of the Firm and delve into the economics of discrimination. It discusses how Swift’s presence at Chiefs games has boosted viewership and increased interest among young women and Gen Z, resulting in valuable brand marketing for the NFL. Attracting younger fans is vital for the NFL's future as Gen Z is less interested in traditional sports.
The curriculum's first lesson revolves around the Theory of the Firm, emphasizing how businesses aim to maximize profits, sometimes through decisions that may have long-term effects such as cultivating a new generation of customers or fans. These lessons are valuable for economics students, showcasing real-life applications of economic concepts.
While Swift's involvement has been beneficial for the NFL, there have been criticisms from some core football fans and anti-Swift groups. This criticism can also be used to teach students about the economics of discrimination and its intersection with gender, economics, and the workplace.
The Taylor Swift curriculum serves to show students that economics can be interesting and relevant by incorporating subjects that they care about, thus altering their perception of the subject.