Immigration and the Labor Force
Decreased labor supply continues to be the main challenge facing the US labor market. In the prior Quarterly Economics Briefing (QEB), we primarily focused on reduced labor force participation: a smaller share of people are working or looking for work now than before the pandemic.
A second key driver is reduced immigration. In 2020 and 2021, fewer people came into the country to work than in prior years. Foreign-born workers make up a substantial fraction of the US labor force and are a vital contributor to its growth. They are also more likely than native-born workers to work in physically demanding or in-person service occupations rather than in office-based occupations. The former set of occupations is particularly impactful to workers compensation.
Immigration Is a Key Driver of US Labor Force and Employment Growth
How Many Foreign-Born Workers Are There?
Immigrant workers are a substantial part of the US labor force. At present, about 30 million people employed in the United States are foreign-born,The Bureau of Labor Statistics’ (BLS) definition of the foreign-born labor force includes anyone residing and working in the United States who was not a US citizen at birth. more than one-sixth of the total US labor force.
Foreign-born workers contribute differently to the share of the labor force in particular geographic regions. They make up over one-fourth of the labor force in the Pacific Census Division but under 10% in parts of the Midwest and South. Meanwhile, they represent more than 20% in the Middle Atlantic Census Division, which includes New York.
How Much Do Foreign-Born Workers Contribute to Labor Force Growth?
The share of foreign-born workers in the labor force increased in the period between the end of the Great Recession and the beginning of the pandemic. This increase occurred both from new immigration and because of differing age profiles of the native-born and foreign-born populations. The native-born population has a larger share of older people nearing the end of their careers, so their retirements tend to push up the foreign-born share of workers. As illustrated below, foreign-born workers comprised one-sixth of the workforce but nearly half of labor force growth in this time period.
This change was not uniform over the decade from 2009 to 2019. The first several gold bars in the figure below show that foreign-born workers contributed almost all labor force growth in the early part of the recovery from the Great Recession. Native-born labor force growth increased primarily from 2015 to 2019.
What Has Happened Since 2019?
In 2020, there were large labor force reductions among both native-born and foreign-born workers. In 2021, the number of foreign-born workers increased but the number of native-born workers did not. In 2022, both increased substantially, bringing the labor force above the 2019 year-end level, although cumulative growth was still much less than what would have been expected from pre-pandemic growth trends.It is very likely there has been less cumulative labor force growth between 2019 and 2022 than reported in this figure because of the US Bureau of Labor Statistics’ population-control adjustment that was applied to 2022 data. Labor force estimates increased by 1.5 million in January 2022 versus December 2021 because of new population estimates resulting from analysis of 2020 Census data. This adjustment is larger than the estimated labor force growth between 2019 and 2022. NCCI has previously discussed this adjustment in the Q4 2021 and Q1 2022 editions of the QEB.
This result of increasing foreign-born workers since the pandemic’s onset may be counterintuitive since immigration was much lower in 2020 and 2021 than in prior years. But the foreign-born labor force picked up in 2021 because of a slight uptick in the labor force participation rate and because there was still some net immigration. The native-born labor force experienced a partial recovery in the labor force participation rate but also a slight decline in the working-age population due to aging. These opposing effects generated a slight net decline in the native-born labor force.
In 2022, a slight further recovery in labor force participation rates boosted the size of the labor force for native-born and foreign-born workers, and a return to pre-pandemic immigration levels further increased the foreign-born labor force level.
Reduced immigration during the pandemic contributes substantially to the current labor shortage. The labor force grows in two ways: changing population or participation. Native-born population cohorts are a fixed group of people, and the cohorts entering working age are about the same size as those reaching retirement. This means the working age population is not changing much, and any potential growth must come through increased participation rates. This is what happened in the late 2010s (as seen in the gray bars in the prior figures). Decreased participation rates since the pandemic’s onset, especially for young and old workers, are helping to drive the current labor shortage.See our Q3 2022 QEB, ncci.com, November 14, 2022, for an in-depth discussion of post-pandemic changes in labor force participation.
Foreign-born labor force growth happens mostly through immigration rather than changing participation. Fewer people came to the United States in 2020 and 2021 than in prior years. Immigration recovered to approximately normal levels in 2022, but fewer migrants in the previous two years left a large gap in the current labor force compared to pre-pandemic expectations. How big is this gap? It is difficult to measure precisely, but multiple sources suggest the United States is short approximately 1 million workers.
Other data definitions produce somewhat smaller estimates but similar patterns. The figure below reports the number of work and immigrant visas issued, excluding categories such as students and humanitarian migrants. About 800,000 visas were issued in fiscal year 2020 and about 400,000 in 2021, a collective reduction of about 800,000 from the 2015–2019 average.
There are around 3 million fewer workers in the labor force now than we would expect from pre-pandemic trends, and reduced immigration is responsible for close to 1 million of that shortfall. This is the second-largest contributor after the reduced labor force participation rate, and it may be the more lasting one. It is much easier for potential workers in the United States to reenter the labor force than it is to replace the potential workers who did not enter the United States at all due to the pandemic.
Immigrant workers are more likely to work in industries and occupations impactful to workers compensation. Native-born and foreign-born workers also differ in their employment mix by occupation and industry. Reduced immigration exacerbated labor shortages in all sectors, but especially in immigrant-heavy sectors such as leisure and hospitality, agriculture, construction, and health services.Trump, covid slowed down immigration. Now employers can’t find workers, Abha Bhattarai and Lauren Kaori Gurley, Washington Post, December 15, 2022. These issues are especially relevant in construction. Labor shortages were top of mind for construction-industry stakeholders even before the pandemic,Labor Shortage in Construction Will Affect America’s Growth, Roopinder Tara, Engineering.com, September 12, 2019. with particular concern for safety and quality standards in a period of understaffing potentially leading to more injuries.Dealing with the Construction Workforce Shortage, Rose Hall, IRMI, February 2019. Labor supply is also a long-running concern in health care and social assistance, one of the fastest-growing industries in the last 10 years and likely one of the fastest-growing of the next decade as well.
Foreign-Born Workers Are More Likely to Work in Occupations With High Injury Frequency
Using occupation instead of industry tells a similar story. A little bit more than half of all US employment is in office-based occupations: 56% in 2021.This statistic is derived from Current Population Survey data, defining office-based employment as all Sales and Office occupations, all Management, Business and Financial Operations occupations, and all Professional and Related occupations, except for health care practitioners. This is a close match for the 60% of workers compensation payroll in the similarly defined Office and Clerical industry group.
But there is a stark divide by country of origin:
Native-born workers are nearly 50% more likely than foreign-born workers to work in business, management, sales, or administrative support occupations. They are only slightly more likely to work in other professional occupations and are slightly less likely than the foreign-born to work in computer or mathematical occupations. All these jobs have very low work injury rates.
Foreign-born workers are more likely to work in physically demanding occupations. Nearly 10% of all foreign-born workers work in construction occupations, compared to just 4% of native-born workers. A greater share of foreign-born than native-born employees also work in production (i.e., manufacturing), transportation and material moving, agricultural, and building and grounds cleaning and maintenance occupations.
The figure below illustrates the percentage of workers in an occupation category who are foreign-born (x-axis) and the occupation’s injury and illness rate (y-axis). The latter is defined as the number of cases with days away from work per 10,000 full-time equivalent (FTE) workers (who could be either foreign-born or native-born).The figure uses 2019 incidence rates to avoid the effects of COVID-19, which caused big changes in BLS incidence rates for 2020. There are no published incidence rates for 2021.
The figure clearly displays a relationship between worker origin and injury frequency. Office-based occupations have the lowest incidence rates and the lowest share of foreign-born workers. Agricultural, cleaning and maintenance, and construction occupations all have above-average incidence rates, and these occupations have by far the highest share of foreign-born workers. Except for personal care and service, every occupation group that employs an above-average share of foreign-born workers (i.e., more than one-sixth) has incidence rates higher than the overall average of 86.9 cases per 10,000 FTE workers.
Incidence rates are not published by a worker’s country of origin, but it is possible to estimate how occupation mix could affect injury rates for foreign-born and native-born workers. Assume that native-born and foreign-born workers have an identical incidence rate within each occupation group. Under this assumption, foreign-born workers would have had a 2019 incidence rate of 104.4 cases per 10,000 FTE workers compared to native-born workers’ incidence rate of 83.0 cases per 10,000 FTE workers, simply due to having a more hazardous occupation mix. The true differential may even be larger if foreign-born workers are assigned to do a larger share of hazardous tasks within an occupation group.
What Does This Mean for the Labor Market and Workers Compensation?
Stubbornly low labor supply has been one of the chief economic stories of late 2021 and 2022. Despite consistent employment growth and a dramatically elevated number of posted job openings compared to historical standards, the size of the labor force has barely grown. Normally, economists would expect strong labor demand to pull in new workers from outside the labor force and find jobs for unemployed workers. Reduced labor force participation and reduced immigration both pushed down labor supply during the recovery from the pandemic recession but have different interpretations going forward.
Labor force participation is a choice that may be easily reversed. We have seen some of this already because labor force participation among workers aged 25–54 has nearly recovered to the pre-pandemic rate, even as participation rates for the youngest and oldest workers have not recovered.
Immigration is different. Visa issuances likely did not fall because of a permanent change in the desire of people to live and work in the United States. Rather, the pandemic slowed down new arrivals, preventing about 1 million workers over two years from entering the labor force.
Early signs indicate that 2022 immigration levels resemble pre-pandemic norms. Thus, unlike reduced participation, it is not a question of whether this shortfall will shrink or widen based on future behavior. Instead, the smaller 2020 and 2021 cohorts likely created a one-time but permanent reduction in available workers.
This immigration shortfall contributes to ongoing labor shortages. The immigration reduction most strongly impacted occupations with a high share of foreign-born workers, including agriculture, construction, cleaning and maintenance, health care support, and manufacturing. Some of these occupations, including construction and health care, were struggling to find enough skilled workers even before the pandemic.
These same occupations are all impactful to workers compensation. They each have above-average injury rates, and many have high average severities as well. These jobs thus have an outsized impact on premium and losses compared to their share of employment and payroll. Any changes to the workforce in these areas, including a reduction in labor supply from less immigration, can be important to monitor for workers compensation stakeholders.