The flow of migrants across the United States' border with Mexico is a contentious issue made more complex by the historic reliance of US businesses on low-wage immigrant labor from Mexico.
Atlanta Fed research economist and adviser Federico Mandelman and three colleagues have released a paper that evaluates how a protracted slowdown in low-skilled immigration, from its start in 2007 into the COVID-19 pandemic, has affected various aspects of the US economy. The paper, "Slowdown in Immigration, Labor Shortages, and Declining Skill Premia," relates the decline in low-skilled immigrant labor to subsequent wage increases for low-skilled workers, declining educational advancement by young US workers, and labor shortages in low-skilled jobs that can't be moved to other countries.
Mandelman, Yang Yu of Shanghai Jiao Tong University, Francesco Zanetti of the University of Oxford, and Andrei Zlate of the Federal Reserve Board of Governors show how these circumstances fueled inflation, led some US workers to decide against investing in education, and contributed to an unbalanced economy.
The United States and Mexico have had agreements that allowed Mexican workers to enter the United States to take seasonal jobs on farms. Both sides benefited. US farm owners needed workers to tend croplands; the Mexican government anticipated workers would return with money and enhanced farming skills that would improve agriculture at home. The first was in 1917; the last, the Bracero Program, authorized 4.6 million seasonal labor contracts from 1942 until its end in 1964.
Birth rates, recession, and border enforcement
Conversing over a double expresso, Mandelman explained how this immigration decline has influenced everyday life in the United States. He began with the drop in US birth rate that started around 1960 and continued for more than 20 years, fueling a shortage of low-wage workers that was offset by immigrants, mostly from Mexico, in the 1980s and '90s.
"We could go far back in time, but if you go just to 1960 something striking began to happen in the United States," Mandelman said. "People had fewer kids, and the kids became more educated, and fewer of them were willing to do the jobs that immigrants do—farm, care for children, care for old people, work as gardeners, as construction workers, in the hotels. We had an increasing need for immigrants to do these jobs and that's where we had the great migration period, from 1980 to 2000. During that time, we had immigrants filling jobs at the bottom of the job distribution."
In 2007, the Great Recession wiped out a vast number of jobs around the world. Many workers from Mexico went home, reducing the supply of low-wage labor in the United States. The decline stemmed in part from the lack of jobs north of the border and persisted in part because an improving Mexican economy provided an adequate number of jobs.
"We had many things happen in the United States," Mandelman said. "We had the housing crisis, and because many immigrants were in construction, when construction ended there was no more incentive for people to come. There was a lot of pressure to deport undocumented workers during the Obama years. There was increased border enforcement. In Mexico, fertility had been very high in the 1960s and it began falling, as it had in the United States, and the economy started doing better so there was less incentive for people to leave the country for work."
Higher wages for low-skill jobs
As the labor market began its recovery following the official end of the recession in 2009, US employers slowly raised wages to fill low-skill jobs, but the low-wage immigrants who once filled the non-tradable jobs that couldn't be offshored were largely gone, Mandelman said. Slightly higher wages were enough to attract US workers in numbers sufficient to meet a recovery that remained tepid for several years. Only as the recovery strengthened and the labor market began to tighten, after 2014 and notably after the pandemic, did the shortage of low-wage migrant workers become broadly evident. One place this appeared was in rising prices for some goods and services, adding to inflation.
Another wrinkle, the researchers found, is that the immigration slowdown may have led some young US workers to forgo a college education. The "college wage premium" has declined because of the low-skilled labor shortages that accumulated from 2007 to 2021 and the resulting increase in wages for these low-skill jobs. This has contributed to the reversal of a 40-year trend of young US workers seeking advanced education with the expectation of entering a higher-paying career.
Santiago Marquez is familiar with the recent economic scenario involving low-wage jobs and immigrants who fill them. As chief executive officer of the Atlanta-based Latin American Association (LAA), Marquez oversees an organization founded in 1972 to help Latinos assimilate into Georgia's community. In addition to providing immigration and language assistance, the LAA offers job training that ranges from general construction and skilled trades to banking and career certifications. The LAA is adapting to a shift in the country of origin of its clients.
"The number of Mexicans coming from the southern border has gone way down and has been going down for years," Marquez said. "What we have seen is a rise in global migration, the global crisis that countries are experiencing and we are experiencing. We've served people from Senegal, Ukraine, Venezuela, Central America, Cuba, Haiti. Even towns like Dalton, Georgia, that traditionally have Mexican migration have started seeing waves of Venezuelans and Cubans."
Considerations for the future
As Mandelman finished his coffee, he contemplated the research project's future. The paper cites potential work around the aging workforce. Falling fertility rates in Mexico and Central America, which started in the 1980s, may also have ramifications for the US economy as those regions may supply fewer workers to the United States.
Another consideration is Marquez's observation, and Mandelman agrees, about the abrupt shift in migration flows that started in 2021. Along with a spike in new entries, following a period of steady shortages of migrant workers entering the United States, is the change in country of origin.
"With more low-skill immigrants coming in, we'll see the effects on the labor market. For very low-skill jobs, wages are coming down," Mandelman said.
One question is what effect, if any, that will have on US workers who bypassed college and took low-skill jobs when wages were higher. Now that wages in the sector are falling, these workers may have to adapt to an economy without the benefit of the advanced education and skills they chose not to pursue.
David Pendered
Staff writer for Economy Matters