Trump was elected because of inflation. One of his signature policies may threaten to bring it back.
Why aggressive immigration enforcement risks awakening the inflation beast yet again.
I was covering labor and the economy in spring 2021 at The Washington Post, right as vaccines were rolled out en masse across the country. It was a hopeful but confusing time: the clouds were beginning to part on the worst crisis many of us had ever lived through. But as people began to emerge from their caves, and the rhythms of life and the economy began their slow crawl back to normalcy, it was clear that everything was a bit different.
For one, the great machine that is the U.S. economy, which is powered by a workforce of some 160 million people, was functioning in surprising ways — turbocharged in some aspects, sluggish and unpredictable in others. And what began to emerge and confound all the great and less great minds in D.C. and elsewhere, was a major labor shortage, plaguing restaurants, hotels, shipping, construction, manufacturing and other industries that were trying to staff up amid increased demand. Along with supply chain backlogs and other economic wrinkles, the U.S. began to experience its highest rate of inflation in decades. This was consequential: higher prices supposedly drove the public’s dissatisfaction with the Biden administration. The rest, of course, is history.
As the country worked to get back on its feet that spring, I remember watching as business groups began to sound the alarm about the shortages, reflecting the concerns of the business owners they represented around the country. Some had a clear culprit: the enhanced unemployment benefits that laid-off workers had enjoyed through most of the pandemic. So very quickly thereafter, Republicans began to take aim at the benefits: by June 2021, half of all states had opted to end the enhanced federal benefits, in the attempts to push people back into the workforce and end those dastardly shortages once and for all.
This was a bit of a revealing moment about how the national conversation is shaped in Washington. Never mind that the pandemic was hardly over and that there was so much unknown about the infinitely complex labor market — that a multitude of factors, including childcare access, school closures, continuing infections and health risks, early retirements and the vast upheaval and movement of people around the country, were likely playing into the shortages. Never mind that there wasn’t much data showing that unemployment benefits were the primary issue to blame. No, economic studies that unpack complicated moments like this take months or years to come out, lagging behind policy discussions to the point of near uselessness from a political perspective. But no matter: big lobbying groups and half of the political establishment were saying UI benefits were the issue. So media coverage and discussion chewed over the topic for months.
When the data did emerge later, it turned out that unemployment benefits were just one ingredient of the complicated economic stew that caused the shortages. Another critical component? Immigration, which dropped to its lowest levels in decades in 2020 and 2021, while enforcement ramped up. Could that have been a reason why many of these lower-wage jobs in industries that typically rely on an immigrant workforce were having trouble hiring up?
For this week’s newsletter, we decided to do a quick look at the issue, given the furious push once again to stop illegal immigration and remove undocumented immigrants. I spoke to Justin Gest, a professor of policy and government at George Mason University who co-authored a 2023 study that found that immigration issues during the pandemic were a major driver of labor shortages and thus inflation during this time.
We talked about the research behind the study, why the pandemic served as a testing ground for another economic threat on the horizon, and whether the Trump administration’s aggressive immigration enforcement risks awakening the inflation beast again. Spoiler alert: it does, Gest says. Our interview has been lightly condensed and edited.
Hard Reset: Can you summarize what you found in your story about the connection between immigration and inflation during the pandemic and immediately post-pandemic period?
Justin Gest: Immigration is a source of not only new community members, it's a source also of labor: highly skilled labor, low-skilled labor, and people who work in a variety of sectors: construction, healthcare, food production, and agriculture. When we have a good supply of [immigrant] labor coming into the country, wages are at a reasonable level because we’re meeting the demand for labor with the supply of laborers.
When you close borders and limit the number of immigrants who come in, wages tend to rise because you have a smaller supply of workers. Higher wages may sound good because everyone wants to be paid more, but when you look at things macroeconomically, higher wages across an entire economy and across lots of sectors like construction, have downstream cost effects on housing, healthcare, and hospitals, which means downstream costs to your health expenses and food production, which has downstream costs to what you put on the table. So it leads to higher prices if you cut immigration off significantly.
HR: Was the reduced influx of immigrants during the pandemic due more to policy or personal decisions that people were making?
JG: It's a mix of both pandemic effects on human mobility, but also on American policies. If you recall in 2020, the pandemic led to an effective halt of immigration at the border initially — that was just people making choices to stay in place. But thereafter, the Trump administration, which had previously been very anti-immigration in general, used it as an opportunity to halt immigration more broadly, once human mobility picked up. We didn't see normal levels [of immigration] really until 2022. And so in effect, it was a mix of both the policy and the pandemic that affected people's choices.
HR: In your study, you connect the labor shortages we experienced during the pandemic with the economic risks we face long term in the U.S. from an aging population, with less young people entering the workforce. Can you talk a bit more about that?
JG: The United States, like so many other Western, industrialized, high-income economies is in the midst of an aging crisis. The U.S. is actually better off than most other countries in that club — in countries like Japan, South Korea, Finland, Italy, it's far more severe. When you age rapidly, you start to create imbalances in the number of people that you have and the number of people who are at working age.
We are witnessing our population distribution becoming more and more skewed towards the upper bounds than having balance. There's only really two ways to address this. One is for citizens to have more children, and the other way is by bringing in new citizens and new members of society through immigration. States have a very unsuccessful history of trying to promote childbirth, and what they call “pro-nativism” that's become more in vogue with political figures like JD Vance and [Hungarian prime minister] Viktor Orban. Immigration has really been the easiest and most successful lever to backfill population loss or population decline from aging.
HR: Obviously we’ve seen other countries open up their borders when they have labor shortages throughout history when they needed to. Why do you think we've gone the opposite direction?
JG: Nearly 100 percent of American population growth over the last decade is attributable to immigration. The only thing that is stopping the U.S. from actually shrinking is the entry of foreigners. If the economy were to shrink, it severely affects our power — not only our market power as a country, but a variety of other economic indicators. But to the bigger question, it's not just about economics, it's also about sentiment and perspectives about foreigners and people from other countries.
It’s also about how people feel about how America governs immigration. We have a system that is antiquated; it's stuck in what I call a sort of policy formaldehyde, a system that really originated in the 1960s, was modified slightly in 1986, and is, relatively speaking, unchanged except for some enforcement matters ever since.
So it's not fit for purpose now. Other countries can update their immigration policy to accommodate their labor demand in a matter of weeks. You need more people to shear sheep? Okay, let's create a visa class for people who are experienced in shearing sheep. You need more math teachers because of a population boom somewhere? Then let's bring in more math teachers. A country like Australia would put us to shame.
But people believe the system is completely out of control in the United States…I think it's a relatively uncontroversial thing to say that we're relatively indiscriminate about who we let in. We have economic forms of migration, but they're very limited and most people come in on family visas. And because our government doesn't have a policy that is able to manage immigration and demonstrate control, and use that control to more carefully select people in the national interest, people have lost confidence in the system.
HR: How would you expect or forecast this new focus on immigration enforcement to potentially affect, again, what was this huge economic scourge, which is inflation?
JG: The shame, and really the atrocious reality of this situation is that immigration and customs and enforcement are identifying people who are eligible for deportation without any concern about whether they are a net contributor to the United States. I don't just mean that economically. I mean that in a variety of different ways. Are these people who are the mothers or fathers, sons or daughters of American citizens? Are they duly employed? Are they criminals or law-abiding people? Are they members of community service groups that give back to society? ICE doesn't care. They just want bodies. And the problem is a lot of those bodies are able to be really big contributors to American society through their work and their family life.
If we see over the next four years the flows of immigration decreasing and deportations increasing, we should expect to see inflationary effects.
HR: Thanks for chatting.