Immigration fall from 2 million to 515,000 may shrink US labour force: Fed

New San Francisco Fed research warns that a steep fall in net migration this year may leave the United States with a slower-growing or even contracting labour force, adding to economic uncertainty

A sharp fall in immigration could leave the United States with a slower-growing, or even shrinking, labour force in the coming years, according to new research from the Federal Reserve Bank of San Francisco.

 

Researchers Evgeniya A Duzhak and Addie New-Schmidt said net migration “fell sharply” this year to about 515,000 people, down from nearly 2 million in 2024. Their analysis, published on Wednesday, pointed to fewer undocumented arrivals and “somewhat higher” emigration. They also estimated about 285,000 inland deportations this year.

 

“The implied decline in 2025 raises concerns that declines in the working-age population may be persistent and could lead to low or even negative labor force growth in the coming years,” they wrote.

 

What did the San Francisco Fed find?

 

The review said the US working-age population would likely have started shrinking as early as 2012 without immigration. Birth-rate patterns show the number of native-born Americans turning 16 each year will keep falling until 2040. At the same time, ageing baby boomers are steadily pushing up the numbers moving into retirement.

 

These demographic shifts reduce the pool of potential workers. They also reduce consumer demand, as fewer people participate in day-to-day economic activity.

 

The researchers said the combination of falling immigration and a slowing working-age population carries broad consequences. They noted that lower immigration “could help reduce high core services inflation”.

 

Why is there debate over labour shortages in US?

 

President Donald Trump’s stricter enforcement measures, including more aggressive deportations, have made it harder for economists to determine the precise impact on hiring trends. Sparse data on enforcement and delays in official reports due to the ongoing government shutdown have added to the uncertainty.

 

There is an active debate in the US over how much of the hiring slowdown this year can be linked to reduced immigration rather than weaker consumer demand.

 

What has Trump said about skills shortages in US?

 

The research arrives at a time when Trump has publicly acknowledged gaps in the domestic workforce. Earlier this month, he defended the H-1B visa programme, saying the country needs specialist talent from abroad.

 

“I agree but you also do have to bring in talent,” said Trump in an interview with Laura Ingraham on Fox News.

 

When Ingraham argued that “we have plenty of talent”, Trump responded, “No, you don't, no you don't. You don't have certain talents. And people have to learn. You can't take people off an unemployment line, and say, ‘I'm going to put you into a factory, we're going to make missiles.’”

 

The Trump administration has rolled out a wide crackdown on illegal immigration. Some of the President’s supporters have pushed for tighter controls on the H-1B programme as well, alleging fraud and claiming it displaces American workers.