Historic Decline in Immigration Creates Surprising Labor Market Balance but Threatens Long‑Term Growth: Challenges and Strategic Responses for Employers

Understanding the Current Immigration Shift

Amid an unprecedented decline in net immigration, the U.S. labor market finds itself in a delicate and increasingly unstable equilibrium. Federal Reserve Chair Jerome Powell recently described this as “a curious kind of balance”: demand for workers is cooling, yet unemployment remains low—thanks to a sharp decline in labor force growth driven by a drop in immigration. (wsj.com)

Historically, immigration has fueled both population and labor force growth, particularly during periods when U.S. fertility rates are low and baby boomers are retiring. But the U.S. could see net immigration turn negative in 2025 for the first time in decades, owing to restricted border crossings, increased deportations, and a less hospitable policy environment. (wsj.com)

Short-Term Labor Balance Masks Long-Term Risk

In the short term, this shift has had a stabilizing effect, maintaining low unemployment rates even as labor demand softens. But economists warn that the long‑term consequences are more concerning. With minimal immigration, the economy may be limited to adding just 24,000 new non‑farm jobs per month—far below the approximate average of 155,000 jobs from 2015 to 2024. (wsj.com)

Recent job data reinforces this risk: from May to July 2025, payrolls increased by only 106,000—about 35,000 per month—the weakest three-month stretch since the COVID‑19 pandemic. In July alone, just 73,000 jobs were added—below expectations—with downward revisions for May and June. Unemployment crept up to 4.2%, and long‑term unemployment rose. Industries reliant on immigrant labor, such as landscaping, agriculture, and construction, have been particularly hard hit—exacerbated by immigration raids and border constraints. (wsj.com)

Workforce Equity vs. Economic Stability

The current imbalance exposes essential sectors to labor shortages and potential recession risk. Employers must now navigate legal pathways to stabilize their labor supply while addressing public policy concerns.

Legal Strategies to Bolster Labor Supply

Temporary worker programs like the H‑2A agricultural visa remain too narrow for the year‑round needs of many industries. A growing number of policymakers, including conservative lawmakers, are now pushing for legalization or temporary protection for certain undocumented workers to fill vital economic roles, especially in agriculture. (wsj.com)

Employer Imperatives in a Tight Labor Environment

Employers should consider the following legal strategies to manage the growing risk of labor scarcity:

• Conduct workforce audits and ensure immigration compliance to avoid enforcement actions

• Utilize E‑Verify and prepare for audits and site visits

• Evaluate eligibility for temporary or employment-based green card sponsorships

• Support collective advocacy efforts for broader visa reform or legalization programs

Strategic Action Is Critical to Prevent Workforce Crisis

The dramatic decline in net immigration—potentially turning negative in 2025—is creating a short-term labor balance but poses a significant long‑term threat to economic dynamism. Employers and policymakers must adapt with innovative legal solutions to sustain and grow the U.S. workforce responsibly. Spar & Bernstein stands ready to guide employers through this complex landscape, turning challenges into strategic, forward‑thinking opportunities.