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Fitch says immigration has helped fire up the U.S. economy and labor market, but there's also a risk of oversupply
Fitch says the influx of immigrants into the U.S. has supported the burgeoning job market, but ultimately this may be too much of a good thing.
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Foreign-born workers are leading the growth of the U.S. labor force, says Fitch Ratings.
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But Fitch warns that cooler demand for labor could lead to an oversupply in the market.
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Employment growth in the government sector is also driving the labor market.
After another blowout jobs report in March, the U.S. labor force growth momentum appears to be stuck in high gear.
But Fitch Ratings reported Thursday that a simple explanation could lie in U.S. immigration trends, as a surge in foreign-born workers is fueling labor force expansion.
"The growth of the U.S. labor force after the Pandemic was largely driven by foreign-born workers, who accounted for 19% of the U.S. workforce in FY2023, up from 17% in FY19," the ratings agency writes. "The rate of foreign-born labor force participation was The foreign-born labor force participation rate is 661 TP3T, higher than the native-born rate of 621 TP3T.
These figures are due to the fact that net migration as a share of the U.S. population averaged 0.91 TP3T over the past two years, exceeding the estimate of 0.31 TP3T.
However, while the increase in immigration will continue the momentum of the labor force into this year, Fitch also cautioned that it could lead to an oversupply.
This is because demand for labor is starting to weaken. According to Wall Street analysts, this includes an increase in layoff announcements, a lack of full-time jobs, and a sharp drop in corporate hiring.
Fitch says that despite this, the contribution of immigrants to the labor force has been a strong driver of economic growth, which is consistent with previous research.
For example, Goldman Sachs raised its GDP outlook for 2024 due to the surge in labor, and JPMorgan and Morgan Stanley highlighted the positive impact of immigration on the United States.
In a separate report released Thursday, Fitch also cited the second biggest source driving strong growth in the labor market: government hiring.
In its report, the ratings firm noted that employment in the sector will grow at an average annual rate of 2.7% in 2023, the highest year-on-year growth rate since 1990. As employment in the government sector continues to lag behind the private sector, it is unlikely to slow down at this time.
"Post-disaster recovery in government payrolls will not begin until much later in 2021, as most government education institutions will maintain only remote systems with minimal staff throughout 2020," Olu Sonola, head of U.S. economic research, said in the report.
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