Asylum Seekers Bring Better Prospects for Inflation | Mercatus Policy Digest

Earlier this month, markets and pundits did a double-take when the number of workers added to January payrolls spiked to 517,000, and for good reason. Average growth for the preceding 12 months already stood at a much-lower but still-strong 401,000; most analysts, including faithful Fed followers, had reasonably predicted fewer new gains. Immediately, financial markets trembled from fear. With this aspect of the economy still running hot,would the Fed revise its recent guidance and hit the interest-rate brakes harder and longer? Chair Powell later indicated as much.

Those who focus more on labor markets simply wondered where on earth the surge of workers had come from. But getting to the bottom of it has implications for both jobs and for inflation.

It was understood that a large number of senior workers had vacated the U.S. job market during COVID’s heydays and not yet returned, and that labor-force participation as a share of the work-age population had fallen. Had the situation changed suddenly? Or could the workers have come from the Mexican border?

More specifically, were we seeing the effects of the surging number of work-age asylum seekers crossing the border with Mexico? After all, monthly Border Patrol encounters with migrants rose from just 16,182 in April 2020 to more than 200,000 in November 2022. In fiscal year 2022, the total was 2.76 million. Many of these migrants were adult asylum seekers who, after petitioning, can apply for a government-issued, two-year Employment Authorization Document (EAD)—a work permit. Once in hand, the work permit can be extended for another 250 days.

Taking a look at recent data, I find that there were 31,800 permits approved in November 2022, 37,200 in October, 33,800 in September, and 34,800 in August. At the current pace, more than 300,000 additional hopefuls will enter the job market this calendar year.

And what kind of jobs will these workers land? With temporary work permits, it is unlikely that firms will hire them if a good bit of on-the-job training is required. After all, any firm would hope to recover its training cost by way of future production. Then, there are license and certification requirements that stand in the way of getting a job in a large number of occupations. Reason suggests that many of the newly documented workers will be employed in lower-paying jobs in the services sector, for example in leisure and hospitality. It turns out that leisure and hospitality added 128,000 jobs in January, compared with an average of 89,000 jobs per month in 2022.

While these data may be persuasive, we get another picture of the situation in the nearby chart. Here we see year-over-year growth in employment for native-born American workers in red and for foreign-born workers in blue.

As can easily be seen, the growth rate for foreign-born workers accelerated in mid-2020 and then surpassed the native-born growth rate in March 2021. After that, growth in foreign-born employment substantially outstrips native-born employment, though by a narrowed margin. Part of this acceleration must be related to actions taken by asylum seekers.

In his commentary on the economy, the late professor Julian Simon referred to human beings as the ultimate resource. He reasoned that people are wealth producers and those societies that attract more workers will flourish. While there may be lots of important issues surrounding U.S. immigration policy and much debate about how to handle border issues to come, one thing is certain: When more work-age people show up on our shores and enter the labor force, all else equal, U.S. output accelerates and inflation falls.

We have a ways to go, but Chairman Powell and other inflation worriers do not need to take the news too poorly. There are reasons to rest a little bit easier.

-- Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson College of Business and Behavioral Sciences, and a former executive director of the Federal Trade Commission.