The deportation economy is backfiring on American workers, top economist warns

The economy lost 23,000 jobs last month, yet the unemployment rate went down as the workforce shrank. America’s emerging deportation economy may account for the riddle. 

For example, healthcare has been the pillar holding up a weak labor market for the past three years, but in July, the sector added just 22,000 jobs, well below its 36,000 average monthly gain for the year prior. Social assistance, like daycare or services for the elderly and disabled, also slowed.

Those are the sectors “dominated by immigrant labor,” Diane Swonk, chief economist at KPMG, told Fortune. In 2022, 28% of direct care workers in the U.S. were immigrants, up from 21% in 2011, according to PHI, a research organization that studies the direct care workforce.

And as the aging population grows, the industry needs to fill nearly a million new positions over the next decade.

Those are precisely the jobs held by many of the roughly 200,000 people whose temporary protective status was terminated at the end of July, Swonk noted, adding that 400,000 more Venezuelan workers concentrated in nursing homes, hospitality, and construction are also set to lose their work authorization in October.

The timing could hardly be worse: the labor shock is colliding with state-level cuts to Medicaid, the largest payer for long-term care.

“Even as some employers lose those workers, we’re not going to be able to afford to replace them at the wages necessary,” Swonk warned. “That means rationing, or more people doing unpaid care at home.”

That unpaid care is where the cost transfers onto native-born workers. Family caregivers already provide an estimated $1 trillion worth of unpaid care annually, with 59 million Americans putting in an average of 27 hours a week, the labor equivalent of roughly 24 million full-time workers, according to AARP’s most recent “Valuing the Invaluable” report.

Swonk said that burden is climbing fast and broadening, noting unpaid elder care “has gone up quite dramatically, and it’s in every single profession.”

Fewer paid caregivers mean more Americans stayed home to provide care themselves, shrinking the labor force further without ever registering as unemployed. “If they’re not participating,” Swonk explained, “they won’t be counted as unemployed either.” Hence the lower unemployment number.

Bill Adams, chief U.S. economist at Fifth Third Bank, saw the same dynamic: an unemployment rate falling “for the wrong reason.” “Immigration compensated for the aging of the workforce in the first few years of the post-pandemic expansion, but that’s not happening anymore,” he wrote.

Even outside of the care economy, the evidence is piling up that native-born workers aren’t filling in the jobs of immigrants.

Immigrants make up 26.3% of the U.S. construction workforce — and roughly one in three tradespeople — according to an analysis of Census data by the National Association of Home Builders.

If a contractor loses enough workers to delay a project, the demand for everyone else on that project can fall with them.

There is evidence that this is already happening. New research by economists Chloe East and Elizabeth Cox examining the surge in immigration enforcement in Trump’s second term found that areas experiencing larger increases in ICE arrests saw employment fall among likely undocumented immigrants. 

But U.S.-born workers didn’t fill the gap. Instead, they lost ground too: for every six male undocumented workers pushed out of the labor market, one U.S.-born male worker also lost employment, the researchers found. The damage was worst in construction, where employment among U.S.-born men with a high school degree or less fell 3% after ICE surges.

“Foreign-born and native-born workers complement rather than purely substitute for each other,” Swonk said. “They affect the entire ecosystems of regional economies.”