U.S. Immigration Policy Lags behind a Globalizing World

The immigration that the United States has permitted (or failed to prevent) is the only reason the labor force is not yet declining. While the United States has dithered for decades about how best to address immigration and its labor force needs, many other countries have opened their doors to new arrivals and are now surpassing the United States in attracting immigrants from across the skills spectrum. Whether scientists or home health aides, other countries are now offering better options for immigrant workers.

Border crossings are illustrative not of America’s openness toward immigration but of its closed system. Because so few opportunities exist for legal migration, more people come to the border as the only way to enter the country. With global displacement surpassing the unprecedented threshold of 100 million last year, migration is inevitable. But policymakers must now consider the framework in which that migration takes place, and the best way to harness the economic potential of immigration is through an expansive legal immigration system.

Congress has not reformed the U.S. legal immigration system in more than three decades. While the United States has maintained its stilted and outdated system, other countries have not stood still. Both the number of immigrants and the share of immigrants attracted to the United States fell from the early 1990s to the late 2010s (Figure 1). From 1990 to 1995, the so-called nation of immigrants accounted for 63 percent of the growth in the worldwide immigrant population (5.2 million out of 8.3 million). From 2015 to 2020, that share fell to just 7.5 percent (2.4 million of 32.6 million). In the early 1990s, the trope that the United States welcomed more immigrants than the rest of the world combined had some legitimacy, but not anymore.

The United States annually provides legal permanent residence to more immigrants than any other single country in absolute terms, but the United States is the third most populous country in the world. On a per capita basis, the U.S. foreign-born population ranked 56th out of the 213 countries for which the United Nations collected data in 2020. Moreover, it ranked in the bottom third of the 47 countries with a per capita gross domestic product (GDP) of at least $35,000 in 2020, and its ranking would have fallen much further without its abnormally large illegal immigrant population (Figure 2). Only 6 of those 47 countries had a per capita increase in immigrant population that was lower than that of the United States from 2015 to 2020.

The differences are substantial. The gaps between Canada (21.4 percent), New Zealand (28.2 percent), Australia (30.3 percent), and the United States (14.8 percent) equate to tens of millions of fewer U.S. immigrants. This overall quantitative difference is significant by itself, but looking at admissions by skill level is revealing as well. Immigration to some wealthy countries is much more skilled than U.S. immigration. For instance, Canadian immigrants are about twice as likely as U.S. immigrants to have a bachelor’s degree, but because Canada’s total flow of immigration is so much larger, it has allowed about three times more non-college-educated adult immigrants on a per capita basis than the United States has in recent years.

Other measures also show the United States’ decreasing importance in global migration flows. The U.S. share of global tourists has fallen by about a quarter from 2000 to 2019. The U.S. share of international students has also fallen by 19 percent from its peak between 2002 and 2019. The United States is also losing top scientific talent in recent years—mainly to China. According to the Organisation for Economic Co-operation and Development (OECD), the United States had a net negative flow of published scientific authors for the first time in 2021, dropping below the rest of the OECD and China (Figure 3). The U.S. decline was a change from an annual net inflow of more than 4,000 published scientists.

Immigration critics blame immigrants for increased labor competition, which they assert has caused wages to fall. Setting aside their economic theory, recent decades have actually seen far less new labor force competition than decades with less immigration. Instead, labor force growth in the United States has declined substantially from the rate of growth prior to the 1980s when immigration was lower. Immigration is keeping labor force growth from collapsing entirely. In the 1960s—when the immigrant share of the population had reached its lowest point—the labor force grew at an annual rate of 1.7 percent. In the most recent decade, from 2013 to 2022, the rate was 0.6 percent—a decline of 65 percent (Figure 4).

Some immigration critics respond that immigrants are less likely to have college degrees than native-born workers, so lesser-skilled workers have faced more competition from new immigrant workers. This is wrong. First, immigrants overall are about as likely to have a college degree, and second, in most individual years, it has generally not been the case that immigrant workers were less likely to have college degrees than U.S.-born workers. That was a unique phenomenon in the 1990s. In fact, in every decade since 1970—except the 1990s—immigrants were more likely to have a college degree than U.S.-born workers, and the 1990s were the one period when wages rose the most for workers without college degrees.

But this whole debate distracts from the more important point: lesser-skilled U.S. workers are not facing more new labor market competition recently than in the past. From 1992 to 2022, college graduates have accounted for 95 percent of all labor force growth. From 1952 to 1982, noncollege graduates accounted for two-thirds of all labor force growth, meaning that lesser-skilled workers faced far less new labor force competition in the era of higher immigration than previously. The supply-side story about labor force growth and wages is just backwards. The United States needs more workers, not fewer.

Precisely because fewer U.S.-born workers are entering the economy, immigration critics are correct that immigration has never played a more important role in labor force growth than it has today. From 1995 to 2022, immigrants accounted for 49 percent of all civilian labor force growth, and immigrants and their children accounted for 70 percent of total labor force growth (Figure 5). During that time, the civilian labor force grew by nearly 33 million, and immigrants and their children accounted for nearly 23 million of that increase. Numerous occupational categories were even more dependent on immigrants and their children for growth. My analysis of the Current Population Census’s Annual Supplements from 1995 to 2022 indicates that immigrants and their children accounted for, for instance, 77 percent of the growth in physicians and 86 percent of the growth in home health aides. They prevented major declines in workers in several other industries, including agriculture and dentistry.

Immigration skeptics might counter these data by suggesting that native workers would be better off in a U.S. labor force that had fewer immigrant workers. Contrary to the restrictionist narrative, however, American workers benefit from immigrant workers filling needed positions. On average, additional workers produce more than they consume, so they cause economywide prices to fall relative to a world without them. Immigrant workers increase the productivity of firms, creating demand for U.S. workers in complementary positions. Companies respond to more labor availability by investing in more capital, which increases workers’ productivity, preventing any decline in wages or employment. Consistent with the theory, the ratio between capital and labor has been increasing consistently for decades.

Immigrants also allow U.S. workers to shift toward better-paying, English-language-intensive jobs and liberate lesser-skilled U.S. workers from more manually intensive jobs. According to chapter four of The New Americans: Economic, Demographic, and Fiscal Effects of Immigration, immigrant consumption spurs demand for workers throughout the economy, meaning that immigration causes no net decline in employment among U.S. workers. Increasing productivity of firms increases tax revenues that fund transfers to U.S. workers while also increasing the value of retirement savings and investments. Immigrants contribute more in taxes than they receive in benefits, subsidizing transfers to U.S. citizens.

Labor force growth is also essential to economic growth. More workers increase production and innovation and spur businesses to invest in capital. According to an estimate calculated in a 2019 paper, immigrants in 2022 directly accounted for about $3 trillion of the U.S. GDP. Skilled immigrants account for a disproportionate share of innovation, with a 1 percent increase in immigrant college graduates translating into an increase in patents per capita of 9 to 18 percent. Indeed, skilled immigrant workers increase innovation, accounting for as much as 40 percent of total factor productivity growth.

One common retort from immigration skeptics is that although labor force growth has fallen, increased immigration may be unnecessary since so many jobs will be automated and therefore far fewer workers will be required. But this is wrong. Automation increases worker productivity, which allows them to demand higher compensation. Higher compensation finances more consumption. When machines drive down the real price of goods, for instance, consumers can afford to purchase more services, creating jobs there. In the 20th century, this dynamic led to a dramatic swing in employment from manufacturing to services with no increase in the unemployment rate.

Nothing about this situation has changed recently. If artificial intelligence allows more service-sector jobs to be automated, the costs of those services will fall, and more employment will shift into interpersonal services that rely on human-to-human interaction: childcare, health care, education, hospitality, and entertainment. As the U.S. population ages, people will need more home health aides, nurses, and physicians. Naturally, this shift has already begun, and the Bureau of Labor Statistics (BLS) predicts that it will continue. With nearly a million new jobs, home health aides are projected to see the largest increase in employment of any single occupational category.

Nor are the jobs of the future necessarily going to need advanced skills, requiring differentiation between higher- and lesser-skilled immigrant workers. BLS projects that in 2031, a bachelor’s degree or higher will not be required for over 70 percent of U.S. jobs. As the example of home health aides indicates, most jobs that the BLS expects to be created over the next decade are jobs that do not require advanced education. Of course, these jobs may not be created if there are no workers to fill them, and over the past two years, the U.S. labor market has averaged nearly 10 million open jobs per month. In early 2023, job openings were about double the pre-pandemic average across almost every industry.

The United States’ need for workers is not dissipating. The Social Security Administration projects that if labor force growth continues to fall as it has, and given the 2.8 worker-to-beneficiary ratio that the U.S. Social Security system needs so that tax revenue approximately equals benefit payments, the United States will be about 70 million workers short of being able to maintain revenues sufficient to support the current level of benefits. Even if spending should be curtailed regardless, the number highlights the massive shortfall in workers facing the country in the next few decades.

Why is the United States falling behind in attracting immigrants? The basic answer is that the United States has a very restrictive legal immigration system. The basic structure of U.S. immigration policy—which has remained virtually unchanged since the 1960s—permits permanent legal immigration from abroad only by a narrow set of categories:

• the refugee program, in which the government selects which refugees can apply (it took only about 25,000 in 2022—0.02 percent of those refugees recognized by the United Nations);
• the diversity visa lottery, in which the government randomly selects 55,000 qualified lottery entrants and has a selection rate of about 0.2 percent in most years;
• family-based immigration, in which only close relatives of U.S. citizens may be sponsored, and except for spouses, minor children, and parents of adult U.S. citizens, they are capped at 226,000 per year; and
• employment-based immigration, which is capped at 140,000—half of which goes to the worker’s spouses and children—and in which a 1.4 million applicant backlog has developed.

The selection rate in the diversity lottery has fallen about 90 percent since the first worldwide lottery was held in 1995. Meanwhile, the lottery, family, and employment caps were last updated in the Immigration Act of 1990. The family-based caps have spawned a backlog of more than 8 million applicants—up from about 3 million in 1990 (Figure 6).

The only reason legal immigration did not flatline after 1990 is because spouses, minor children, and parents of adult U.S. citizens are exempt from the caps, but for the two decades since 2001, the total number of new legal permanent residents has remained stuck at about a million. This flow contributed just 0.3 percent to the U.S. population annually from 2013 to 2022. This is far below the rates of legal immigration commonly seen in the late 19th and early 20th centuries in the United States when annual new legal immigration exceeded 1 percent of the U.S. population 20 times—the equivalent of more than three million immigrants today.

Because the green card (or permanent) immigration system has become so dysfunctional, the temporary worker programs have become vital lifelines for employers and workers. But again, outdated caps also dictate the numbers. The H‑1B program for workers with at least a bachelor’s degree in a specialty occupation received 780,884 registrations for 85,000 visas in 2023 (Figure 7). The median H‑1B worker has a wage offer of over $100,000—in the top 10 percent of U.S. workers nationwide—meaning that the H‑1B cap is costing the United States tens of billions of dollars in production annually.

Similarly, the H‑2B program for seasonal nonagricultural jobs, such as landscaping, forestry, seafood, and carnivals, has a cap of just 66,000, split equally between the winter and summer seasons. The summer cap has been filled every year since 2015, and the winter cap was also filled the moment visas were made available for fiscal year 2023. The number of job openings certified as unfilled by U.S. workers has exceeded the 33,000-summer cap by threefold in each of the past three years. Although Congress has granted the secretary of the Department of Homeland Security the authority to double the cap each year since 2017, the secretary did not use this authority to the full extent until 2023, but even with the higher cap, the visa numbers were insufficient to meet demand.

Almost every aspect of employer-sponsored immigration is choked with costly and time-consuming bureaucratic hoops. Employers must deal with a half dozen government agencies: the Department of Labor’s (DOL’s) Office of Foreign Labor Certification, U.S. Citizenship and Immigration Services (USCIS), Bureau of Consular Affairs, Customs and Border Protection, and DOL’s Wage and Hour Division—potentially also USCIS’s Fraud and National Security Directorate and Immigration and Customs Enforcement. The standard procedural processing times now exceed three years for an employer-sponsored green card. The risks and legal costs often make it too expensive even to attempt to use these programs. With the caps, it is possible not to even end up with a worker.

With so much demand for workers and such backlogged legal immigration options, it should not surprise anyone that so many people seek to enter the United States illegally. But migration does not simply reflect U.S. policies or economic conditions. The situations in the origin countries can also make U.S. conditions seem much more attractive. First, recent years have seen a significant retreat in freedom worldwide. According to the Cato Institute-Fraser Institute Human Freedom Index, more than 90 percent of the world’s population has lost social and economic freedom since 2007. Moreover, the population of the world is concentrated in the less free countries. More than three‐​quarters of the world’s population live in a country ranked in the bottom half of the Cato-Fraser index. Measures of political freedom have shown similar retreats from liberal democracy.

The United Nations High Commissioner for Refugees reports that the cumulative number of people displaced by government actions surpassed 100 million worldwide in 2022—up from 31 million in 2010 (Figure 8). Given the staggering total, it is no surprise that more immigrants are ending up at the U.S.-Mexico border to request protection or seek opportunity. Rather than seek to tamp down these flows through aggressive enforcement actions, the United States should redirect them into legal channels for entry and residence. Unfortunately, the crisis abroad has not changed U.S. policy, and the share of displaced persons resettled as refugees in the United States (through legal admission from abroad) has plummeted since 1990 (Figure 8).

From a global perspective, immigration’s most important effect is that it massively increases the productivity of immigrants (and their descendants). Higher productivity in destination countries means that immigrants receive much higher wages in their new countries than they do at home. In some cases, workers can make 10 times what they do in their home country for doing the same type of work because U.S. capital investments create more value from the same labor. In fact, the differences are so pronounced that for many countries, virtually the only way people leave poverty is through leaving the country. As a result of the gap between potential and realized productivity, economic models estimate that immigration restrictions are currently halving worldwide GDP.

The massive gains in freedom and wealth from immigration—and the growing population displaced by losses in freedom and security—mean that some level of migration is inevitable. Policymakers should not be surprised to find immigrants showing up at U.S. borders, and policy should not be reactive to these events. Instead, U.S. policy should start from the position that immigrants contribute to the United States and that immigrants willing to undergo simple and straightforward procedures to enter the country legally should be welcomed. A robust legal migration policy would direct migration into legal channels and away from illegal ones.

The United States has not followed the path toward globalization on immigration policy. Congress has failed to update the permanent legal immigration caps for three decades, and the country ranks near the bottom of wealthy countries for immigrants per capita. Migration has moved away from the United States in recent years as other countries have opened up more than the United States has. This phenomenon of low immigration is exacerbating falling labor force growth rates. Labor force growth has plummeted since the 1980s, even as immigration has somewhat risen, and this has harmed U.S. workers whose jobs depend on a broader consumer base and workers in complementary positions.

A better approach would focus on permitting more legal immigration. Caps should not remain static for generations but rather expand with economic conditions and to counteract falling population growth. The executive branch should drop the restrictive interpretations of the statutes Congress has adopted and focus on expanding permissible avenues for legal entry and residence. With ballooning populations of displaced people worldwide and historic labor demand in the United States, the country has a unique opportunity to expand the labor force to meet the needs of its growing economy in the 21st century.