Migration Shocks as Labor Supply Constraints: The Inflationary Consequences of Restricted Workforce Flows

• In Event: Migration as a Labor Market Force: Global Patterns and Local Consequences

Abstract

During the COVID-19 pandemic, the United States experienced one of the sharpest and most persistent inflationary episodes in decades. While supply chain disruptions, surging consumer demand, and expansionary monetary and fiscal policy have been widely recognized as key contributors, this paper investigates an understudied but potentially important factor: the role of immigration restrictions in exacerbating labor shortages and fueling price pressures. Between 2020 and 2021, a series of public health orders, travel bans, and administrative slowdowns resulted in an estimated shortfall of 1.6 to 2 million foreign-born workers relative to pre-pandemic trends. These disruptions had significant sectoral and regional implications, particularly for labor markets that were heavily reliant on immigrant labor.

This study examines whether pandemic-era immigration restrictions contributed to inflation during the recovery period through their effects on labor market tightness and production costs. I begin by documenting regional and industry variation in immigrant labor dependence prior to the pandemic. I then leverage the severity of immigration slowdowns across origin countries to construct a measure of local labor supply shocks based on historical immigrant settlement patterns and country-specific disruptions to migration flows.

Combining these data with publicly available regional inflation measures, I estimate the causal impact of immigration-induced labor shortages on consumer price growth. Preliminary results show that areas and industries more exposed to the immigration shortfall experienced significantly higher inflation during the recovery period. To validate these findings, I examine the impact of the immigration restrictions on measures of job market tightness and find that employers in areas that experienced a sharper decline in the arrival of foreign-born workers had a harder time filling open positions.

This study contributes to several strands of economic research. First, it adds to the growing literature on the causes of the post-pandemic inflation surge by highlighting labor supply constraints as a key channel. Second, it underscores the macroeconomic significance of immigration flows, positioning immigration policy as a potential lever for mitigating supply-side inflation. Third, it advances our understanding of how local labor market conditions translate into broader price dynamics in a highly integrated national economy. As policymakers continue to grapple with the causes and consequences of inflation, recognizing the labor market effects of migration policy will be critical for developing resilient and responsive economic strategies.

Author

• Jose Bucheli, University of Texas - El Paso
  Presenting Author