Having Your Cake and Eating It Too

April 8, 2024

The labor market continues to exhibit amazing strength and resilience. The U.S. economy added 300,000+ jobs in March and, historically, that would suggest continued inflationary pressures. ¹

One might even conclude interest rates are a long way from being cut due to such a strong jobs market. Historically, wages spike in order for companies to attract workers, but wage growth continues to moderate. ²

Something unusual is taking place within the labor market and the supply of workers.

First, much of the growth in the jobs market continues to be in healthcare and government. We all know those two giant bureaucracies will always consume workers. ³

In fact, if you removed those two sectors you might have a much more normalized labor market. Other industry segments are growing at a much more modest pace. ⁴

Another contributing factor to moderating wages in a tight labor market might be the growth in part-time workers. In fact, part-time workers have been expanding at a record pace, while full-time workers have been in decline recently. ⁵

We all know we have an illegal immigration problem at our border. Believe it or not, undocumented workers can apply for a work permit while their immigration status is being adjudicated. Undocumented workers who enter the country seeking asylum can be paroled into the U.S. and await trial. This can take years. And in the meantime, they could get an employment authorization document (EAD)and start working. An EAD is very difficult to get according to my sources, but it’s possible. In lieu of that, they can simply start working with illegal documentation.

Foreign-born workers, both legal and illegal, provide a tremendous supply of labor. ⁶

That’s right, 3 million foreign-born workers have been added to the labor force vs. a decline of 1.3 million for native-born workers. This might be the biggest gap that no one is talking about when it comes to an increasing supply of labor and moderating wages.

Visa issuance is up, and apprehensions at our southern border have surpassed 2 million for the second year in a row. ⁷ ⁸

As a percentage of the overall population, foreign workers are a large part of the picture and, frankly, a major reason why we have moderating wages and inflation. ⁹

Labor supply – both legal and illegal – might be one of the main contributors to a robust economy with full employment and moderating wages. Don’t misunderstand me. Illegal is illegal when it comes to the laws of the land. However, immigration might be the key to Americans “having our cake” in the form of full employment and “eating it too” in the form of lower wage inflation.

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Tim Phillips, CEO, Phillips & Company

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