Immigration and unemployment

Rob Armstrong (0:09)

Last week at his big press conference, Jay Powell, chair of the Federal Reserve, was asked about the number of jobs being created in the United States. It's around 100,000 a month. In theory, that is below replacement rate, meaning that it suggests that unemployment will be rising. He said this, it depends on the inflows. If you're having millions of people come into the labor force and you're creating 100,000 jobs, you're going to see unemployment go up. Today on the show, immigration, the labor market, the Fed and the economy. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong. I'm coming to you from Unhedged World Headquarters in beautiful New York City, where I'm joined by Aiden Reiter. Good morning. Who is my colleague on writing the Unhedged newsletter. Aiden, is Powell right that part of the reason or a lot of the reason that the unemployment rate is going up is that we have a lot of people coming into the country from the outside?

Aiden Reiter (1:22)

So he's directionally right, but it might be a bit of an overstatement.

Rob Armstrong (1:26)

Yes. On Wall Street, directionally right is how we say wrong, I think. So you agree basically?

Aiden Reiter (1:33)

Basically, yes.

Rob Armstrong (1:34)

Okay.

Aiden Reiter (1:35)

But we talked to some really smart people.

Rob Armstrong (1:36)

Okay, but it seems like, wait, let's not get to the smart people. Let's just have the two stupid people in this room talk for a second. The unemployment rate is a fraction. It's the number of people who are unemployed divided by the number of people in the workforce.

Aiden Reiter (1:50)

So the equation for unemployment is people in the economy who are searching for a job and cannot find a job, and that has its own weird quirks because, say, you don't have a job because you gave up looking, you might not be included. But yeah, so it's people looking for a job who don't have a job.

Rob Armstrong (2:05)

Divided by?

Aiden Reiter (2:06)

Divided by the entire working age population, which is around 170 million.

Rob Armstrong (2:12)

Powell's point seems quite straightforward. People come in the country, workforce gets bigger, denominator gets larger, unemployment rate goes up. Yes. What's so hard?

Aiden Reiter (2:24)

That's technically right, but they're not just in the denominator. So a lot of migrants come into this country, get jobs and they work. So if they are increasing the unemployment rate, it's probably only by a little bit.

Rob Armstrong (2:35)

Okay, I'm with you that far. And is it possible they also increase demand, which makes other people get hired? Is that part of the equation? They come in and they buy tons of stuff.

Aiden Reiter (2:47)

They're coming in, they're buying food, they're going to the grocery store, they're going to restaurants.

Rob Armstrong (2:51)

Those people need to be served.

Aiden Reiter (2:52)

Exactly. So yes, they also increase aggregate demand and aggregate goods in the economy.

Rob Armstrong (2:56)

I think this is why in general, economists tend to be positive on immigration, at least in the case of the United States. Cheap labor in a tightish labor market is a good thing, and more demand is a good thing. So it's positive. But I want to get in the weeds a bit on this because we now have to measure three things that are complicated to measure. At least three. Let's start with, how many people are coming into the country? We need to measure that.

Then we need to measure how many of them are employed and how many of them are unemployed. And then we need to measure everybody else so that we know what the context is. Can we measure these things very accurately?

Aiden Reiter (3:38)

Well, it's a pretty tough task. Undocumented immigrants are undocumented by their very nature.

Rob Armstrong (3:44)

Yes.

Aiden Reiter (3:44)

Right? So it's hard to get a big picture and a good picture of how many people are coming across the border and how they're working and what they're doing in the economy.

Rob Armstrong (3:52)

Yes.

Aiden Reiter (3:52)

But we have some pretty good estimates that we can use for some of those questions you asked.

Rob Armstrong (3:56)

Okay. Give me one of them.

Aiden Reiter (3:58)

Again, this is backwards looking data, but the congressional Budget Office had projected there to be one million new migrants in 2023, back when they did their demographic outlook in 2019

Rob Armstrong (4:09)

Right.

Aiden Reiter (4:10)

They upgraded that number to 3.3 million last year.

Rob Armstrong (4:14)

Yes.