In the Recent Fed Review of the Differential Recovery in the US Compared to the Eurozone, UK and CanadaI was surprised that immigration didn’t make a bigger appearance, given my views.
THE K.C. Fed just provided insight into how immigration has contributed to increasing labor market underutilization (h/t Torsten Slok).
Source: Cohen/KC Fed (2024).
Deutsche Bank attempted to assess the impact of immigration on inflation using a counterfactual.
Jim Reid of DB writes:
The conclusion (from Justin Weidner’s article): the labor market would have been considerably tighter without the increase in immigration. A tighter labor market in the absence of immigration would have led to higher inflation. Using two inflation models, our economists estimate that core PCE inflation would likely have been 25 to 50 basis points higher (see second chart below), although they admit significant uncertainty around of these estimates. Immigration clearly hasn’t been the only disinflationary force for the U.S. economy over the past year—granted, core PCE inflation fell 200 basis points in 2023—but it has been a important factor.
For an earlier discussion of labor dynamics and immigration, see Edelberg and Watson (March 2024)and longer-term implications in CBO (2024).
