America's Secret Labor Force

Illegal immigration to the rescue

In recent years, the jobless rate has fallen to levels not seen in decades, and the ranks of the unemployed and of those who are out of the labor force but would like to work have declined sharply. Yet payroll job growth remains healthy, and wage pressures stay restrained. Can the good times last?

Many experts, including those at the Federal Reserve, are dubious--fearing that labor shortages could spark a resurgence of inflation unless economic growth is reined in. But economists at Credit Suisse First Boston are not so sure. A critical safety valve, which many people seem to be ignoring, they believe, is the growing supply of foreign workers--especially illegal immigrants attracted by America's economic boom.

One sign of the times is the drop in political opposition to immigration. Both Republicans and Democrats favor letting more foreign skilled workers into the country. The AFL-CIO has called for the repeal of laws penalizing employers who hire illegal immigrants. And government agencies have begun enforcing illegals' rights in the workplace.

With U.S. job creation running about 3 million a year recently, Credit Suisse figures that close to half of those new workers have come from indigenous labor-force growth and another 350,000 or so from a decline in the ranks of the unemployed. The rest, it argues, have presumably come from immigration.

Official estimates put total immigration in recent years, including children and oldsters, at about 700,000 legal immigrants and 275,000 illegals. But Credit Suisse's economists think the real number of illegals has been rising sharply--to as many as 600,000 last year.

As evidence, they cite the growing disparity between the estimates of private-sector wage earners provided by the government's two employment measures (chart). Since 1995, as employment has surged higher, the gap between the payroll survey's job count and the household survey's count has widened by some 3.5 million. Much of this, says Neal Soss of Credit Suisse, "probably reflects illegal immigration."

Soss and his colleagues note that the payroll survey is based on company employment records, which would include illegals who are using false ID. But the household survey is based on interviews of workers, who would be unlikely to cooperate if they were here illegally. Thus, it's no surprise that the payroll survey shows stronger job growth.

What rising immigration, both legal and illegal, implies, of course, is that foreign workers are playing a key role in the New Economy--helping to lessen wage pressures even as the jobless rate hits new lows. Indeed, this added labor supply is itself a New Economy phenomenon--as plunging costs have made it easier for U.S. residents to phone friends or relatives abroad about job opportunities in the states.

"The giant sucking sound across U.S. borders," says Soss, "is coming from Mexicans and other foreigners being drawn to the booming U.S. economy."