Immigration, Labor Shortages, and Labor Market Dynamics

Federico Mandelman, Yang Yu and Francesco Zanetti

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Immigration has become a central driver of U.S. labor force growth. We document new empirical findings that shed light on the relationships between immigration, labor shortages, wage growth, and job openings during the high-immigration period of 2021-2024. The textbook search-and-matching model implies highly counterfactual labor market dynamics: it predicts that a surge in immigration lowers hiring costs and stimulates vacancy posting, leaving labor market tightness and wages largely unchanged. This prediction contradicts the data, which shows a negative correlation between immigration and vacancy growth. To reconcile the evidence, we extend the framework to incorporate complementarities between native and immigrant workers together with a Leontief-type production technology that generates labor shortages similar to those observed in the post-pandemic period. In this environment, immigration alleviates these shortages by helping fill vacancies and dampening wage growth, consistent with the data.

Keywords: immigration; labor shortages; search-and-matching models (search for similar items in EconPapers)
JEL-codes: E24 E32 F22 J63 J64 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2026-03
New Economics Papers: this item is included in nep-dge and nep-mig
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https://crawford.anu.edu.au/sites/default/files/20 ... elman_Yu_Zanetti.pdf (application/pdf)

Related works:
Working Paper: Immigration, Labor Shortages, and Labor Market Dynamics (2026)
Working Paper: Immigration, Labor Shortages, and Labor Market Dynamics (2026)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2026-18

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