📊 Key Insights from the San Francisco Fed's Latest Research
The United States labor market has experienced noticeable shifts in recent years, with job growth slowing considerably after a period of robust expansion. A newly released economic letter from the Federal Reserve Bank of San Francisco (SF Fed), titled "Unauthorized Immigration Effects on Local Labor Markets," sheds light on a critical factor driving this trend: the sharp decline in unauthorized immigrant worker flows. Authored by Daniel Wilson, Vice President at the SF Fed's Economic Research Department, and Xiaoqing Zhou, Assistant Vice President at the Federal Reserve Bank of Dallas's Research Department, the paper was published on February 17, 2026.
This analysis links changes in unauthorized immigration directly to local employment patterns across U.S. commuting zones—geographic areas defined by high inter-county commuting that represent functional labor markets. The researchers find a nearly one-for-one causal relationship between unauthorized immigrant worker flows (UIWF) and total employment growth. During the rapid rise in immigration from March 2021 to March 2024, areas with higher inflows saw corresponding employment gains. Conversely, the slowdown from March 2024 to March 2025 led to proportional job losses, particularly hitting sectors like construction and manufacturing hardest.
Understanding unauthorized immigrant worker flows involves recognizing that these are net entries minus exits of individuals entering without formal immigration admission, adjusted for likely employment using a 70% historical rate from the American Community Survey (ACS) data for immigrants from high-encounter countries. This adjustment ensures the focus remains on workers contributing to the labor force, excluding dependents or non-workers.
The study's implications extend beyond immediate job numbers, touching on housing supply, wage dynamics, and overall economic momentum. As U.S. policymakers navigate immigration reforms under the current administration, these findings highlight the intricate balance between border security goals and labor market needs.
Recent Trends in Unauthorized Immigration and Their Timeline
Unauthorized immigration to the U.S. surged beginning in early 2021, coinciding with post-pandemic recovery and global migration pressures. Data from immigration court records managed by the Transactional Records Access Clearinghouse (TRAC) show this period marked record-high net inflows, peaking around early 2024. However, starting in March 2024, flows decelerated dramatically—a trend that intensified through mid-2025.
Several factors contributed to this reversal, including heightened border enforcement, policy changes under the Biden administration's late-term adjustments, and anticipation of stricter measures following the 2024 election. By 2025, U.S. nonfarm payroll growth plummeted to just 181,000 jobs added annually, down sharply from 1.459 million in 2024, according to Bureau of Labor Statistics (BLS) revisions.
These shifts are not uniform nationwide. Commuting zones near southern borders or with historical immigrant settlement patterns, like those in Texas and California, experienced the most volatility. For instance, zones with larger shares of past immigrants from countries like Honduras or Nicaragua saw predicted inflows based on settlement propensities, which closely mirrored actual data.
- Rise phase (2021-2024): UIWF boosted labor supply amid high demand.
- Slowdown phase (2024-2025): Net outflows reduced available workers, exacerbating shortages.
This timeline underscores how immigration acts as a shock absorber for the U.S. economy, filling gaps in growing sectors during booms and straining recovery when inflows halt.
🔬 The Methodology: Rigorous Analysis of Causal Links
To establish causality rather than mere correlation, the SF Fed researchers employed an instrumental variable approach drawn from seminal studies like David Card's 2001 work on the Mariel Boatlift and Albert Saiz's 2007 analysis of immigration and housing. They constructed predicted UIWF for each commuting zone using national net unauthorized immigration by country of origin, weighted by each area's historical share of immigrants from that country.
For example, if 10% of past Honduran unauthorized immigrants settled in a specific zone and the U.S. sees 100,000 net Honduran inflows in a period, that zone's predicted inflow is 10,000. Aggregating across countries yields a supply-driven instrument uncorrelated with local demand shocks, isolating immigration's direct labor supply effect.
Regression results confirm robustness:
| Period | UIWF Effect on Employment (%) | Standard Error |
|---|---|---|
| Rapid Rise (2021-2024) | 0.92 | 0.17 |
| Slowdown (2024-2025) | 1.16 | 0.49 |
Industry-level extensions use Census Bureau's Quarterly Census of Employment and Wages (QCEW) data, comparing actual employment shifts to expected shares (2015-2019 averages). Deviations reveal disproportionate effects, validated across private nonfarm sectors covering nearly all jobs.
This method accounts for reverse causality—strong local economies attracting immigrants—and nets out indirect effects like demand multipliers (immigrants spending wages locally) or native crowd-out, which appear to balance.
Photo by Ernie Journeys on Unsplash
🏗️ Deep Dive: Construction Sector Bears the Brunt
Construction stands out as the most affected industry during the immigration slowdown. SF Fed estimates show employment reductions far exceeding the sector's national share, potentially slowing residential building activity and constraining housing supply growth—a critical issue amid ongoing affordability crises.
Immigrants, including unauthorized workers, comprise about 25-30% of the U.S. construction workforce, per National Association of Home Builders (NAHB) reports. They often fill labor-intensive roles like framing, roofing, and drywall installation, which native-born workers have increasingly shied away from due to physical demands, weather exposure, and modest wages averaging $25-35/hour for entry-level positions.
During the rise period, UIWF disproportionately boosted construction jobs in high-growth areas like Texas suburbs and Florida developments. The reversal has led to project delays, higher labor costs (up 10-15% in some markets), and stalled multifamily housing starts. For context, residential construction permits fell 5-7% year-over-year in late 2025, partly attributable to workforce shortages.
Local examples abound: In Riverside County, California—a commuting zone with heavy past Central American settlement—construction employment growth flipped from +4% to -2.5% post-slowdown. Policymakers must consider targeted visa expansions, like H-2B for seasonal construction, or vocational training programs to upskill natives. Read the full SF Fed paper for charts detailing these shifts.
🔧 Manufacturing: Vulnerabilities Exposed in Key Industries
Manufacturing employment also suffered outsized declines, with UIWF slowdowns reducing jobs beyond proportional expectations. This sector relies on immigrants for assembly-line work, machine operation, and warehousing—tasks requiring reliability and willingness for shift work.
Foreign-born workers make up 20-25% of manufacturing roles, concentrated in food processing, textiles, and auto parts. The SF Fed's industry panel (Panel B, slowdown period) shows significant negative coefficients for manufacturing, correlating with national payroll revisions downward by hundreds of thousands.
- Auto manufacturing in Michigan zones: Growth stalled amid parts shortages and unfilled shifts.
- Food processing in Midwest hubs: Overtime reliance increased, pushing costs up 8%.
- Electronics assembly in California: Export competitiveness waned due to delays.
Broader ripple effects include supply chain bottlenecks, as reduced labor hampers production ramps. Solutions like apprenticeship incentives or community college partnerships could bridge gaps, drawing from models in states like Ohio and Georgia.
💼 Broader Implications for the U.S. Economy and Labor Force
The SF Fed's findings ripple across the economy. Official BLS data accurately capture unauthorized contributions, implying no hidden multipliers or displacements dominating. Native-born employment shows muted responses, suggesting immigrants complement rather than substitute in low-skill sectors.
Macroeconomic forecasts now incorporate slower labor force growth, potentially trimming GDP by 0.5-1% annually if trends persist, per Brookings analyses. Housing supply constraints from construction woes could elevate rents 3-5% in metros. Wage pressures may ease for low-skill natives short-term but risk inflation in services.
In higher education, indirect effects emerge: Universities managing construction for expansions face delays, while broader slowdowns impact enrollment from economic uncertainty. Yet, academic sectors remain resilient, offering stable paths for skilled workers exploring higher ed jobs in research or administration.
QCEW data portal provides granular insights for further exploration.
🛠️ Policy Perspectives: Balancing Security and Growth
Unbiased assessment reveals trade-offs. Reduced unauthorized immigration advances enforcement goals, potentially benefiting low-wage natives via less competition. However, it underscores needs for legal pathways: Expand H-1B, H-2A/B visas; streamline work permits; invest in workforce development.
- Short-term: Temporary protected status extensions for key nationalities.
- Medium-term: Bipartisan reforms increasing green cards for essential workers.
- Long-term: E-Verify paired with guest worker programs to match supply-demand.
Positive solutions emphasize upskilling: Federal grants for construction academies, manufacturing apprenticeships via community colleges. States like Texas exemplify success with dual-training models boosting native participation 15%.
For professionals navigating shifts, resources like higher ed career advice offer strategies amid volatility.
📈 Looking Ahead: Opportunities in a Shifting Landscape
As employment dynamics evolve, proactive adaptation is key. While construction and manufacturing grapple with shortages, resilient sectors like higher education continue hiring for faculty, research, and administrative roles. Explore openings at faculty jobs, research positions, or university jobs to secure stable careers.
Share your professor experiences on Rate My Professor or leverage higher ed jobs for transitions. AcademicJobs.com positions itself as your go-to for informed insights and opportunities in this complex environment.