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Feb 13, 2023

I live in the town with the lowest unemployment in America.

Unemployment in Northfield, located south of Minneapolis, is just 1.2%.

Northfield has a population of about 20,000, but is a microcosm of America.

The town has a very diverse economy that spans the gamut from manufacturing to high-tech. It includes two top-ranked private colleges, a vaccine manufacturing facility, a cereal factory, a video-game maker, and is home to a company that made the sun shield which protects the James Webb Space Telescope.

It’s a mixed blessing

But this seemingly happy situation is actually a mixed blessing.

On the one hand it means the economy is thriving. But on the other hand it’s near impossible to fill jobs. Fast food restaurants have become drive-thru only; others have reduced their hours. Nursing homes can’t accept new patients because they lack staff. The situation is unlikely to improve anytime soon. Why? Because Minnesota has a ratio of 3.5 job openings per unemployed person.

It’s a reality repeated across America

Northfield is hardly an outlier in the labor market.

In January, employers added over half-a-million jobs and the unemployment rate dropped to 3.4%, its lowest level since May 1969 – when NASA was preparing for the moon landing.

Even though labor force participation increased­ – with the number of people who are working or looking for work increasing by 871,000 – this is insufficient to fill all the jobs that are open. Job openings increased to 11 million, despite all the layoffs in the tech industry.

Where will the workers come from?

Predictions that the end of the pandemic would result in workers flooding back into the labor force have turned out to be largely wrong.

The number of workers missing due to Covid-19 was overstated because the majority of the decline in the participation rate since the start of the pandemic reflects a continuation of its long-run downward trend.

Men have been withdrawing from the labor force for decades. In the years following World War II, more than 97% of men in their prime working years (ages 25 to 54) were employed or actively looking for work. That changed in the 1960s and the rate has never recovered. The trend among women had been increasing participation for decades, but that too has reversed.

Immigration is the only answer

So what does that leave?

The only viable solution is immigration.

The influx of migrants at the border from Mexico, if managed correctly, may help ease the labor crisis. The federal government already transports immigrants around the country, in a manner identical to that employed by the governors of Texas and Florida, but it uses the label of “resettlement” to keep it out of the news.

But this process fails to match migrants with jobs.

In other countries – notably Australia and Canada, migrants are admitted using a points system that allows them to enter based on skills needed in the country. That includes home healthcare aides, construction workers, farm workers, and software engineers. Immigration is managed jointly between the federal and provincial governments, with visas being handled by individual states.

Such an approach is not without precedent in the US. The Bracero Program instituted during the Second World War allowed hundreds of thousands of farm workers from Mexico to enter the country legally as seasonal laborers, easing the labor shortages in Texas and California.

The program almost completely ended the problem of illegal aliens at the time. Allowing the states to have a say in immigration may also reduce the exceedingly long wait times that now exist for immigrant visas.

Few other options

The shortage of labor is having wide ranging impacts. CVS and Walmart recently cut back on the number of hours their pharmacies will open, citing an inability to find pharmacists despite offering signing bonuses of $75K.

Auto repair shops in many areas are now closed on weekends and construction projects are being delayed because of a lack of labor. Automation is not an option for most, and ChatGPT offers no useful help.

The fertility rate of the native-born population fell below the replacement level in 2009, so the country cannot count on growth of the labor force in the future.

So, employers are increasingly turning to migrant labor, including those without valid work permits, because they have no other options.

Claims that immigrants take away jobs from the native-born hold no water when unemployment is this low.

Migrant construction workers in the Washington, D.C., area made about $120 a day in 2019. That has since increased to about $200 a day now.

But we need to remember one thing.

Demography does not have to be destiny.

Japan has increased its labor force participation rate despite having the fastest aging population in the world. A larger proportion of older and prime-age people are employed there too, even though the median age of the population is ten years older than that of the US (49 vs 38).

But it requires planning and forward thinking.

It needs a concerted effort to accommodate an older workforce. Immigration policies need to be freed from politics and ideology.

Sadly, these are all things we seem incapable of doing.


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