The labor market could become so backward that the economy will have to shed jobs to keep unemployment steady

Summary

President Donald Trump’s immigration crackdown and the surge in baby boomer retirements could soon redefine what it means to have a healthy labor market. When hiring is weak or negative, the labor market can’t absorb enough new workers, sending the jobless rate up. For years, monthly job gains of around 125,000 to 150,000 were considered necessary to offset entrants into the workforce. But when the labor pool is shrinking, the math looks different. But with Trump returning to the White House, restrictive immigration policies have slashed the supply of foreign-born labor over the past year and a half. Separately, labor force participation has fallen as the population ages. Their forecast assumes Trump’s immigration policies stay in place over the rest of his term and that the baby boomer retirement “tsunami,” which will peak between 2026 and 2029, continues squeezing the labor force. But just because the breakeven rate will be underwater, that doesn’t mean layoffs will follow. The shrinking labor supply has contributed to the low-hire, low-fire environment, though recent months have seen a pick-up in job growth. They cited the Supreme Court’s ruling that allows the White House to end temporary protected status for certain noncitizen workers, potentially reducing the documented labor force by several hundred thousand people. “This could translate into further downside pressure on the unemployment rate, due to both a declining documented workforce and possibly increased ‘labor hoarding’ by firms, a phenomenon last observed during the pandemic,” Jackson and Egelhof wrote.