The latest employment figures from the Department of Labor have rattled economists and policymakers alike. Instead of the anticipated 80,000 new jobs, payrolls actually contracted by 23,000 in July. Revisions for May and June shaved off an additional 100,000 positions, signaling a return to the stagnant job growth seen in 2025.
What's more surprising is that the unemployment rate fell from 4.3% to 4.1% over the past two months—not because more people found work, but because fewer are looking. In that same period, an astonishing 1 million workers exited the labor force, with 1.4 million leaving over the past year.
Why the workforce is shrinking
Baby boomer retirements are a factor, but there's also a notable drop in participation among prime-age workers. A major contributor, according to analysts, is current immigration policy. The administration's aggressive deportation efforts, termination of Temporary Protected Status for several groups, and pressure on universities to admit fewer foreign students have driven both an exodus of immigrants already in the U.S. and a sharp decline in new arrivals.
A Brookings report earlier this year predicted net-negative immigration in 2026, and the latest data appear to confirm that. Immigrants accounted for nearly half of the workforce decline over the last year, and the true impact is likely greater because many immigrants aren't captured in the survey data.
Economic consequences
The economic damage is already visible. GDP growth has weakened for three consecutive quarters. Worker shortages are pushing up labor costs and prices, fueling inflation—exactly the opposite of the affordability Americans want. These effects are akin to supply shocks, similar to those from tariffs or rising oil prices due to the Iran conflict, which simultaneously raise prices and dampen output.
Sectors heavily reliant on immigrant labor are feeling the pinch most acutely: agriculture, household services, leisure and hospitality, but also engineering and technical roles. Healthcare and elder care face rising demand as the population ages, and construction is stretched by the boom in AI data centers. In all these areas, output will slow and costs will rise as immigrant labor becomes scarcer.
Policy prescriptions
Given the administration's focus on reducing both legal and illegal immigration, change from the White House is unlikely. But members of Congress from both parties should begin planning how to reverse the economic damage. This doesn't mean returning to the chaotic border situation of the Biden era, which voters rejected. Instead, the goal should be a sensible immigration policy driven by national economic interests, not family ties or sentiment.
Such a policy would expand visas for foreign workers in high-demand sectors like engineering, healthcare, elder care, and skilled construction. It would also invest in integrating immigrants into the workforce and upgrading their skills, benefiting both immigrants and native-born workers. Combined with tough enforcement and broader legal pathways, this could create a path to legality for the undocumented population.
These ideas aren't new—a similar bipartisan bill passed the Senate in 2013 with 68 votes before dying in the House. But political dynamics since 2016 have stalled progress.
As baby boomers retire and native-born birth rates remain low, the economic costs of a broken immigration system are mounting. Demographic shifts are already reshaping the labor force, and policy choices are accelerating the trend. The time for a hard-headed, economics-based immigration strategy is now.
