Political debates about the impact of immigration on the economy have often been at odds with the facts. But the consensus is surprisingly uncontroversial among economists: Immigration expands and strengthens the economy.

The Economic Policy Institute and the Immigration Research Initiative have come together to synthesize some of the most essential facts on immigration, immigrant workers, and the economy in a one-page fact sheet. We will co-release additional fact sheets summarizing state-by-state economic impacts in the coming days.

The fact sheets highlight the reality of how immigration benefits the economy and all workers. For example:

• Immigrant workers are a major and vital component of the U.S. workforce across occupations and industries, many of which would struggle without their contributions.
• Immigration expands U.S. Gross Domestic Product and is good for growth.
• Immigration overall has led to better—not worse—wages and work opportunities for U.S.-born workers.
• Immigration is enabling the United States to see continued economic growth despite an aging U.S.-born population and shrinking number of prime-age working adults.
• Immigrants play a key role in health care and home care jobs that help ensure retirement with dignity for seniors and independent living for people with disabilities.
• People who immigrate to the United States increase the economy’s stock of human capital and ideas, two crucial ingredients for long-run economic growth.

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It is indisputable that the U.S. labor market is strong. The share of the population ages 25–54 with a job is at a 23-year high, median household incomes rose 4.0% last year, and real wage growth over the last four years has been broad-based and strong. The economy has not only regained the nearly 22 million jobs lost in the pandemic recession, but also added another 6.5 million.

Are some folks still having a hard time? Absolutely. Even when the unemployment rate is low, there are still sidelined workers, and it remains difficult for many families to make ends meet on wages that are still too low. Unfortunately, that’s a long-term phenomenon stemming from a too-stingy U.S. welfare state, rising inequality, and the legacy of anemic wage growth during past economic recoveries. But when comparing the labor market with four years ago (during the pandemic recession) or even before the pandemic began, the answer is clear: More workers have jobs and wages are beating inflation by solid margins.

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The Federal Reserve belatedly began cutting interest rates two weeks ago, putting a quasi-official stamp on the “soft landing” with inflation nearly being brought down to the Fed’s long-run 2% target without any substantial weakening of the labor market. This milestone seems like a natural time to assess how well macroeconomic managers handled the past four years.

The answer—underappreciated by far too many—is very well!

In a nutshell, the Biden-Harris administration pushed a frontloaded and significant fiscal stimulus as the first major priority of their administration. The Federal Reserve accommodated this stimulus early on, and then began raising interest rates (more sharply than I would have) to try to rein in inflation. But they wisely never followed the advice of many to “keep raising rates until something breaks.”

In short, a return to full employment was prioritized in the Biden-Harris fiscal approach, and the value of low unemployment was clearly appreciated by the Fed. The results of this approach have been a clear success. There is no other plausible set of decisions about fiscal policy and interest rates over the past four years that would have led to lower inflation yet still would have seen real (inflation-adjusted) wages as high as today or as many people employed. That means there is no real argument against the assessment that macroeconomic policy has been a success.

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Absent federal action, states and localities have expanded workers’ ability to earn paid sick leave to care for themselves and their families. The results of these efforts over the past dozen years are clear: there have been significant gains in access to paid sick time among private-sector workers. The latest data released this morning from the Bureau of Labor Statistics show that these trends continued into 2024: 79% of private-sector workers have the ability to earn paid sick leave, an increase from 63% in 2012.

While these gains are welcome news for millions of working families, access to paid sick leave remains vastly unequal. As shown in Figure A, higher-wage workers have greater access to paid sick days than lower-wage workers. Among the 25% of private-sector workers with the highest wages, 94% have access to paid sick days. By contrast, among the 25% of workers with the lowest wages, only 58% have access to paid sick days. Prior releases have shown that the bottom 10% fare even worse, with only 39% having access to paid sick days in 2023 (though their access has improved, likely from state action).

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Better late than never, the Federal Reserve will almost surely cut interest rates at the Federal Open Market Committee (FOMC) meeting later this week. This cut is too long in coming—disinflationary pressures have been apparent in the economy for almost two years by now. In essence, the Fed decided to discount these disinflationary pressures and to only cut rates when inflation was not just falling rapidly, but was also low and extremely close to their 2% target. This approach took on far too much risk of throwing the economy into a totally unnecessary recession by keeping interest rates too high for too long. So far, a recession or damaging slowdown has thankfully been avoided, but there has been some notable labor market softening in recent months. Given all of this, the Fed should see its job now as quickly getting much closer to neutral on interest rates. This means cutting by at least 2 percentage points over the next year—so a cut of 50 basis points this week would be a better start than 25.

Background on interest rates compared with 2019

The effective federal funds rate today sits between 5.25-5.5%. In 2019, right before the pandemic hit, it sat between 1.5-1.75% (after a recent cut). Estimates of the “neutral” federal funds rate—the rate that is neither providing stimulus and inflationary pressure to the economy nor is it providing contraction and deflationary pressure—is roughly 2.5-3.5%. The neutral rate is often presented in real (inflation-adjusted) terms, with the inflation assumption being that the Fed is hitting its 2% target. That means a 1% real neutral rate should be read generally as a 3% nominal effective federal funds rate.

Figure A below shows one estimate of the neutral federal funds rate as well as the actual rate in recent years. By all estimates, today’s effective federal funds rate is far from neutral—it is clearly in contractionary territory. And by almost all estimates, the 2019 effective federal funds rate was far from neutral—clearly in stimulative territory.

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Although recent headlines claim that immigration is historically high or even “unprecedented,” new U.S. Census Bureau data show that immigration flows were relatively high but not unprecedented between 2022 and 2023, and were below the historical peaks in the late 1990s. These flows of new immigrants will benefit both immigrants and U.S.-born workers, as shown by many examples of credible economic research—though these benefits could significantly expand and help more workers if immigration policies were reformed to ensure that immigrants are granted full rights as workers in the U.S. economy.

The most recent estimates from the American Community Survey (ACS) indicate that the number of immigrants residing in the United States grew by 3.6% between 2022 and 2023 (see Figure A). This is below the historical peaks of 5.5% annual growth in the immigrant population that the United States experienced between 1994 and 2000, according to Current Population Survey (CPS) data.1 More recent CPS data show that the 2022–2023 immigrant population growth rate was 3.7%, similar to ACS estimates.

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Today’s Census Bureau data on earnings, income, and poverty in 2023 confirmed many of the predictions made in our preview last week. The strong labor market and falling inflation translated into increases in real median household income and decreases in the official poverty rate.

Real (inflation-adjusted) median household income increased by 4.0% to $80,610, the first increase since the pandemic. Between 2022 and 2023, the labor market added 3.5 million jobs while real wages increased. Considering most households rely on income from work to make ends meet, it’s no surprise that median household income increased in 2023.

Today’s data highlight the extraordinary strength of the recovery from the economic crises caused by the pandemic, a recovery driven by policy choices—particularly large fiscal relief and recovery packages—that aimed to quickly heal the labor market. The rapid growth of household incomes charted in today’s data is powerful evidence that the policy approach of recent years was the right choice.

Officially, median household income for 2023 is statistically indistinguishable from the last income peak of 2019. While that is the case in the official data, it is important to note that there were significant data collection issues in the survey for 2019 as responses were collected just as the pandemic hit in early 2020. The pandemic disruptions introduced significant “nonresponse bias”—meaning it was harder to talk to households to collect the data, and the households who were harder to reach were disproportionately lower income. This nonresponse bias boosted income measures in 2019 artificially. Census Bureau researchers subsequently estimated that this bias meant that real median income was 2.8% lower in 2019 than reported in the initial release. If we applied this data correction to income levels in 2019, this would mean that real household incomes in 2023 rose above 2019 levels and are now at their highest level on record.

Other welcome news include that income for lower-income households rose faster than for those at the median or at the top. Income for the 10^th-percentile household increased 6.7% between 2022 and 2023. Income for high-income households—at the 90th percentile—rose 4.6%. This significant increase for lower-income households led to a drop in the official poverty rate of 0.4 percentage points to 11.1% in 2023.

Two things are true right now for the U.S. economy: 

• The labor market is extraordinarily strong when judged by any historical benchmark. 

• The Federal Reserve is behind the curve in cutting interest rates and should start cutting them at the Federal Open Market Committee (FOMC) meeting next week, aiming for something like a federal funds rate that is at least two percentage points lower by mid-2025. 

These might strike some as being in tension—normally we want the Fed to cut interest rates to stimulate a weak economy. Why then, if the labor market is quite strong, do we need them to cut?  

Simply put, the interest rates the Fed controls are now at levels that are highly contractionary—they are rates you would want if your goal was to substantially slow the pace of aggregate demand growth (say because you were trying to quickly reduce inflation). There’s a whole debate to be had about whether or not the Fed should have raised rates this high and this fast in an effort to combat the post-pandemic inflation, but regardless of where you landed in that debate, it seems far clearer that today’s economy does not need a rapid reduction in aggregate demand.  

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