President Donald Trump’s effort to reduce immigration is creating an unexpected test for the U.S. labor market, with unemployment among native-born Americans rising even as the pool of foreign-born workers contracts.
The shift challenges a central argument behind the administration’s immigration agenda: that reducing the supply of immigrant labor would create more opportunities and stronger wages for American workers. Instead, the early evidence points to a more complicated adjustment, shaped by weaker hiring demand and persistent differences in the jobs taken by immigrant and native-born workers.
Immigration Has Fallen Sharply as Hiring Demand Weakens
Net international migration has dropped dramatically since its 2024 peak. Census Bureau estimates published in January put the figure at about 321,000 by mid-2026, compared with 2.7 million in 2024. Brookings has projected an even sharper reversal, raising the possibility of negative net migration during 2026.
Despite that decline in labor supply, the headline U.S. unemployment rate has remained at 4.1%, according to the latest Bureau of Labor Statistics data cited in the source report.
Moody’s Analytics chief economist Mark Zandi has identified another change beneath that national figure. Using a 12-month moving average of seasonally unadjusted data, his analysis found that foreign-born unemployment moved below the native-born rate in October 2025.
Zandi attributed part of that divergence to the shrinking immigrant workforce. With fewer foreign-born workers participating in the labor market, unemployment within that group has declined. Native-born workers, meanwhile, are more exposed to a broader slowdown in labor demand.
The development complicates the assumption that removing immigrant workers automatically transfers employment opportunities to U.S.-born workers. The jobs involved are not necessarily interchangeable, particularly when occupation, geography, working conditions and pay are taken into account.
Construction and Other Physical Jobs Expose the Mismatch
Bureau of Labor Statistics data for 2025 showed foreign-born workers were more heavily represented than native-born workers in areas including construction, transportation, natural resources, health and personal care.
There is also a significant earnings gap. Median weekly earnings for foreign-born full-time wage and salary workers were 85.7% of the level earned by native-born workers, according to the BLS.
That difference helps explain why a smaller immigrant workforce does not necessarily mean vacancies will immediately attract native-born applicants. Zandi said some positions would require substantially higher wages to draw those workers, potentially pushing labor costs beyond what employers can economically sustain.
The issue extends beyond compensation. Some jobs involve demanding physical work, specialized experience or locations where housing and services are limited. Workers who have not traditionally entered those occupations may therefore face practical barriers even when openings become available.
That creates a broader economic constraint. Immigration policy can change the number of workers available relatively quickly, but occupational skills, worker preferences and the geographic distribution of labor tend to adjust more slowly. For businesses in labor-intensive sectors, the result can be vacancies or higher employment costs rather than an immediate replacement of foreign-born employees with native-born workers.
Wage Gains Are Emerging, but Not Across the Economy
The White House argues that its policies are producing the intended wage benefits. Spokesman Kush Desai said tighter border enforcement had helped American workers and pointed to stronger real wage growth in construction, manufacturing, transportation and warehousing relative to overall wage growth.
Research from the Federal Reserve Bank of New York offers some support for stronger pay in selected industries. Its May analysis identified wage growth in public administration as well as construction and mining. Construction wages may also be receiving support from strong demand tied to AI data-center development, alongside reduced immigrant labor availability.
The wider wage picture is less supportive. The same New York Fed analysis found that most industries had experienced a broadly synchronized slowdown in wage growth since 2022.
That distinction matters for companies and investors. A labor shortage concentrated in particular occupations can increase wages in those sectors without generating broad-based gains across the workforce. Businesses may instead respond through higher prices, delayed projects, automation or reduced output when they cannot recruit workers at existing pay levels.
The Next Test Is Whether Businesses Can Adapt
Zandi expects immigration policy eventually to move back toward allowing more workers into the country. In the meantime, he argues that restricted labor supply could contribute to stagflationary pressure by increasing costs while limiting economic output.
The key signal will be whether wages in immigrant-heavy industries rise enough to attract more native-born workers without making those businesses uneconomic.
If that transition fails to materialize, the administration’s labor strategy could face a difficult trade-off. Reducing immigration may lower competition for some jobs, but it cannot by itself ensure that workers have the skills, location or willingness to fill them. For the U.S. labor market, the next phase will show whether employers adapt through higher wages and productivity, or simply operate with fewer workers.
