Worker Shortages: The Defining Economic Trend of 2023

By Mike Dolan

LONDON (Reuters) – Amid concerns over world trade, debt, and inflation, worker shortages may significantly shape economic trends this year across the Atlantic.

Immigration curbs and deportations are central to President-elect Donald Trump’s agenda as he returns to the White House. If implemented, these policies could lead to the deportation of up to 1 million illegal migrants over the next two years, slowing U.S. population growth.

In Europe, speculation regarding a lasting ceasefire between Ukraine and Russia may prompt many refugees to return home. Since Russia’s invasion in 2022, over 4.3 million Ukrainians have fled, with more than 1 million resettled in Germany. Many received legal rights to live and work in Europe under a 2022 EU directive. The potential loss of these workers is raising alarms in some Central European countries.

A significant decline in the labor force during a period where many economies are experiencing tight labor markets, despite rising borrowing rates, could trigger stagflationary supply issues.

Labor Market Trends

The International Labour Organization (ILO) reported that the global jobless rate stood at a historic low of 5% last year, with projections to remain there through 2025, dipping to 4.9% next year.

JP Morgan has noted that the working-age population in developed economies peaked at 746 million in 2023 and is expected to decline by 47 million through 2050, leading to growing labor supply concerns similar to those witnessed post-pandemic.

In the U.S., the jobs market remains competitive, with key sectors like transportation, construction, and manufacturing struggling to find qualified candidates. Surveys indicate that a significant number of small firms are facing labor shortages, with 90% of those looking to hire reporting few qualified applicants.

Economic Implications of Migration Policies

Migration has been a significant macroeconomic driver, especially in the U.S., helping sustain job growth without leading to inflation spikes. However, recent figures suggest a decline in net immigration, partly due to President Biden’s asylum ban, which has cut monthly net migration by one-third compared to 2023.

Trump’s proposed deportations may tighten labor markets further, with projections estimating a drop in population growth from 1.2% in 2024 to 1% or less this year. Economists from Schroders warn that significant immigration crackdowns could exacerbate inflation, citing that mass deportations might add 3 percentage points to inflation compared to a 1 point increase from a 10% tariff.

Morgan Stanley also notes potential adverse effects on GDP growth, indicating that these developments might prompt a significant stock market downturn. The extent of deportations and their economic impact is still under debate, raising questions about whether they will be countered by skilled worker visas.

Migration and workforce shrinkage have clearly emerged as critical macroeconomic variables that will influence market strategies amid Trump’s upcoming inauguration.

Opinion expressed by Mike Dolan, a columnist for Reuters.

(Editing by Jamie Freed)