Declining immigration weighs on GDP growth, with little impact on inflation – Federal Reserve Bank of Dallas

Report on the Macroeconomic Effects of U.S. Immigration Policy and Implications for Sustainable Development Goals

Executive Summary

An analysis of recent shifts in United States immigration policy reveals significant consequences for the nation’s economic trajectory and its progress toward key Sustainable Development Goals (SDGs). An unprecedented surge in unauthorized immigration from 2021 to 2024, which bolstered labor force and population growth, has been abruptly curtailed by new administrative policies in 2025. This report utilizes a structural vector autoregression (VAR) model to quantify the economic impact of this policy shift. The findings indicate that the reduction in immigrant inflows will lower U.S. Gross Domestic Product (GDP) growth by an estimated 0.75 to 1.0 percentage point in 2025. This slowdown poses a direct challenge to achieving SDG 8: Decent Work and Economic Growth, which promotes sustained, inclusive, and sustainable economic growth. Furthermore, the policy changes raise concerns regarding SDG 10: Reduced Inequalities, particularly its target for orderly, safe, and responsible migration.

Immigration Trends and Policy Context in Relation to Sustainable Development

Recent Shifts in U.S. Migration Flows (2021-2025)

The period between 2021 and 2024 was marked by a historic increase in immigration, primarily from individuals entering without visas across the Southwest border. The Congressional Budget Office (CBO) estimated a net addition of 7.3 million “other foreign nationals” to the U.S. population during this time. Many of these individuals were granted temporary protections or quasi-legal status, allowing them to participate in the labor market and contribute to economic activity, aligning with the principles of SDG 8. However, since mid-2024 and accelerating in 2025, policy changes have led to a sharp decline in these inflows and an increase in outflows through deportations. This reversal directly impacts the management of migration policies, a core component of SDG 10.7.

Policy Scenarios and Their Alignment with SDG Principles

To assess the potential economic ramifications, this report considers several future immigration scenarios based on current policy objectives, which include halting unauthorized border crossings and increasing interior deportations. These scenarios are compared against a benchmark CBO projection from November 2024, which assumed a continuation of previous policies.

• Baseline Scenario: Assumes interior removals remain at the current level of approximately 87,500 per year.
• High Interior Deportation: Projects a gradual increase in interior removals to 437,500 per year by the end of 2027.
• Self-Deportation Wave: Models a front-loaded exodus of migrants with temporary protected status.
• Mass Interior Deportation: An extreme scenario where interior removals rise to 1 million annually by year-end 2027.
• No Interior Deportation: Considers the effect of reduced border inflows alone, with interior removals held at zero.

Each scenario represents a different approach to migration management, with varying consequences for economic stability, labor supply, and the principles of orderly migration outlined in SDG 10.

Economic Consequences of Reduced Immigration and Progress Toward SDG 8

Modeling the Link Between Immigration and Economic Growth

A structural VAR model, estimated using annual data from 1955 to 2019, was employed to analyze the relationship between net unauthorized immigration and key macroeconomic variables. The model’s findings are crucial for understanding progress toward SDG 8.

1. An unexpected increase in net unauthorized immigration is shown to raise U.S. GDP growth for approximately two years.
2. The impact on inflation is found to be negligible in the short term.
3. The initial GDP growth is primarily driven by residential investment, while consumption and non-residential investment contribute at longer horizons.

These results indicate that immigration is a significant driver of economic growth, a primary target of SDG 8. The model’s robustness was confirmed through various specification checks.

Projected Impact on Gross Domestic Product and Inflation

Applying the model to the policy scenarios reveals a substantial negative impact on economic growth, representing a setback for achieving SDG 8 targets. The reduction in net unauthorized immigration, relative to the CBO benchmark, is projected to have the following effects:

• Impact on GDP Growth: In 2025, GDP growth is projected to be between 0.75 and 1.01 percentage points lower across all scenarios. The baseline scenario predicts a reduction of 0.81 percentage points. By 2027, the negative effect persists and, in the mass deportation scenario, intensifies to a 1.49 percentage point reduction in growth. The majority of this negative effect (93% in the baseline scenario) is attributable to reduced inflows at the border, rather than increased deportations.
• Impact on Inflation: The effects on PCE inflation are modest, projected to be approximately 0.15 percentage points higher than the benchmark in 2025 and between 0.05 and 0.21 percentage points higher in 2027.

Labor Force Contributions and Decent Work

Recent years have seen the foreign-born population account for the majority of labor force and population growth in the U.S. This contribution is fundamental to achieving SDG 8’s goal of “full and productive employment and decent work for all.” Policies that sharply reduce immigrant inflows curtail the labor supply, thereby hindering economic potential and challenging the sustainability of growth.

Broader SDG Implications and Analytical Framework

Impact on Inequality and Strong Institutions (SDG 10 & SDG 16)

The analyzed policy shifts have implications beyond pure economics. Aggressive deportation scenarios challenge the principles of SDG 16: Peace, Justice and Strong Institutions, which advocates for the rule of law and access to justice for all. The status of many recent arrivals as having “quasi-legal” permission to live and work highlights the complexity of legal identity and the need for robust, fair, and efficient institutions. These policies risk exacerbating inequalities, running counter to the objectives of SDG 10.

Methodological Caveats

The conclusions of this report are subject to several important caveats, underscoring the need for ongoing research to inform policies that align with sustainable development.

1. The estimates are subject to a high degree of uncertainty, with large error bands.
2. The model relies on historical data from 1955-2019, and its ability to capture post-pandemic economic dynamics may be limited.
3. The analysis focuses specifically on unauthorized immigration; the effects of restricting legal immigration may differ.

Conclusion: Aligning Immigration Policy with Sustainable Development Objectives

This report provides empirical evidence that a sharp tightening of U.S. immigration policies has the potential to substantially reduce national output growth with only a modest impact on inflation. These findings highlight a direct conflict with the ambitions of SDG 8: Decent Work and Economic Growth. The analysis raises significant concerns that current policy directions may undermine the economic contributions of immigrants, which have been a vital component of recent labor force expansion and GDP growth. To foster sustainable and inclusive prosperity, it is imperative that immigration policies are formulated with a clear understanding of their macroeconomic consequences and are aligned with the broader principles of the Sustainable Development Goals, particularly those promoting economic growth (SDG 8) and well-managed migration (SDG 10).

Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 8: Decent Work and Economic Growth: The article’s central theme is the direct relationship between immigration (specifically unauthorized immigration) and macroeconomic performance, focusing on how changes in immigrant flows impact Gross Domestic Product (GDP) growth and the labor force. It analyzes how immigration policies that reduce the number of immigrants can negatively affect economic growth.
• SDG 10: Reduced Inequalities: The article deals with inequalities related to migratory status. It discusses policies concerning “unauthorized immigrants,” individuals seeking asylum, and those with “quasi-legal status” like humanitarian parole. The analysis of different policy scenarios, such as mass deportations, directly relates to the treatment and rights of migrants, which is a key aspect of reducing inequalities.
• SDG 16: Peace, Justice and Strong Institutions: The article examines the role and actions of governmental institutions responsible for immigration, such as the Department of Homeland Security (DHS) and Immigration and Customs Enforcement (ICE). It discusses the implementation and enforcement of immigration laws and policies, including border control, asylum processes, and deportations, which relates to the effectiveness and accountability of these institutions.
• SDG 17: Partnerships for the Goals: The analysis presented in the article is built upon data and projections from multiple institutions, including the Department of Homeland Security (DHS), the Congressional Budget Office (CBO), the Bureau of Economic Analysis (BEA), and the Census Bureau. This reliance on multi-source, disaggregated data to inform policy analysis highlights the importance of data availability and collaboration, which is central to SDG 17.

What specific targets under those SDGs can be identified based on the article’s content?

1. SDG 8: Decent Work and Economic Growth

   • Target 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 per cent gross domestic product growth per annum in the least developed countries. The article directly addresses this target by modeling how different immigration scenarios affect the U.S. GDP growth rate. For example, it estimates that under a baseline policy scenario, “annual GDP growth is about 0.8 percentage point lower” than the CBO’s projection, linking migration policy directly to economic growth outcomes.
   • Target 8.5: By 2030, achieve full and productive employment and decent work for all women and men… The article connects immigration to the labor market by stating that “Increases in the foreign-born population accounted for most labor force and population growth in recent years.” It also notes that many post-pandemic arrivals “were granted temporary protections… and issued work permits,” linking their status to their ability to participate in the workforce.
   • Target 8.8: Protect labour rights and promote safe and secure working environments for all workers, including migrant workers… and those in precarious employment. The article focuses on “unauthorized immigrants” and those with “quasi-legal status,” who are often in precarious employment situations. Policies of mass deportation and enforcement directly impact the security and stability of these migrant workers.

2. SDG 10: Reduced Inequalities

   • Target 10.7: Facilitate orderly, safe, regular and responsible migration and mobility of people, including through the implementation of planned and well-managed migration policies. The entire article is an analysis of different migration policies and their consequences. It contrasts a benchmark scenario based on policies in place in November 2024 with new scenarios involving stopping unauthorized immigration, canceling humanitarian parole, and conducting mass deportations. This directly evaluates the management of migration flows.

3. SDG 16: Peace, Justice and Strong Institutions

   • Target 16.6: Develop effective, accountable and transparent institutions at all levels. The article discusses the operations of institutions like DHS and ICE. It notes that “ICE is falling short of its numerical targets” for removals, pointing to challenges in institutional effectiveness. The use of DHS data, and the need to impute it where it’s missing, also touches on the transparency and data-providing capacity of these institutions.

4. SDG 17: Partnerships for the Goals

   • Target 17.18: By 2020, enhance capacity-building support… to increase significantly the availability of high-quality, timely and reliable data disaggregated by… migratory status… The study itself is an example of using data disaggregated by migratory status (“net unauthorized immigration”). The authors construct this measure using data from DHS on “migrant encounters,” “gotaways,” and “repatriations,” demonstrating the critical importance of such specific data for meaningful analysis. The article also notes when data is unavailable, such as for removals after November 2024, reinforcing the need for timely data.

Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

1. Target 8.1 (Sustain per capita economic growth)

   • Indicator: Annual growth rate of real GDP. This is the primary metric used throughout the article. Table 1, titled “Effects of immigration shocks on GDP and inflation by scenario,” explicitly provides projected changes to GDP growth under various policy scenarios, such as a reduction of “0.81 percentage points below the benchmark in 2025” in the baseline scenario.
   • Indicator: Annual inflation rate (PCE price index). The article also measures the effect on inflation, noting that in all scenarios, “the inflation effects are modest.”

2. Target 8.5 (Full and productive employment)

   • Indicator: Labor force growth rate. The article implies this indicator by stating that the foreign-born population accounted for “most labor force and population growth in recent years.”
   • Indicator: Number of work permits issued to migrants. This is mentioned as a key factor allowing recent immigrants to join the labor force: “many postpandemic arrivals were granted temporary protections, allowed to enter the country and issued work permits.”

3. Target 10.7 (Orderly, safe, regular and responsible migration)

   • Indicator: Number of migrant encounters, gotaways, and repatriations. The article explicitly uses these metrics to construct its key variable: “net unauthorized immigration totals nationwide migrant encounters and border gotaways as a measure of the inflow and subtracts repatriations as a measure of the outflow.”
   • Indicator: Number of deportations. The different policy scenarios are built around this indicator. For example, the “mass deportation scenario” assumes “interior removals gradually increase to 1 million annually by year-end 2027.”
   • Indicator: Number of people under specific legal statuses. The article mentions the number of people with “temporary protected status (TPS)” as a specific group affected by policy changes, citing that “863,880 people from 16 countries had temporary protected status as of September 2024.”

4. Target 17.18 (Availability of data disaggregated by migratory status)

   • Indicator: Availability of official statistics on migration flows. The article’s methodology relies on the “Yearbook of Immigration Statistics published by the Office of Immigration Statistics in DHS.” The authors’ need to “impute gotaways for the years with missing data” and use non-official sources for recent removals data directly indicates gaps in the availability of timely and complete official statistics.

SDGs, Targets and Indicators

Source: dallasfed.org