U.S. businesses are struggling to find workers, and the shortage has to do with more than business cycle excesses. It increasingly appears that the United States labor market is undergoing a rapid structural shift that may result in endemic labor shortages for a sustained period of time. Recent U.S. policy to limit immigration threatens to exacerbate this problem.

There are multiple reasons for this development. One is the COVID pandemic. More than 1 million Americans have died of COVID since March 2020, and a significant portion of those were of working age. What’s more, Katie Bach of the Brookings Institution estimates that between 2 and 4 million workers between the ages of 18 and 64 are out of the labor market because of “long COVID.”

A second reason is demographic: the baby boomers are rapidly exiting the labor market. Moreover, the cohorts of Generation Y and Z are not as large and they appear to have less allegiance to the labor market than their predecessors. As a result, the civilian labor force fell from 67.3 percent in January 2000 to 62.4 percent in August 2022.

A third reason is the changing workplace demands of workers. The pandemic appears to have changed worker preferences for where and how they want to work. The Survey of Working Arrangements and Attitudes found that the share of full-time workdays completed from home grew from 4.7 percent in January 2020 to 29.5 percent now (following a peak of 61.5 percent at the height of the lockdowns in May 2020). Many employees who got to work remotely for the first time during the pandemic liked it. They are now willing to leave their jobs when managers try to force them back into the office.

The net effect of all these changes is that the number of U.S. job openings has been above 10 million since July 2021.

Temporary entry / There is no single solution to the current mismatches in the labor market. Public policy should be broadly supportive of training Americans for the labor market of today and tomorrow. In the meantime, America should look at all available instruments to address immediate labor shortages.

One important step would be to better utilize the Temporary Entry provisions in America’s trade agreements. Among these are the provisions in the United States–Canada–Mexico Agreement (USMCA) that the Trump administration negotiated to replace the North American Free Trade Agreement (NAFTA).

Trade agreements are not just about the movement of finished goods; they are also about intermediate inputs. According to a 2010 working paper by Robert Koopman et al., 40 percent of the value of Mexico’s exports to the United States and 25 percent of Canada’s southbound exports are comprised of U.S. content. To facilitate trade of these goods within the USMCA region, people need to cross borders. They are not crossing as immigrants; rather they are crossing to provide specialized expertise and then returning home.

USMCA explicitly allows for the movement of business visitors, investors, and intra-company transferees. It also maintains a list of “professions” that are eligible for visas in each of the three countries, such as architects, economists, and lawyers. According to the State Department, in 2021 fewer than 25,000 of these “TN” visas were issued by the United States.

While some critics may ask why Canadian or Mexican firms do not simply hire a U.S. engineer or economist to help with the movement of these goods in the United States instead of bringing one from their own company and country, the reality is that every profession is highly specialized and firms need to access the right expertise, regardless of nationality.

In a 2020 working paper, Britta Glennon found that restrictions on H‑1B visas dramatically increased employment by foreign affiliates, especially in Canada, India, and China. She specifically found that for every 10 unfilled H‑1B positions, the equivalent of three jobs were created overseas.

While the TN regime is smaller, more focused, and better run than the H‑1B, the principle is the same. With or without the visas, the work will get done somewhere, and if the best and brightest cannot get to America, their employers will be forced to send the work to them.

Improvements / There was limited political bandwidth to modernize the Temporary Entry provisions given the political environment surrounding the NAFTA renegotiations from 2017 to 2018. There were so many issues at play in the high-stakes process that the governments chose to simply incorporate NAFTA’s Temporary Entry provisions into the new agreement. As a result, the USMCA provisions are tailored—and limited—to specific key economic sectors of the mid-1990s, not the mid-21st century.

Obviously, that needs to improve. The USMCA Free Trade Commission, comprised of trade ministers from the three countries, should initiate a process to extend the Temporary Entry provisions to other sectors. These efforts should be guided by the answers to two important questions: what sectors would deliver the greatest value to the North American economy through enhanced mobility, and where are the greatest labor market shortages?

Some may say that expanding the USMCA Temporary Entry list is politically risky. Yet, after decades of business interconnectedness across North America and the prospect of enduring labor shortages, it is economically risky not to do so.

Readings

  • “Give Credit Where Credit Is Due: Tracing Value Added in Global Production Chains,” by Robert Koopman, William Powers, Zhi Wang, and Shang-Jin Wei. National Bureau of Economic Research Working Paper no. 16426, September 2010.
  • “How Do Restrictions on High-Skilled Immigration Affect Offshoring? Evidence from the H‑1B Program,” by Britta Glennon. National Bureau of Economic Research Working Paper no. 27538, July 2020.
  • “New Data Shows Long Covid Is Keeping as Many as 4 Million People Out of Work,” by Katie Bach. Brookings Institution, August 24, 2022.