US unemployment would be higher if illegal immigration were counted correctly: Goldman Sachs

The Labor Department is understating the impact of illegal immigration on the U.S. job market, according to an analyst note from Goldman Sachs strategists.

The U.S. unemployment rate would be higher if the government properly accounted for the recent surge in illegal immigration, according to a new analyst note from Goldman Sachs.

The Goldman strategists, led by chief economist Jan Hatzius, projected the immigration spike has actually increased the American labor force by about 1.1 million and household employment by 1 million. 

When accounting for those figures, they found the unemployment rate in March would increase to 3.9% from the previously reported 3.8% figure. 

The inconsistency in the data stems from the way that immigration is covered.

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The Labor Department's monthly employment report is based on two surveys. The establishment survey, which gathers data from about 122,000 businesses and government agencies, is used to calculate how many jobs the U.S. adds each month. The other is based on monthly interviews of about 60,000 households and is used to determine the unemployment rate.

But the latter household survey relies on a population estimate from the Census Bureau as a benchmark that has "failed to capture the recent immigration surge" because it uses a lagged migration estimate based on the 2022 American Community Survey, the economists said. 

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While the census estimates the U.S. population grew by 0.5% in 2023 from the previous year, the Congressional Budget Office has projected it jumped by 0.9%. That inconsistency is the result of the CBO trying to capture a wave of illegal immigration at the southwest border.

Goldman estimated that about 64% of immigrants in 2023 were "unauthorized," while about one-third filed for asylum, which means they are able to apply for work authorization after 150 days.

"As a result, the household survey, which uses the Census population estimate as a benchmark, has also likely understated the size of the labor force and employment," they said. 

The establishment survey is less impacted because companies are not required to report immigration status when they submit employment data, which has fueled discrepancies between the two reports. 

"This means that the surge in unauthorized immigration in 2023 likely contributed to the widening of the employment gap between the establishment survey and the household survey," the economists added.

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Goldman said the household survey likely underestimates the real number of workers by between 100,000 and 400,000.

Still, the problem will likely be resolved in January 2025, when the Labor Department starts incorporating information from the updated 2023 American Community Survey.