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Fact check: How do undocumented immigrants impact the US labor market and wages?
Executive Summary
Undocumented immigrants materially affect the U.S. labor market by filling critical jobs, contributing taxes and consumer demand, and influencing wage dynamics differently across skill levels; policies that remove or legalize them produce measurable but divergent effects on GDP, prices, and wages. Recent analyses show that mass deportation would reduce aggregate economic output and raise costs, while legalization or work permits would alleviate labor shortages and alter wage competition in ways that vary by occupation and skill [1] [2] [3].
1. Why employers and business leaders are sounding alarms — labor shortages and higher costs
Business leaders and advocacy reports describe a labor market with millions of unfilled positions and rising operational costs when undocumented workers are removed or when work permits are rescinded. Reporting from October 2025 records over 100 executives warning Congress that deportations and permit cancellations have contributed to eight million unfilled jobs and increased prices for goods and services, projecting tangible impacts on supply chains and hiring capacity [2] [4]. These actors have a clear interest in ensuring labor availability, and their claims are corroborated by studies showing projected price increases for average households if large cohorts of workers exit the labor force [4].
2. What economic models predict — GDP and fiscal trade-offs from deportation
Model-based analyses indicate that mass deportation would shrink aggregate economic variables and carry high fiscal costs, with a July 2025 Penn Wharton Budget Model study estimating large economic losses and a $900 billion fiscal price tag over ten years associated with sweeping removals. That analysis also finds asymmetric wage effects: high-skilled workers’ wages could be compromised broadly, while authorized low-skilled workers might experience wage gains under sustained deportation scenarios [1]. Models rest on assumptions about substitution, labor reallocation, and short-run frictions, so outcomes vary with assumptions about enforcement scale and timing.
3. How undocumented workers influence wages by skill and sector
Multiple sources emphasize that wage effects are heterogeneous: undocumented workers concentrate in agriculture, construction, healthcare, and other high-growth occupations, where their presence supports production and service provision. Church and migration analysts argue mass removals won’t simply open jobs to U.S.-born workers because undocumented workers often perform roles that are integrated into broader employer networks and labor pipelines; some models suggest employers would hire other foreign labor rather than local replacement if deportations reduce the labor supply [5] [6]. Consequently, wage pressure patterns differ—some local wages might rise in the short run, while sectoral shortages can push prices and working conditions in the opposite direction.
4. Tax contributions and consumer demand — the other side of the ledger
Advocacy and research documents show undocumented immigrants contribute substantial tax revenue and spending power, supporting public budgets and local economies. A February 2025 report puts taxes paid by immigrants at $89.8 billion across federal, state, and local levels and estimates $299 billion in spending power for 2023, underscoring how removal or exclusion would reduce both tax receipts and consumer demand [3]. Loss of that fiscal and economic activity factors into modelled GDP declines and the projected increases in prices borne by U.S. families if labor withdrawals raise input costs [4].
5. Policy alternatives and claimed outcomes — deportation versus legalization
Analysts and religious leaders contrast mass deportation policies with legalization or work-permit pathways, attributing different labor-market outcomes to each. Proponents of legalization argue work permits would stabilize sectors facing shortages and could raise wages for American-born workers by formalizing employment and improving bargaining conditions; opponents of large-scale removals emphasize the humanitarian and economic costs of separation and poverty increases among U.S. citizen children [5] [4]. Models and stakeholder positions diverge on timing and magnitude, but both routes produce redistributional and fiscal consequences that policymakers weigh differently.
6. Conflicting incentives and potential agendas behind claims
Stakeholders exhibit clear incentives: business leaders prioritize labor supply and lower hiring frictions, advocacy groups emphasize humanitarian and fiscal impacts, and modeling institutions stress macroeconomic projections based on assumptions. Public warnings from executives may understate employer flexibility or substitution possibilities, while advocacy organizations may emphasize family and poverty impacts to influence policy. The Penn Wharton study presents quantitative trade-offs and cost estimates; religious and civic voices frame integration and moral considerations. Readers should weigh each claim against likely institutional aims and the underlying model assumptions [2] [1] [5].
7. Bottom line for policymakers and the public — nuanced, sector-specific effects
The compiled evidence shows that undocumented immigrants significantly shape labor supply, wages, prices, and public finances, with removal producing GDP losses, price increases, and uneven wage effects by skill and sector, while legalization or permits can mitigate shortages but also alter competitive pressures. Policymaking therefore faces trade-offs between economic stability, fiscal impact, labor markets, and social costs; the most reliable forecasts will depend on the scale, timing, and specifics of any enforcement or legalization measures, as reflected in the July 2025 models and October 2025 stakeholder reports [1] [2] [3].