Unauthorized Immigration and Local Labor and Housing Markets: Post-Pandemic Evidence

Unauthorized Immigration and Local Labor and Housing Markets: Post-Pandemic Evidence

The historic surge in unauthorized immigration into the United States from early 2021 to early 2024, followed by a steep decline beginning in mid-2024 and continuing through 2025 and 2026, has provided a major macro-economic natural experiment. A key empirical analysis of this volatility is provided by Federal Reserve Bank of San Francisco (FRBSF) researchers Daniel Wilson and Xiaoqing Zhou in their Economic Letter, "Unauthorized Immigration Effects on Local Labor Markets" (February 17, 2026).

Using individual-level immigration court data from the Transactional Records Access Clearinghouse (TRAC) to track county-level unauthorized immigrant worker flows (UIWF), Wilson and Zhou analyze the local labor market impacts of both the rapid rise (March 2021 to March 2024) and the subsequent enforcement-led slowdown (March 2024 to March 2025).

One-for-One Local Employment Impact

Wilson and Zhou merge geographic UIWF data across commuting zones with administrative records from the Census of Employment and Wages (CEW). To isolate the causal impact of immigration from local labor demand pull-factors, they employ a shift-share instrumental variable strategy based on historical immigrant country-of-origin settlement patterns.

The authors find a nearly one-for-one causal relationship between unauthorized immigrant flows and local employment growth during both phases:

"Specifically, we estimate that an increase in UIWF equal to 1% of local employment raises local employment by 0.92% (standard error of 0.17) in the rapid rise period and by 1.16% (standard error of 0.49) in the slowdown period. These estimates are statistically indistinguishable from 1..."

This suggests that unauthorized immigrant workers are fully reflected in official payroll data, and that local demand multiplier effects and negative native crowd-out effects roughly balance each other out in the aggregate.

Sector-Specific Volatility and the Housing Supply Drag

While the aggregate employment effects are symmetric, the industry-level impacts differ dramatically between the expansion and slowdown phases:

• The Rapid Rise (2021–2024): Led to disproportionately large employment increases in leisure and hospitality, professional services, and other services.
• The Slowdown (2024–2025): Hit the construction and manufacturing sectors with disproportionate severity. Commuting zones experiencing the largest slowdowns in unauthorized immigration saw the sharpest drops in construction and manufacturing employment growth.

This industry-level drag has direct implications for housing supply:

"The effect for the construction sector is particularly notable, because it suggests that falling UIWF in recent months could be slowing residential construction and hence slowing down the growth of housing supply.¹"

Sector and Macro Backdrop

The structural drag on the construction sector occurs against a tight macroeconomic backdrop. As of mid-2026, the U.S. unemployment rate stands at 4.2%, while the 10-year Treasury yield is at 4.57%, maintaining pressure on residential mortgage rates and capital expenditures /markets/macro/2026/07/20.

Within the construction and materials sectors, major public companies exhibit strong but varied performance. Caterpillar Inc. (CAT) dominates with a $405.45 billion market capitalization and a robust 22.2% year-over-year revenue growth. Materials giants Vulcan Materials Company (VMC) and Martin Marietta Materials (MLM) hold market valuations of $37.41 billion and $33.78 billion, with revenue growth of 7.4% and 17.2% respectively, while residential-exposed Masco Corporation (MAS) reports 6.5% growth /markets/sector/construction/2026/07/20. The FRBSF findings suggest that a sustained slowdown in unauthorized immigrant labor flows will act as a major supply-side constraint on these firms' capacity to meet residential and infrastructure demand, potentially driving up labor costs and exacerbating housing supply shortages.