Breitbart: The Myth of the Frozen Labor Market

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Economists are puzzled by the apparent contradiction between weak payroll growth and strong wage growth in the U.S. economy. Critics have blamed factors like tariff policy or the Iran conflict, describing the economy as 'frozen' or 'paralyzed by uncertainty'. However, the article argues that the issue lies in economists using an outdated model built for a growing labor force to interpret an economy where the labor force is holding steady or even shrinking due to immigration policy changes under the Trump administration. The article explains how this shift in labor supply dynamics changes the meaning of common economic indicators like payroll growth, layoffs, and hiring, leading to misinterpretations of the true state of the labor market.

Why it matters

Understanding the true dynamics of the labor market is crucial for policymakers and economists to make accurate assessments and prescriptions. If the labor force is contracting rather than growing, the usual interpretations of economic data like payroll growth and unemployment no longer apply. This could lead to flawed policy decisions if the underlying shifts in labor supply are not properly accounted for.

The details

The article explains that since President Trump began enforcing immigration law, the U.S. has experienced an unprecedented, policy-driven contraction in the labor force. The Dallas Fed estimates a net outflow of 548,000 unauthorized workers in 2025, and the Department of Homeland Security says roughly 3 million people left the country, divided between 800,000 deportations and 2.2 million voluntary repatriations. This shift has broken the traditional economic models built around a growing labor force. Payroll growth no longer accurately reflects labor demand, as it is the residual of hiring and departures. For example, in manufacturing, the sector may have added over 200,000 replacement or new authorized workers while the headline payroll numbers showed a 89,000 decline. Similarly, low layoff rates are not due to paralysis, but because deportations have done the 'work' of reducing headcount for some employers.

• In 2025, the U.S. economy added just 181,000 workers to payrolls.
• Between April 2025 and February 2026, manufacturing payrolls fell by roughly 89,000.
• Last week, the four-week moving average of initial jobless claims hit 207,750, which is in the lowest five percent in records going back to 1967.

What’s next

The Federal Reserve will need to weigh the genuine disinflationary pressure created by the shrinking customer base due to the departing workers, as their spending disappeared almost immediately.