San Francisco Fed Study: Drop in Unauthorized Immigration Tightens Construction Labor and Slows Data Center Builds
Key finding and immediate stakes
A new research brief from the Federal Reserve Bank of San Francisco quantifies how the large wave of unauthorized arrivals during 2021–2023 expanded local labor supplies and eased acute shortages in labor‑intensive trades such as construction and manufacturing. Using county‑level net immigration flows linked to commuting‑area employment, the authors isolate supply‑side effects and estimate that a 1% uptick in the unauthorized local workforce corresponds to about a 0.92% rise in total local employment.
During the spike, roughly 3.5 million unauthorized entrants settled in U.S. communities, disproportionately in metros with existing diaspora networks. Employers that scaled projects and schedules on the assumption of abundant onsite labor now confront a reversal: reduced net inflows raise recruitment costs for carpenters, framers and electricians, elevate per‑unit building costs and increase the probability that permit‑to‑completion timelines for new housing will lengthen.
The study highlights knock‑on effects beyond housing: capital‑intensive undertakings such as data center construction — important to AI infrastructure — rely on sustained access to on‑site skilled trades over multimonth build phases. Tighter local labor can therefore defer build schedules and compress the near‑term supply of housing and specialty industrial capacity.
Importantly, the supply‑shock story is only part of the picture. Independent reporting and labor‑market analysis indicate that policy‑driven reductions in the foreign‑born population also shrink the local consumer base. Fewer immigrant workers can mean fewer local customers for restaurants, retail and services, weakening firms’ incentives to expand payrolls. That demand channel helps explain why some national and metro indicators diverge: while the Fed’s commuting‑area estimates show strong local employment responses tied to immigrant inflows, other series record rising unemployment among native‑born workers in some periods — a reflection of sectoral reallocation, differing measurement frames and simultaneous demand pressures in places that lost sizable immigrant populations.
Another adaptive response is faster adoption of automation and capital substitution. Firms facing workforce volatility and tariff‑driven input cost uncertainty are accelerating investments in robotics and AI as a structural hedge. That reduces labor demand in some segments even as shortages increase wages in trade‑intensive occupations, producing a mixed net effect across industries and metros.
Methodologically, the Fed paper’s use of immigration court encounter records and adjustments for unobserved working‑age arrivals, combined with commuting‑area employment linkages, strengthens causal claims about supply effects. Yet the authors’ supply focus means their elasticity estimate need not imply uniform outcomes everywhere: local consumer demand shifts, policy uncertainty and automation responses produce heterogeneous, and sometimes offsetting, labor‑market consequences.
Policy and business implications are therefore twofold. On the supply side, developers, data‑center planners and manufacturers must update wage curves, hiring timelines and contingency budgets; expect bidding pressure for skilled trades and a reallocation toward contractors who can guarantee crews. On the demand side, slower local population growth and weaker consumer spending in affected neighborhoods lower some firms’ incentives to hire, shift project economics and push companies toward prefabrication or automation strategies.
For investors and corporate strategists, the combined insight reframes labor risk: shrinking unauthorized inflows are both a project‑level input constraint and a local demand headwind. The net result is likely to be uneven: delayed residential and industrial projects in high‑need metros, pockets of wage inflation in specific trades, and accelerated capital investment that substitutes for labor in other segments. Over the next 6–12 months these forces will shape scheduling, subcontractor capacity and capital intensity, and they warrant active scenario planning by firms and policymakers.
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