By Lina Irawan 
The investment bank’s U.S. economics team, spearheaded by lead economist David Mericle, meticulously projected a precipitous drop in the arrival of new workers, a demographic force that has historically fueled American economic expansion. During the 2010s, net immigration to the United States averaged approximately 1 million people per year, consistently contributing to labor force growth and offsetting the impacts of an aging native-born population. However, Goldman Sachs’ analysis reveals a dramatic downward trajectory: that figure is estimated to have fallen to 500,000 in 2025 and is projected to plummet even further to a mere 200,000 by the end of 2026. This represents an astonishing 80% decline from the historical baseline, a monumental demographic and economic shift.
Goldman Sachs directly attributes this sharp decline to a suite of aggressive and restrictive immigration policy changes enacted or expanded during President Trump’s hypothetical second term. These include "elevated deportations" facilitated by enhanced enforcement mechanisms and expanded categories for removal, a recently announced pause on immigrant visa processing affecting individuals from 75 countries, and an expanded travel ban that broadens restrictions beyond previous iterations. The report further notes that the "loss of Temporary Protected Status (TPS) for immigrants from some countries" poses additional downside risks to the labor supply, as individuals who had been legally working and residing in the U.S. for years are now vulnerable to removal, further tightening the labor pool. These measures collectively target various avenues of entry and residency, from family-based and employment-based visas to humanitarian protections, effectively stifling the inflow of new foreign-born residents and workers.
The economists’ findings underscore that these stringent measures are likely to "slow inflows of visa and green card recipients" significantly. Immigrant visas and green cards are the primary pathways for foreign nationals to gain permanent residency and work authorization in the United States. Curtailing these processes, whether through direct bans, extended processing times, or increased denials, directly reduces the number of new workers available to the U.S. economy. The report explicitly links the forecasted drop to these elevated deportations and tighter visa and green card policies, emphasizing the direct causal relationship between policy and economic outcome.
Redefining the ‘Break-Even’ Number for Job Growth
This severe restriction of the labor pipeline is forcing economists and policymakers to fundamentally recalibrate their benchmarks for the U.S. economy. The traditional understanding of what constitutes a healthy monthly jobs report is undergoing a radical transformation. With fewer immigrants entering the country, a crucial component of labor force growth has been significantly diminished. Consequently, the economy requires fewer new jobs each month to absorb new entrants into the workforce and, critically, to keep the unemployment rate stable.
Goldman Sachs estimates that this "break-even rate" of job growth—the number of jobs that must be created monthly to prevent the unemployment rate from rising—will fall dramatically. From its current level of approximately 70,000 jobs per month, which was already lower than historical averages due to demographic shifts, it is projected to plummet to just 50,000 by the end of 2026. This figure marks a significant adjustment, indicating that what might have been considered a sluggish or concerning jobs report in previous years could now be interpreted as a sign of economic stability.
"Labor supply growth has declined sharply as immigration has fallen from the peak reached in late 2023," Mericle’s team wrote in their report. This observation suggests a profound shift in the underlying dynamics of the labor market. The implication is that a seemingly small pickup in job creation, one that would have been insufficient to maintain employment levels in a period of higher immigration, is now "all that should be needed to sustain job growth at the break-even pace." In essence, the lower supply of workers is effectively masking what might otherwise be seen as sluggish hiring demand, creating a potentially misleading picture of labor market health. This scenario complicates the Federal Reserve’s mandate, as traditional indicators of economic overheating or cooling become harder to interpret accurately.
The Broader Economic Debate: Immigration, Tariffs, and AI
The disappearance of these workers from the traditional labor force has prompted considerable debate—even anxiety—within economic circles. Reduced immigration is not occurring in a vacuum; it is yet another piece of "noise" in the complex economic data, alongside the persistent effects of President Trump’s "shrinking ice cube" of a tariff regime and the ongoing boom-or-bubble debate surrounding the transformative potential of artificial intelligence (AI).
Trump’s tariff policies, initiated in his first term and potentially expanded in a second, have been characterized by economists as a "shrinking ice cube" because they gradually erode economic efficiency and growth. While intended to protect domestic industries, tariffs often lead to higher consumer prices, reduced international trade, supply chain disruptions, and retaliatory measures from other countries. The combination of these trade barriers and severe immigration restrictions creates a double bind, potentially stifling both supply-side labor growth and demand-side economic activity, further complicating the economic outlook and adding layers of uncertainty for businesses and investors.
The role of artificial intelligence adds another layer of complexity to this evolving economic landscape. The increasing productivity derived from fewer workers leads some influential figures, such as Stanford’s Erik Brynjolfsson, to hypothesize that a "liftoff" is happening due to the widespread adoption of AI tools. From this perspective, AI is seen as a powerful catalyst for efficiency, enabling businesses to achieve more with less human labor, thereby mitigating the impact of a shrinking workforce. This vision suggests a future where technological innovation compensates for demographic shortfalls, potentially leading to new forms of economic growth and prosperity.
However, a contrasting and more cautious perspective views this moment as a critical "hinge" point, where Big Business might be preparing to do to white-collar workers in the 2020s what it did to blue-collar workers in the 1990s: massively downsize. This viewpoint suggests that AI, rather than simply augmenting human labor, could lead to significant job displacement across various sectors, exacerbating unemployment challenges even in a tight labor market. The research from Goldman Sachs, suggesting the economy is "learning how to make do without the crucial layer of immigrant labor that fueled the last regime," hints at this adaptation. Indeed, Mericle’s report, tellingly titled "Early steps toward labor market stabilization," reflects an acknowledgment of these profound structural shifts rather than a return to previous economic norms.
Echoes from Other Economists
Goldman Sachs is not alone in identifying these seismic shifts. Other prominent economists have recently projected similar scenarios for the U.S. economy. Michael Pearce of Oxford Economics, for instance, has recently argued that the economy is nearing a break-even point while creating fewer jobs. His analysis often highlights the interplay between demographic trends, declining labor force participation, and increasing productivity as factors enabling GDP growth with more modest payroll gains. Pearce’s work suggests that the economy might be entering a phase of "jobless expansion," where technological advancements and efficiency improvements allow for continued economic output without the corresponding robust job creation seen in prior decades.
Even more starkly, in August of the previous year, J.P. Morgan Asset Management strategist David Kelly predicted that there could very possibly be "no growth in workers at all" over the next five years. Kelly’s ominous forecast is attributed to the dual forces of changing immigration patterns to the U.S. and the accelerating aging of the native-born workforce. The confluence of these demographic headwinds—fewer immigrants entering the labor force and a growing number of native-born workers retiring—presents a formidable challenge to sustained economic growth. Without a consistent influx of new labor, the potential for long-term GDP expansion diminishes, placing increased pressure on productivity gains to maintain living standards.
Shadow Workforce and Mounting Economic Risks
Mericle’s report also unearths a more insidious consequence of the immigration crackdown: the potential for the labor market to be increasingly pushed into the shadows. The analysis suggests that "stricter immigration enforcement pushes more immigrant workers to shift to jobs that fall outside of the official statistics," potentially skewing federal data and obscuring the true state of employment. When legal pathways become scarce and enforcement intensifies, undocumented immigrants, and even some with precarious legal status, may seek employment in the informal economy, where they are paid off the books and are less likely to report their work for fear of detection and deportation.
This shift to an informal, "shadow" economy carries several adverse consequences. It not only undermines labor protections and suppresses wages for these vulnerable workers but also deprives governments of tax revenue and distorts official economic indicators. This opacity severely complicates the Federal Reserve’s ability to gauge the true health of the economy, as official payroll numbers and unemployment figures may fail to capture the full picture of employment activity. If a significant portion of the workforce operates outside official channels, the Fed’s policy decisions, based on incomplete data, could be misaligned with economic realities.
Such a scenario would certainly help explain why the headline unemployment rate appears to be stabilizing around 4.3% (having recently dipped to 4.28%), even though Goldman Sachs maintains that the labor market remains "shaky" because of these unpredictable factors. A stable unemployment rate might suggest resilience, but if it is underpinned by a growing shadow workforce and a shrinking official labor pool, its implications for long-term economic health are far more concerning. The report highlights a "notable drop in tech employment," although it clarifies that this sector accounts for a relatively small share of overall payrolls. More concerning is the "continued decline in job openings," which have fallen below pre-pandemic levels to roughly 7 million. A sustained drop in job openings signals a weakening demand for labor across the economy, a trend that contradicts the notion of a robust, dynamic market.
In a separate, but related, note, Goldman Sachs’ chief economist, Jan Hatzius, maintained a "moderate" recession probability of 20% for the next 12 months. While the firm generally expected the labor market to stabilize, predicting the unemployment rate would rise only slightly to 4.5%, they issued a stern warning: risks are "tilted toward a worse outcome." This cautionary outlook is largely attributed to two critical factors: the weak starting point for labor demand, evidenced by the declining job openings, and the potential for "faster and more disruptive deployment of artificial intelligence." The combination of these forces—a constricted labor supply, waning employer demand, and the transformative yet potentially disruptive impact of AI—creates a volatile and uncertain economic environment. The long-term implications of these policy choices and technological advancements on the U.S. demographic structure, economic competitiveness, and social fabric are likely to reverberate for decades to come, challenging conventional economic wisdom and demanding innovative policy responses.