Goldman Sachs: US Immigration Plummets 80%, Reshaping the Employment "Break-Even Point"; AI Becomes the Biggest Variable in the Labor Market

Goldman Sachs’ latest analysis indicates that the fundamentals of the U.S. labor market are undergoing a fundamental shift. Due to immigration restrictions implemented by the Trump administration, net immigration has plummeted by 80%. This change is redefining the level of employment growth needed to keep the unemployment rate stable. The bank estimates that by the end of this year, the U.S. will only need to add about 50,000 jobs per month to maintain the current unemployment rate, significantly lower than the current 70,000.

This sharp contraction in labor supply is driven by comprehensive immigration policy tightening. During the Biden administration, over 10.8 million undocumented immigrants entered the U.S. Previously, the net immigration rate averaged about 1 million per year in the 2010s. By 2025, net immigration has decreased to around 500,000, and Goldman Sachs forecasts it will further decline to just 200,000 in 2026.

However, labor demand remains “fragile.” Goldman notes that current job growth is narrow, with vacancies continuing to decline—down to about 7 million, below pre-pandemic levels. The bank believes that the biggest downside risk to the labor market comes from artificial intelligence, which could trigger faster and more disruptive structural adjustments, potentially suppressing corporate hiring and leading to unemployment exceeding current expectations.

Immigration restrictions raise the bar for employment growth

In its latest report, Goldman Sachs details how tightening U.S. immigration policies are transmitting through the labor market. The Trump administration has significantly reduced immigration inflows through increased deportations, tighter visa and green card approvals, suspensions of processing for dozens of countries, and the removal of temporary protected status for certain groups. These measures have collectively sharply reduced immigration flows. Data shows that net immigration has fallen from an average of about 1 million annually in the 2010s to approximately 500,000 in 2025, with further decline to 200,000 projected in 2026.

The rapid contraction in labor supply directly lowers the “break-even” employment growth rate needed for the economy. Goldman estimates that by year’s end, only about 50,000 new jobs per month are needed to prevent unemployment from rising, well below the current roughly 70,000. The report states that with fewer new workers entering the economy, hiring no longer needs to be as vigorous as before to keep unemployment stable. It notes:

“A slight increase is sufficient to sustain employment growth at the break-even level.”

While Goldman’s immigration forecasts differ from those of the Brookings Institution and Congressional Budget Office, all point toward a clear downward trend. Additionally, Goldman highlights a potential risk: stricter immigration enforcement may be pushing more workers into informal or off-the-books employment. If true, official employment data could underestimate the true activity level of the labor market, complicating the Fed’s assessment of economic momentum.

Demand-side signals remain weak

Although the contraction in labor supply mathematically lowers the “break-even” employment growth rate, it does not imply that the labor market itself is strong. Goldman describes current demand-side performance as “fragile,” noting that job growth is increasingly narrow, mainly driven by the healthcare sector, with vacancies continuing to decline.

Data shows vacancies have fallen to about 7 million, below pre-pandemic levels and still decreasing. The U.S. Bureau of Labor Statistics’ official data also confirms this trend, with vacancies dropping into the mid-6 million range by the end of last year. Goldman warns that the ongoing decline in vacancies increases the risk of a more pronounced rise in unemployment, even as labor supply growth slows.

The report explains that, due to the slowdown in new labor entering the economy, hiring no longer needs to be as robust as before to prevent unemployment from rising. This logic suggests that weak employment data may increasingly mask a labor market that is only maintaining the status quo rather than deteriorating rapidly.

The resulting paradox is that the “stability” of the labor market may be increasingly akin to “weakness.” As immigration slows and labor growth decelerates, employment growth levels once viewed as warning signals may soon be sufficient just to keep the market stable.

AI as the biggest uncertainty

Goldman Sachs sees artificial intelligence as the greatest downside risk to the labor outlook—not because it has already caused mass layoffs, but because it could marginally suppress hiring. So far, the bank estimates that AI-related substitution effects have reduced employment growth by about 5,000 to 10,000 jobs per month in the most affected industries. However, faster or more disruptive deployment could exert greater demand pressure.

In the report, Goldman states:

“Our main concern about downside risks to the baseline forecast is that AI could be deployed more rapidly and destructively than expected. While recent anecdotal evidence points to faster adoption and potential job losses, it’s difficult to predict how these will translate into macroeconomic outcomes.”

Data shows that in sectors most susceptible to AI deployment, employment growth has already slowed and turned slightly negative, with company-level evidence indicating AI is reducing demand for workers. So far, the impact remains “moderate.”

Goldman currently projects that unemployment will rise only modestly to around 4.5%. Its chief economist, Jan Hatzius, states in another report that the probability of a recession next year is “mild,” at 20%. The bank believes the labor market is “taking early steps toward stabilization.”

However, with rapid AI development and broader potential applications, this relatively optimistic outlook faces significant uncertainty. If AI deployment accelerates beyond expectations, it could cause a larger shock to employment than currently estimated.

Risk warnings and disclaimers

Market risks exist; investments should be made cautiously. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein are appropriate for their particular circumstances. Investment involves risk, and responsibility rests with the individual investor.