Recent analysis by economists Anton Cheremukhin, Daniel Wilson, and Xiaoqing Zhou indicates the U.S. labor market may be tighter than previously believed. Their work builds upon earlier research utilizing immigration court microdata obtained through Freedom of Information Act requests.

Break-Even Employment Rate Declining

The Dallas Fed economists found that the break-even rate of employment growth – the number of jobs needed to maintain a constant unemployment rate – peaked at approximately 250,000 jobs per month in 2023. By July 2025, this figure had fallen to around 10,000. From August through December 2025, the rate averaged negative 3,000, suggesting the economy could lose jobs monthly without impacting the unemployment rate.

Unauthorized Immigration Trends

Net unauthorized immigration averaged negative 55,000 per month in the latter half of 2025, totaling negative 548,000 for the full year. This figure is roughly 50 percent larger than projections from the Congressional Budget Office. These outflows include over 700,000 deportations and an estimated 2.2 million self-deportations since January 2025.

Labor Force Participation Rate Concerns

The labor force participation rate, currently at 62.0 percent in February, has been cited as evidence of a softening labor market. However, economists argue that the population denominator used in calculating this rate may be inaccurate.

Population Denominator Issues

The Bureau of Labor Statistics (BLS) relies on Census Bureau population estimates. These estimates may not fully capture the scale of departures, particularly among working-age unauthorized immigrants. If the denominator overcounts individuals who have left the country, the participation rate is artificially lowered.

Statistical Distortion

Even conservative estimates suggest a significant distortion. Assuming a 75 percent participation rate for departing workers, the true labor force participation rate could be approximately 61.9 percent, compared to the measured rate of 61.2 percent – a difference of nearly 0.7 percentage points. A lower departure estimate of one million still accounts for roughly half the observed decline in participation.

Implications for Federal Reserve Policy

These findings suggest the labor market is stronger than headline numbers indicate. The break-even employment threshold is near zero, meaning current payroll data may signal stability rather than weakness. The February jobs report, showing a decline of 92,000 payroll jobs and a rise in the unemployment rate to 4.4 percent, may be less alarming than it appears.

The economists caution that the Federal Reserve may be operating with inaccurate data. If the true labor supply is lower and the effective participation rate higher, the easing conditions the Fed is anticipating may not materialize. The analysis concludes that payroll gains consistent with economic slack may, in fact, indicate a balanced labor market.