Economist: AI Could Boost US Productivity As Immigration Restrictions Proliferate

Tariffs, regulations and immigration policies in the Trump era are affecting the U.S. federal budget, costs and employment numbers, but AI could potentially serve as a counter to reduced labor force growth, according to one of the nation’s top economists.

Immigration policies have reduced labor force growth, which is affecting U.S. employment, according to Douglas Holtz-Eakin, one of the nation’s top economists.

“The United States needs immigration. The native-born population doesn’t have the fertility to maintain even these population levels, [which] would shrink if we didn’t have immigration. We’re going to need immigration [and] we have to find a way to do it in a way that satisfies genuine workforce needs,” Holtz-Eakin said during his economic and fiscal policy outlook keynote Monday at 2025 XChange Best of Breed event in Atlanta, hosted by CRN parent The Channel Company.

Holtz-Eakin, the former director of the nonpartisan Congressional Budget Office and the former chief economist of the president’s Council of Economic Advisers, gave insights on the structural reforms he believes will get the U.S. economy back on track, including tax, regulatory and immigration policies.

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Also problematic, he said, is the back-and-forth on tariff policies that have so far resulted in increased costs and inflation, which is complicating the Federal Reserve’s efforts to maintain price stability and maximum employment. Meanwhile, interest expenses have become the second-largest program in the country’s federal budget, Holtz-Eakin said.

“Interest is now over a trillion dollars. It is exceeded only by Social Security,” he said. “The federal budget is an active headwind to being successful that could turn into a real threat. Once you get it downgraded and interest is the second biggest thing in your budget, there’s no question [that’s] a problem,” he said.

The U.S. cutback on both legal and illegal immigration has had a “dramatic” effect on the U.S. labor force, Holtz-Eakin said.

“It has slowed the growth of the labor force tremendously, and that has had mixed impacts on things. One of the quiet pieces of good news that the Fed got in trying to get inflation down was in 2023 was that we had a big influx of immigration. 4.1 million people came here to work [and] what the Fed got in 2023 was lots more workers and a big productivity boom. We got inflation down from the mid-sixes to four and three and a half with essentially no threat of a recession … Now, the Fed is getting no cushion as it tries to go back to its 2 percent target,” he said.

Despite the country showing low or no job growth over the last four months, productivity is up, he added.

“If we have growth rates in the second half [of 2025] that had zero job growth, but something that looks like a measured 2.5, maybe 3 percent GDP growth, the difference there is productivity,” he said. “We saw 3 percent productivity in the second quarter. If we get three in the third and fourth [quarter] as well, that will number one be an enormous productivity boom, something we’ve never seen before. And I’ll be back on this stage trying to figure out: Is it AI, or something else? We just don’t know yet.”

Declining fertility rates across the globe and lower levels of immigration in the U.S. could be, in part, potentially buoyed by AI, Holtz-Eakin said.

One MSP executive told CRN that his views on AI’s powers may have shifted.

“It really sort of changes my whole perspective on AI replacing jobs. I don’t feel like it’s going to be a big killer of jobs, but I feel like it’s going to make people more productive. But now, based on what [Holtz-Eakin] said with this continued trend, do we need AI to save the planet? I don’t know, but maybe there’s something there,” said Jason Wright, CEO of Houston-based Avatar Managed Services, an executive in attendance at the XChange Best of Breed event.

Wright, for his part, is anticipating growth this year for his MSP business despite potential political uncertainties.

“It’s been sort of a wait and see mentality this year, which is definitely slowed growth and overall new client acquisition, [but] going into next year, some of that feeling paranoia is dissipating, and people are realizing they have to buy goods and services. I anticipate 2025 is going to be better than 2024,” he said.

Midterm elections next year and the current government shutdown, however, are still feeding into some market uncertainty, Wright added.

“Like [Holtz-Eakin] said, when your interest expense becomes the biggest line item on your budget — in [the U.S.’s] case, it’s second — but it shouldn’t even be in the top,” he said. “I anticipate [the economy] to be better in general and specifically for those of us in high-growth markets. But I think the election and the labor market; those two things that could be somewhat of a drag next year.”

The U.S. is the “most innovative place on the planet,” said Holtz-Eakin. “When [you look at] the U.S., why is it successful? Well, we invent things, and we grow things. We need to continue to have an environment where you invent and innovate.”