Is a border policy supply-side labor crunch coming?
A significant decrease in "border encounters" could drive persistent service industry inflation.
Recent data from Apollo Global Management reveals a significant decrease in U.S. "border encounters" in early 2025, functioning as a leading indicator of real-time labor force growth.
The projected decline in monthly payroll additions—potentially dropping from 200,000+ to approximately 60,000—may appear alarming at first glance, but this shift represents a supply constraint rather than weakening demand.
This metric tracks individuals who frequently fill critical positions in low-wage, high-turnover sectors.
The substantial reduction in this workforce pipeline creates ripple effects throughout the economy that business leaders must understand and address proactively.
Key economic consequences
The constrained labor supply, particularly affecting entry-level positions, triggers several interconnected economic dynamics:
- Payroll growth appears weaker without signaling recession. The issue isn't diminished hiring intent but rather insufficient available workers. Since payroll figures serve as headline economic metrics, misinterpretation could lead to unnecessary policy adjustments or market reactions.
- Wage increases stem from necessity rather than prosperity. Employers across service sectors, logistics, construction, and hospitality face increasing pressure to raise compensation to attract domestic workers. This represents compensatory rather than productivity-driven wage growth and contributes to persistent core inflation.
- Service sector inflation persists. Many essential services remain resistant to automation or AI solutions. Labor-intensive operations like hospitality and construction must pass increased wages to consumers through higher prices, maintaining inflationary pressure.
- Service quality faces gradual erosion. Organizations unable to sufficiently raise wages due to margin constraints may reduce operating hours, lower quality standards, or increase workloads on existing staff—creating a deterioration in service delivery that occurs alongside otherwise positive economic indicators.
Strategic implications for business leaders
This macroeconomic shift requires operational adaptation. Consider developing comprehensive strategies across these critical domains:
| Strategic Area | Challenge | Recommended Approach |
|---|---|---|
| Labor Planning | Persistent shortage of entry-level workers | Develop scenario-based wage structures and realistic hiring timelines |
| Pricing Strategy | Margin pressure from increased labor costs | Evaluate service pricing elasticity and value perception |
| Customer Experience | Service consistency threatened by staffing challenges | Balance service design improvements with self-service capabilities |
| Productivity | Wage growth outpacing productivity gains | Prioritize process efficiency alongside technological investments |
The structural labor constraints, particularly affecting entry-level positions, represent a significant economic factor that will influence wages, profit margins, and inflation trajectories for the next 12-24 months.
Importantly, this challenge cannot be resolved through conventional monetary policy adjustments alone.
Forward-looking opportunities
Organizations that respond strategically can transform this constraint into competitive advantage through three key initiatives:
- Implement forward-looking wage modeling. Incorporate labor cost increases into medium-term financial projections for both acquisition and retention. Treat labor as a proactive modeling variable rather than a reactive expense adjustment.
- Assess service delivery vulnerability. Identify operations dependent on high-turnover labor (customer support, field service, manual fulfillment) and evaluate delivery capacity under constrained scenarios. Develop "partial automation" strategies combining process redesign with targeted technology implementation.
- Develop innovative talent acquisition channels. Conventional recruitment methods might prove ineffective. Establish partnerships with community organizations, language programs, and legal immigration pathways to access underutilized talent pools.
For labor-dependent businesses, declining payroll figures should prompt operational restructuring. The labor market isn't weakening—it's fundamentally transforming. This evolution will impact financial performance regardless of preparation, making proactive adaptation essential for maintaining competitiveness.
In related news ...
Via the USDA, Roughly Half of Hired Crop Farmworkers Lack Legal Immigration Status:
The share of hired crop farmworkers who were not legally authorized to work in the United States grew from roughly 14 percent in 1989–91 to almost 55 percent in 1999–2001; in recent years it has declined to about 40 percent. In 2020–22, 32 percent of crop farmworkers were U.S. born, 7 percent were immigrants who had obtained U.S. citizenship, 19 percent were other authorized immigrants (primarily permanent residents or green-card holders), and the remaining 42 percent held no work authorization. The share of workers who are U.S. born is highest in the Midwest, while the share who are unauthorized is highest in California.