TPS Termination: A Structural Labor Shock with Macro Consequences

The labor market is facing a sudden and massive withdrawal of workers, driven by a sweeping policy change. The Trump administration has initiated the termination of for 11 countries, . Of critical importance, . This isn't a slow erosion of the workforce; it's a rapid, one-year contraction of legal status for a population that has become deeply embedded in the economy.

The geographic concentration of this shock is severe. . are located in Florida, . This creates a direct and immediate pressure point for state and local labor markets, particularly in sectors where TPS workers are disproportionately represented. The policy mechanism is a series of terminations that have been rolled out throughout 2025, with key dates including the termination for Ethiopia on December 12 and Haiti on February 3. The cumulative effect is a well over 1 million-person reduction in the legal workforce within a single year, a scale of disruption that experts describe as unprecedented.

The economic contribution of this group underscores the magnitude of the impending shock. , . Their labor is not evenly distributed; . This makes them a critical, and often irreplaceable, component of the labor force in industries already grappling with shortages. The withdrawal of their work authorization threatens to exacerbate existing bottlenecks in construction, hospitality, and cleaning services, particularly in the hardest-hit states.

Quantifying the Economic Contribution and Sectoral Impact

The impending loss of work authorization for over 550,000 Temporary Protected Status (TPS) workers represents a direct and measurable shock to the U.S. economy. In 2023, these workers contributed an estimated , a figure that underscores their deep integration into the national economic fabric. This contribution is not evenly distributed; it is heavily concentrated in specific states and industries. , , , . The shock will be felt most acutely in the labor markets where TPS holders are already indispensable.

The vulnerability is structural. TPS workers are disproportionately concentrated in sectors already grappling with chronic labor shortages. . This isn't a marginal presence; it's a foundational role. In construction, immigrant laborers without a college degree make up nearly a quarter of the workforce, a share larger than the combined total of restaurant, janitorial, and landscaping workers. The industry is already under strain, with a housing shortage and projects delayed by worker absences. , a direct preview of the broader disruption to come.

The economic impact will be a double hit to the sectors most reliant on this labor. Construction, cleaning, and hospitality are not just beneficiaries of TPS labor; they are sectors where the loss of this workforce would directly exacerbate existing bottlenecks. The withdrawal of authorization for 550,000 legal workers threatens to deepen the labor shortages that are already driving up costs and delaying projects. For an economy already facing pressure from high interest rates and a housing deficit, this is a significant new headwind. The $35.9 billion GDP contribution is not a static number; it is a dynamic flow of economic activity that will contract if the labor supply is abruptly curtailed.

Forward-Looking Scenarios: Catalysts, Risks, and Macro Implications

The path for Temporary Protected Status (TPS) in 2026 is being forged in courtrooms, creating a patchwork of legal status that will directly impact the labor market. The primary catalyst for resolution is ongoing litigation. Courts have already intervened, blocking the termination of TPS for South Sudan and extending it for , creating a fragmented landscape. This legal uncertainty means the fate of the remaining 11 TPS-designated countries-ranging from El Salvador to Ukraine-hangs on judicial review. The Trump administration's stated agenda to terminate these designations is clear, but the judiciary has signaled it will scrutinize whether the conditions justifying protection have truly abated. The outcome for each country will be decided individually, leading to a prolonged period of instability for hundreds of thousands of workers and their employers.

The broader macroeconomic risk of this policy shift is substantial. A sustained reduction in the inflow of unauthorized immigrants and TPS beneficiaries could act as a persistent labor supply shock. According to a structural model of immigration's macroeconomic impact, the abrupt decline in unauthorized immigration since mid-2024 has already reduced GDP growth by in 2025. If the administration's termination plans proceed without significant new legal pathways, this headwind to growth could persist. The model suggests that an unexpected increase in net unauthorized immigration typically raises U.S. output growth for about two years, implying the reverse-a sustained reduction-would weigh on economic expansion.

This labor market squeeze would manifest in two key ways. First, persistent labor shortages would likely lead to higher wages for the remaining workforce, as employers compete for a smaller pool of available workers. Second, these rising labor costs would be passed through to consumers, creating potential price pressures. The model estimates that while immigration shocks have almost no effect on inflation in the short term, the cost-push from constrained supply could materialize as businesses seek to maintain margins. For companies already facing the capital intensity of the AI build-out, an additional cost burden from tighter labor markets would compress already thin profit margins.

The bottom line is a high-stakes policy experiment. The administration's push to limit humanitarian protections is a direct challenge to the post-pandemic labor supply that has underpinned recent economic growth. The courts are currently acting as a brake, but their rulings are not a permanent solution. The macroeconomic scenario for 2026, therefore, hinges on a legal and political battle that will determine whether the U.S. economy faces a persistent growth drag or finds a new equilibrium with higher wages and prices.