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Key Takeaways
- **Policy Volatility Impacts Economic Planning:** The “thermostatic” nature of public opinion on immigration leads to significant and often rapid shifts in policy, creating an unstable regulatory environment that deters long-term business investment and confounds labor market forecasting.
- **Labor Market Vulnerability:** Restrictive immigration policies, even those initially popular, risk exacerbating labor shortages across critical sectors (e.g., tech, healthcare, agriculture), driving up wage inflation, and stifling economic growth and innovation.
- **Uncertainty Deters Investment:** The chronic over-interpretation and over-reaction by politicians to public sentiment on immigration result in policy whiplash, making it challenging for companies to plan, eroding investor confidence, and potentially leading to a flight of capital and talent.
A strange phenomenon has been unfolding in the American political landscape, one with significant implications for the nation’s labor markets, economic growth, and global competitiveness. No sooner had Americans elected Donald Trump as president on an explicitly anti-immigration platform than US public opinion began to swing much more favourably towards immigration.
This counter-intuitive shift has persisted even as Trump implemented his stringent crackdown measures. According to data from YouGov, only 28 per cent of Americans believed immigration made the US better off in mid-2024. By January this year, that number had surged to 46 per cent. While Democrats predictably remain more positive, the softening of attitudes has extended even to Republicans: a quarter now say immigration improves the US, a notable increase from about a tenth in mid-2024.
For financial journalists and business strategists, this data isn’t just a political curiosity; it’s a critical indicator of potential economic instability. Such pronounced swings in public sentiment, often leading to dramatic policy shifts, introduce profound uncertainty into the market, affecting everything from labor supply and wage inflation to long-term investment decisions and sectoral productivity.
One response to this data could be exasperation. Can’t American voters make up their minds? What exactly did they think they were voting for, anyway? But to political scientists who study “thermostatic” politics, this development is no surprise at all. Public opinion often moves against the prevailing party, especially if they are perceived to have gone “too far” in one direction. The phenomenon was first explored in the 1990s with reference to fiscal policy, but in recent years it has been particularly evident in the realm of immigration policy. This concept is vital for investors, as it suggests a built-in mechanism for policy reversals, leading to a “policy whiplash” that can send shivers through markets.
While these swings in opinion polls can make it seem as if people don’t know their own minds, they can be a useful democratic check on governments by sending bright flashing warning lights when policies stray too far from the public’s comfort zone. However, for the economy, this “check” often manifests as heightened unpredictability. Businesses need stability to make long-term investment decisions, allocate capital, and plan workforce development. Constant shifts in immigration policy, driven by these thermostatic reactions, undermine that stability, potentially deterring foreign direct investment and slowing domestic capital expenditure.
The problem comes when politicians misinterpret those signals. When people tell pollsters they want less immigration, or think it is bad for the country overall (or the converse), they are often expressing an opinion about how things appear to be going in that moment relative to their preferences, rather than a deep shift in their underlying views. This misinterpretation can lead to over-correction, which has tangible economic consequences.
According to Alexander Kustov, a political scientist, most Americans’ views are quite stable and moderate: they support immigration that is controlled and in the national interest, and oppose flows that are disorderly or under-enforced. The critical nuance here is that “national interest” for many often includes economic benefits like filling labor gaps, fostering innovation, and contributing to economic dynamism – factors that are highly valued by businesses and investors.
In the US, Kustov argues the Trump administration over-interpreted dissatisfaction with high immigration under previous administrations, and implemented policies that went too far for many voters. “People don’t necessarily change their idea about their ideal immigration policy, but they can react to what the government is currently doing,” he told me. “A lot of people are not happy with what the Trump administration are doing — right now we’re not talking about border enforcement, we’re talking about people not just getting harassed, but killed.” Such extreme measures, perceived as overly punitive, alienate a broader segment of the public, including business leaders who rely on a steady, predictable inflow of talent and labor.
But similarly, he added, pro-immigration advocates would be making a mistake to interpret the recent, more favourable swing towards immigration as a deep-seated ideological shift in attitudes. Businesses must be wary of betting too heavily on any single direction, understanding that public opinion, and thus policy, can quickly pivot.
The recent history of UK immigration policy offers another cautionary tale with stark economic repercussions. After the 2016 Brexit referendum, public concern about immigration fell. This was partly because net migration statistics declined, but also because people felt a sense of catharsis and control, says Sunder Katwala, director of British Future, a think-tank. By 2019, the public ranked immigration as only the ninth biggest issue of concern, according to Ipsos polling. This apparent public comfort, however, emboldened the Conservative government to liberalise visa routes for students and care workers between 2019 and 2022, leading net migration to surge. And so, too, did public concern, reacting thermostaically to the perceived over-correction. Today’s Labour government has implemented another sharply restrictive turn in immigration policy, demonstrating the persistent pendulum swing.
This UK experience vividly illustrates the economic cost of such policy instability. Industries from hospitality and agriculture to healthcare and technology experienced acute labor shortages post-Brexit, exacerbated by shifting immigration rules. Businesses struggled to recruit, leading to wage inflation pressures in certain sectors, reduced service capacity, and even increased insolvencies. Investment in UK-based businesses became riskier due to the unpredictable labor supply, impacting productivity growth and overall GDP.
As Kustov and researcher Caitlyn Yates argue, thermostatic public opinion should be a useful check on politicians. Instead it seems to have helped to magnify the pendulum swing in the UK. The government over-interprets and overreacts to a change in public opinion, which reacts in turn, prompting a sudden swing the other way. This feedback loop creates a highly volatile policy environment, making it exceedingly difficult for businesses to plan beyond the short term, thereby dampening economic dynamism and innovation.
Large and frequent changes in immigration policy are profoundly detrimental not only for migrants and social cohesion but, crucially, for employers and the broader economy. They increase uncertainty, complicate workforce planning, and deter investment. This constant state of flux is corrosive of trust—not just between politicians and the public, but also between businesses and the government. It fosters a climate where long-term strategy is replaced by reactive measures, hindering growth and competitiveness. It’s ironic that this instability arises not because politicians are ignoring public sentiment, but because they are often listening too much, yet failing to interpret the underlying, moderate preferences that would lead to more stable, economically beneficial policies.
Market Impact
The thermostatic nature of immigration policy, characterized by reactive public opinion leading to political over-correction, poses significant challenges for financial markets and the broader economy. This instability translates directly into increased labor market volatility, impacting wage growth, labor availability, and ultimately, corporate profitability across sectors from technology and healthcare to agriculture and construction. Businesses face heightened uncertainty in workforce planning, which can delay or deter capital expenditure and foreign direct investment. Furthermore, the unpredictable supply of skilled and unskilled labor can stifle innovation, depress productivity growth, and reduce a nation’s long-term economic potential. For investors, this creates a complex risk landscape where policy shifts, rather than fundamental economic drivers, can dictate sectoral performance, necessitating constant vigilance and agile portfolio adjustments to navigate periods of policy whiplash.