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Demonstrators gathered in New York City to protest the actions of President Donald Trump and Elon Musk, who heads the controversial Department of Government Efficiency, over their efforts to significantly reduce federal services and implement widespread layoffs on February 19, 2025.
The Trump administration’s initiative to downsize the federal workforce could lead to the largest job reduction in U.S. history, which many economists believe will have substantial effects on the economy, particularly at the community level.
With assistance from Musk’s Department of Government Efficiency, the White House has begun terminating employees or offering buyouts across the federal sector, impacting the nation’s largest employer.
Although the exact number of layoffs is still being determined, experts suggest that it is likely to reach at least tens of thousands.
The Trump administration has specifically instructed federal agencies to dismiss “probationary” employees, who are newer hires lacking full civil service protections after just a year or two with the government.
As of May 2024, there were approximately 220,000 federal workers classified as probationary, based on U.S. Office of Personnel Management data.
Moreover, more than 75,000 federal employees have reportedly accepted buyout offers, agreeing to resign but receiving compensation through September, according to a Trump administration official.
This collective figure suggests that almost 300,000 workers may be affected by these decisions, leading some observers, like Callie Cox, chief market strategist at Ritholtz Wealth Management, to assert that this could indeed be the “largest job cut in American history.”
This total does not account for other positions at risk, such as contractors for the U.S. Agency for International Development, or career civil servants who were recently promoted and thus are also considered on probation in their new roles, as noted by Jesse Rothstein, a professor of public policy and economics at the University of California, Berkeley.
Federal job cuts have emerged from various agencies, including the Internal Revenue Service, National Park Service, Consumer Financial Protection Bureau, and several government departments, including Agriculture, Education, and Homeland Security, as reported by the Associated Press.
“We may soon find out the hard way that people drive the U.S. economy,” Cox warned.
Estimating the Extent of Federal Layoffs
Arlene Rusch, a former employee of the Internal Revenue Service, was one of many who received layoff notices. The IRS initiated layoff procedures affecting around 6,000 staff during a critical period for tax processing, highlighting the urgency of the Trump administration’s strategy to reduce the workforce.
Although some experts suggest the total layoff figure may not reach 300,000, there are complexities at play that could affect estimates. Instances of overlap exist, such as probationary workers who may have transitioned to accepting buyouts instead of being fired. Furthermore, there have been instances where the administration attempted to rehire employees previously let go.
Public records indicate that over 26,000 federal employees have already been dismissed, not including those who accepted buyouts, according to analysis from investment firm Piper Sandler. This figure mirrors the number of job losses seen during the collapse of Lehman Brothers in the 2008 financial crisis.
Economist Thomas Ryan from Capital Economics estimates that between 100,000 and 200,000 federal employees have likely lost their jobs already, a reduction significant enough to overshadow even IBM’s layoff of 60,000 workers in 1993, which was historically the largest corporate downsizing at that time.
“If indeed all 200,000-plus probationary workers are terminated without replacements, it would mark a historic downturn,” Susan Houseman of the W.E. Upjohn Institute for Employment Research remarked.
In the past, even large-scale layoffs by the U.S. Army and Air Force have not approached these current numbers. The Army cut 50,000 jobs during troop withdrawals in 2011, and the Air Force announced reductions of 40,000 positions in 2005.
The Bureau of Labor Statistics tracked mass layoffs from 1995 through 2003, revealing that annual disruptions typically affected around 9,000 to 23,000 federal workers. Current trends suggest that we may quickly approach historic levels of cuts, according to Mark Zandi, chief economist at Moody’s.
While the White House has not confirmed the precise extent of the layoffs, a spokesperson indicated that the administration is committed to efficiency and cost reduction, including the dismissal of non-essential probationary employees, as part of broader efforts to restore the economy.
Anticipating Economic Consequences
The repercussions of job losses extend beyond immediate unemployment; they can deeply affect household budgets. Workers who cannot secure new positions quickly may experience financial hardship, relying on unemployment benefits that typically replace only about a third of their prior income, according to data from the Labor Department.
Long-term impacts are evident as well, with many laid-off workers struggling to find new full-time positions and often earning less in subsequent employment, as noted in a comprehensive study by Henry Farber from Princeton University.
The economic fallout from layoffs can resonate throughout local economies, impacting businesses that depend on consumer spending. According to Ernie Tedeschi, director of economics at the Yale University Budget Lab, laid-off workers may curtail their expenditures at local establishments like cafes or childcare services.
Moreover, the psychological effects of mass layoffs may drive other federal employees to hold back on spending, fearing job instability, which could lead to decreased investment and hiring among businesses linked to the federal sector.
Washington, D.C., is poised to experience a substantial uptick in unemployment, potentially leading to what economists at Moody’s are calling a “mild recession,” stemming from the anticipated loss of nearly 100,000 federal jobs in the coming years. The surrounding states, Maryland and Virginia, are expected to feel significant economic stress due to their proximity and reliance on federal employment.
The full impact of these layoffs may take time to reflect in federal employment reports, but early indicators reveal a notable rise in unemployment claims in D.C. as of early February.
Contextualizing the Layoffs’ Impact
Despite the potential for mass unemployment, economists are not overly concerned about its impact on the national economy as a whole. The loss of around 200,000 federal workers would only marginally impact the overall U.S. gross domestic product, according to Tedeschi.
Ryan indicates that, in light of the broader labor market, which saw an increase of approximately 1.5 million jobs in 2024, the effect of these federal layoffs would likely be short-lived as most workers would find new opportunities fairly quickly.
The economic growth forecasts from Capital Economics have not been adjusted due to these anticipated federal job cuts, and experts assert that even with secondary effects factored in, the overall economy is unlikely to enter a recession as a direct result.
However, the broader economic landscape is complicated by diminishing employment and other policies from the Trump administration, which may create additional challenges in the near term.
With signs of economic strength prior to 2025, these accumulating issues present potential concerns for ongoing stability.
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