Potential large-scale job losses among federal employees may negatively impact family finances and local communities' economic growth, yet possibly not significantly affect the nation's overall economy.
The federal government's gigantic civilian workforce of 3.02 million individuals may not be in immediate danger, despite the Department of Government Efficiency (DOGE) spearheaded by Elon Musk causing widespread terminations. Economists, like Stephanie Roth from Wolfe Research, express confidence that these layoffs aren't likely to send the country into an economic recession or destabilize the historically resilient jobs market.
The federal workforce, excluding military personnel and employees of intelligence agencies, makes up only about 2% of the total civilian labor force of 170.7 million people. This means that although the layoffs will undoubtedly impact federal workers and their families, as well as certain communities, they will only affect a small fraction of the overall labor force.
"These are real people, it's a real hit. This is not something we should be celebrating," said Joe Brusuelas, chief economist at RSM.
Effects and Uncertainty
Despite these assurances, the precise number of federal workers that have been or are about to be laid off remains uncertain. Legal challenges and threats by Musk for deeper cuts compound this uncertainty. As of now, reports indicate that thousands of federal employees, primarily those who have been on the job for less than a year or two, have been let go from various departments, including Energy, Education, and Veterans Affairs.
Chief economist at RSM, Joe Brusuelas, estimates that the DOGE layoffs will ultimately eliminate between 200,000 and 300,000 jobs in the federal government. In addition, 450,000 contractors, many of them veterans, have a high risk of losing their jobs.
However, it's essential to remember that the federal layoffs don't occur in isolation. Businesses, depending on the set of conflicting forces, are grappling with economic uncertainty and potentially higher costs associated with tariffs. On the upside, businesses express optimism regarding potential benefits from tax cuts and deregulation.
Beyond the Headlines
In specific regions, federal jobs represent a substantial portion of total employment, affecting local economies. For instance, about 23% of federal civilian workers are based in Maryland, Virginia, and Washington D.C. Mass layoffs in these areas could lead to real estate market deflation and temple economic challenges for local businesses.
Additionally, 6% or 7% in some congressional districts in various states, including Colorado, Alabama, North Carolina, Texas, and Washington, have high concentrations of federal workers. Eighteen districts, in particular, have over 5,000 federal workers, with New Mexico's 2nd District and Ohio's 9th District having over 20,000 each.
[1]: Source: Brookings Institution[2]: Source: CNN Report
The DOGE-led layoffs pose a significant risk for local economies and communities, with potential domino effects on businesses and the real estate market. However, some economists are optimistic that the labor market data won't deteriorate as much as feared. Whether the impact will truly be devastating or merely a bump in the road remains to be seen.
The layoffs initiated by Elon Musk's Department of Government Efficiency (DOGE) could potentially magnify challenges for businesses, especially those reliant on federal contracts.
The uncertainty surrounding the exact number of federal employees affected by the layoffs, coupled with legal challenges and further potential cuts, creates a volatile business ecosystem.
Despite the potential impact of layoffs on specific regions with high concentrations of federal workers, some economists remain hopeful that the overall labor market won't see severe deterioration.
