Mass Layoffs of Federal Workers May Impact Local Economies, but Overall Economic Effects Are Likely Minimal
The ongoing mass layoffs of federal workers, led by Elon Musk’s Department of Government Efficiency (DOGE), are reshaping the nation’s largest employer—the federal government.
While the 3.02 million-person civilian workforce is substantial, economists suggest that these widespread terminations will likely not trigger a recession or significantly affect the broader national economy.
Stephanie Roth, chief economist at Wolfe Research, notes that the layoffs will not be enough to push the economy into a downturn, as the federal civilian workforce represents less than 2% of the total US labor force of 170.7 million. Despite this, the impact on federal employees, their families, and the communities where they live could be significant.
Joe Brusuelas, chief economist at RSM, acknowledges that while the layoffs will be a tragedy for many workers, they will not shift the national economic trajectory. He suggests that many affected workers will likely find jobs in the private sector. However, some local economies, especially those heavily dependent on federal employment, are expected to feel the sting.
The exact number of layoffs remains uncertain, but estimates suggest that between 200,000 and 300,000 federal jobs could be eliminated. Additionally, 450,000 contractors, many of them veterans, are at risk of losing their positions. These job cuts follow approximately 77,000 employees accepting deferred resignation offers from the Trump administration.
While these job losses may not lead to a nationwide economic downturn, they bring a measure of uncertainty to the labor market. Ron Hetrick, senior labor economist at Lightcast, highlights that such uncertainty can create a temporary pause in economic activity, potentially affecting decision-making in businesses and households.
At a local level, the layoffs could have a far more immediate impact. In areas where federal workers are a significant portion of the labor force, such as Washington D.C., Maryland, and Virginia, local businesses may struggle due to reduced spending power from affected workers. Real estate markets could also be impacted as federal employees are forced to sell their homes.
For instance, Kansas City, Missouri, where around 30,000 federal employees work, could face challenges absorbing the loss of these high-paying jobs. Donna Ginther, an economics professor at the University of Kansas, explains that the local economy may struggle to fill these vacancies, particularly as many positions require higher educational qualifications.
Some regions with a concentration of federal employees, such as Boulder, Colorado, and areas around federal labs, could also face disruptions. These federal agencies not only provide jobs but contribute to innovation and research that support local industries. The reduction of federal employment in these areas could have ripple effects that extend far beyond the immediate layoffs.
Despite the local economic challenges, broader concerns remain about the long-term effects on the job market. Federal layoffs are only one of several factors affecting the economy. Businesses are grappling with other uncertainties, such as tariffs and immigration policies, which may have a larger impact on the overall jobs market.
