Uncertainty Reigns as Mass Federal Layoffs Continue

The impact of mass layoffs of federal workers on the economy and the labor market is in flux as legal challenges continue against the Trump administration.

A union representing federal workers has emphasized that 80% of its membership resides outside the D.C. metropolitan area, indicating the potential national implications of these layoffs.

Targeted in these layoffs are probationary employees, often newly hired individuals or those recently transferred to a new federal agency position. Legal experts suggest this group is being targeted as the Trump administration believes it has more legal authority to terminate probationary staff compared to longer-tenured civil servants.

Fifth Third Commercial Bank Chief Economist Jeff Korzenik said it is still early to gauge how much of an impact the federal workforce layoffs will have on the labor market. Additionally, legal challenges continue, causing a level of uncertainty.

For example, U.S. District Judge Amy Berman Jackson of the U.S. District Court of the District of Columbia on Tuesday scheduled a March 3 hearing in the suit related to mass layoffs at the Consumer Financial Protection Bureau (CFPB). The lawsuit was filed by the National Treasury Employees Union, the National Consumer Law Center, the NAACP, the Virginia Poverty Law Center, Pastor Eva Steege and the CFPB Employee Association. American Banker reported Wednesday that the agency’s future is beginning to be questioned by banking executives.

ABC News reported that a federal judge did not issue a ruling late Tuesday at a hearing attended by five federal employee unions hoping for a restraining order that would temporarily keep the Trump administration from instituting significant layoffs. The suit was filed last week and claimed that the layoffs would violate Congress’ power to establish a federal workforce.

Korzenik compared the recent downsizing to a downsizing initiative President Bill Clinton’s administration that eliminated over 300,000 jobs in the federal government. The size of the federal workforce then was similar to today, he said.

“While devastating for families involved, and likely to impact the local economies close to (Washington) DC, it is less likely to be a major macroeconomic event, although the Fed takes everything relevant into account,” Korzenik said.

The unemployment rate is considered as people who are jobless, actively seeking work, and available to take a job, as discussed above. It is calculated as the number of unemployed divided by the labor force, expressed as a percentage, according to the U.S. Bureau of Labor Statistics. For every roughly 170,000 additional job seekers, the unemployment rate goes up by one tenth of one percent, Korzenik said. He confirmed that there are now 6.8 million unemployed out of a total civilian workforce of 170.7 million

Yet some of the laid off federal employees may not choose to stay in the workforce. Many also work outside of Washington DC in areas around the country. 

“Many older workers close to retirement simply choose to retire early. Others may leave if their job hunt proves disappointing,” Korzenik said. “Many of these jobs are in the Washington DC area and job hunters may be unwilling or unable to broaden their geographic search, limiting opportunities.”

There is a broad array of talent among government workers, but the experience sometimes does not translate easily to private sectors jobs, even if the skills align, he added. “Many federal government workers may first seek out local and state government opportunities, as well as nonprofits, simply because the transition and culture may be perceived to be more compatible,” Korzenik said. The labor market has slowed a bit in recent months.

The latest jobs report from the U.S. Bureau of Labor Statistics showed that the U.S. economy added 143,000 jobs in January, well below estimates of 170,000. EY senior economist Lydia Boussour told Entrepreneur earlier this week that the Federal Reserve will be more cautious with rate cuts in 2025 in response.