How Mass Federal Layoffs Could Impact the Economy

Summary

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WSJ Your Money Briefing

Episode: How Mass Federal Layoffs Could Impact the Economy

Date: February 26, 2025
Host: Mariana Aspuru
Guest: Justin LeHart, Wall Street Journal Reporter

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Episode Overview

This episode explores the recent mass layoffs within the federal government following new Trump administration policies, including a sweeping hiring freeze and mandates for workforce reductions. Mariana Aspuru and reporter Justin LeHart discuss the scope and uncertainty surrounding these cuts, their potential ripple effects on the broader US economy, and what this means for both federal workers and the general public. Listeners gain insight into both the human and economic impact of large-scale federal layoffs and why predicting consequences remains difficult.

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Key Discussion Points and Insights

1. Background: Why Are There Mass Federal Layoffs?

[02:13]

• On Inauguration Day, President Trump instituted a hiring freeze. This was promptly followed by departmental mandates—particularly from DOJ—to drastically reduce the size of the federal workforce.

  “On Inauguration Day, President Trump instituted a hiring freeze. Shortly after that, DOJ starts with a mandate to go in and reduce the federal workforce.”
  — Justin LeHart [02:13]

2. Deferred Resignation: What Does It Mean?

[02:27]

• About 75,000 federal workers accepted “deferred resignation.” These employees will remain on the payroll through September with pay, but are not working. They aren’t counted as layoffs yet, but aren’t actively contributing to federal operations.

  “The idea was that you’ll continue to get paid through September and not work. And as far as we can tell, about 75,000 people accepted that.”
  — Justin LeHart [02:34]

3. Scale and Numbers: How Many Jobs Are at Risk?

[03:00–04:10]

• Approximately 30,000 layoffs have been confirmed so far, but numbers are unreliable and likely higher.
• Due to natural job churn and the freeze, federal employment could reduce by about 200,000 over the coming year out of a 2.4 million workforce (excluding the Postal Service).
• Affected jobs are widespread: national parks, USAID offices, and other agencies nationwide.

  "Somewhere in the neighborhood of 30,000 people were laid off...the hiring freeze alone, over the course of the year, would reduce employment by about 200,000."
  — Justin LeHart [03:12] "You're seeing park employees, you're seeing employees at USAID offices. You're seeing just folks all over the country are losing their jobs."
  — Justin LeHart [04:10]

4. When Will the Impact Show Up in the Economy?

[04:23–05:29]

• Layoffs will first be noticeable in unemployment filings before appearing in official jobs reports (which lag due to data collection timing).
• Some local economies are especially vulnerable—particularly D.C., its neighboring counties, and regions heavily reliant on federal jobs or contractors.
• Federal contractors may be even more affected, with upwards of 5 million potentially impacted, but numbers are uncertain.

5. Broader Economic Effects and Areas of Uncertainty

[05:29–07:00]

• The true economic damage depends on several unclear factors:
  • Final layoff totals.
  • Speed at which laid-off employees find new work—which is challenging as most are older and highly educated.
  • Service disruptions caused by workforce cuts. Example: Delays in Department of Education funding could disrupt state school budgets.

  "If in cutting the workforce, you stop providing those services...that can cludge up a lot of other economic activity and that can be a problem."
  — Justin LeHart [06:20]

6. Other Simultaneous Labor Market Pressures

[07:00–07:48]

• Additional stressors contributing to labor market uncertainty include:
  • Restrictions on immigration, restricting the labor supply.
  • Tariffs, causing uncertainty for business planning and hiring.
  • University and NIH funding drops, resulting in their own hiring freezes.

  "It's everything everywhere, all at once happening here. And that could have a deleterious effect on the job market."
  — Justin LeHart [07:44]

7. Consumer Behavior Effects

[07:48–08:33]

• Direct spending cuts by laid-off federal workers.
• “Survivors” in the federal workforce may become more cautious, further dampening spending.
• Widespread media coverage of layoffs may make all consumers more cautious.

  “If you are a federal worker and you lose your job, you are going to spend less money until you’re able to find new employment...maybe you’re not going to think about buying that new washing machine. Maybe you’re going to be a little bit more conservative with your cash.”
  — Justin LeHart [07:52]
  “Just seeing that, worrying about that, maybe people get a little bit cautious when it comes to spending.”
  — Justin LeHart [08:24]

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Noteworthy Quotes and Memorable Moments

• On Data Uncertainty:

  “It’s unclear how good the numbers are so far, and this is really through last Friday. It was somewhere in the neighborhood of 30,000 people that were laid off. As far as folks could tell, there could be more. It seems almost certain that there is more coming.”
  — Justin LeHart [03:12]

• On Local Impact:

  “Most states have some county with a big proportion of federal workers. You might see things there. We’re seeing some job losses for federal contractors as well, as that’s a really massive group.”
  — Justin LeHart [04:56]

• On Challenges for Laid-Off Workers:

  “They tend to be pretty educated and older, and that makes it harder to find a new job. If you live in D.C. there’s not going to be as many jobs in D.C., so you might have to move.”
  — Justin LeHart [05:48]

• On the Interconnected Nature of Layoffs and Spending:

  “Maybe you’re going to be a little bit more conservative with your cash. That could have an effect on businesses.”
  — Justin LeHart [07:56]

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Timestamps of Important Segments

• 02:13 — Origin of layoffs and administration policy shifts
• 02:34 — Deferred resignation explained and acceptance numbers
• 03:12 — Scope of layoffs and possible total numbers
• 04:10 — Details on who is affected, agency breakdown
• 04:27–05:29 — Lag in economic data, local impacts, contractors
• 05:38 — Why impact remains uncertain (layoff totals, re-employment challenges)
• 06:20 — Service disruption consequences, example of Department of Education
• 07:05 — Additional labor market stressors (immigration, tariffs, funding)
• 07:52 — Impact on consumer behavior and overall confidence

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Summary

This episode provides a comprehensive examination of current mass layoffs in the federal workforce, explaining the policies that led here, the huge scope and uncertainty of their impact, and the potential for ongoing economic ripple effects. The conversation offers clear insight into why predicting the economic outcome remains difficult—numbers are uncertain, effects on service delivery are unclear, and broader economic stress is mounting from other factors. Both federal workers and consumers across the country are feeling the pressure, not only through loss of income but also diminished confidence and spending, creating a climate of economic caution that could deepen over time.

Transcript

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[Mariana Aspuru]

Briefing for Wednesday, February 26th. I'm Mariana Aspuru. For THE Wall. Recent layoffs and hiring freezes from the Trump administration have left Americans employed by the federal government on shaky ground.

[Justin LeHart]

If you are a federal worker and you lose your job, you are going to spend less money until you're able to find new employment. If you're a federal worker and you don't lose your job, but you've seen these mass layoffs, maybe you're not going to think about buying that new washing machine. Maybe you're going to be a little bit more conservative with your cash. That could have an effect on businesses.

[Mariana Aspuru]

We'll talk to Wall Street Journal reporter Justin LeHart about what it could mean for the economy if hundreds of thousands of those jobs go away. That's after the break.

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[Mariana Aspuru]

America's biggest employer, the federal government, is conducting mass layoffs and how it'll impact our economy is still unclear. Wall Street Journal reporter Justin lehart joins me. Justin, let's take a step back. What started these job cuts?

[Justin LeHart]

Well, the first thing is on Inauguration Day, President Trump instituted a hiring freeze. Shortly after that, Doge starts with a mandate to go in and reduce the federal workforce.

[Mariana Aspuru]

And now there's been something called deferred resignation on certain federal employees. Tell me where that's left some people.

[Justin LeHart]

There was an offer for deferred resignation. The idea was that you'll continue to get paid through September and not work. And as far as we can tell, about 75,000 people accepted that. So those folks are still on the payroll. They will be on the payroll through September. So they won't show up as people without jobs. But they aren't working.

[Mariana Aspuru]

When we're talking about these federal layoffs, can you throw out some numbers just so we know the scope of how many people are involved and how many people could be involved in the coming months.

[Justin LeHart]

We really don't have a great handle on this, to be honest. Some agencies have had announcements, some haven't. It's unclear how good the numbers are so far, and this is really through last Friday. It was somewhere in the neighborhood of 30,000 people that were laid off. As far as folks could tell, there could be more. It seems almost certain that there is more coming. In addition, the hiring freeze has an impact just like any other employer. There's a lot of churn in the federal government. People are retiring, people are quitting, taking new jobs and so forth. The hiring freeze alone, over the course of the year, that would reduce employment by about 200,000. And that's from a federal workforce of about 2.4 million employees. And that excludes the post office.

[Mariana Aspuru]

Tell me about some of these employees that are impacted. You said it doesn't include the Postal Service, so what does it include?

[Justin LeHart]

You're seeing park employees, you're seeing employees at USAID offices. You're seeing just folks all over the country are losing their jobs. Now, how big a portion of the workforce is it still? We don't know.

[Mariana Aspuru]

When will we know the extent of these job cuts?

[Justin LeHart]

It'll take a while for it to show up in the data. One of the first things that we'll notice is people will start filing for unemployment. So we'll see those will begin to pick up. It'll take a while for it to pick up in the monthly jobs report. And that's just because of the way that those numbers are collected. It's really a mid month number, so we really might not see the full effect of that until sometime later in the spring. There's a lot of collateral damage to the job market that we're going to see as well. There are some economies that are pretty dependent on the federal workforce. Obviously D.C. and the neighboring counties. Most states have some county with a big proportion of federal workers. You might see things there. We're seeing some job losses for federal contractors as well as that's a really massive group. We don't have a great handle on how many people are federal contractors, but the number is somewhere in the order of 5 million.

[Mariana Aspuru]

In your story, you wrote that these layoffs could have a minor or a seriously damaging impact on the economy. Why is it uncertain?

[Justin LeHart]

First thing? Because we just don't know how many there are. If you have a lot of layoffs, it could have a huge impact. If you have not so many, not as much an impact beyond the size. How quickly can people who were laid off Find new work. One concern there is they tend to be pretty educated and older, and that makes it harder to find a new job. If you live in D.C. there's not going to be as many jobs in D.C. so you might have to move. That can make those transitions difficult as well. The other thing is these federal workers, they are providing services. If you're able to cut the workforce and keep on providing those services, then that's one thing. If in cutting the workforce, you stop providing those services or you delay some of those services, that can cludge up a lot of other economic activity and that can be a problem. Let's take the Department of Education, for example. It doesn't employ that many people. There's 4,400 people at the Department of Education. Education, that's a rounding error when it comes to the US Job market. But a lot of funding for schools around the country comes from the Department of Education. So if there are any sorts of delays or problems with that funding, that's a problem for states. That could cause problems.

[Mariana Aspuru]

And what other factors are impacting the labor market right now, aside from this?

[Justin LeHart]

That's one of the most important things to think about here is it's not just one thing that's going on. At the same time we have restrictions on immigration and there's concerns about supply of workers. In that case, we have tariffs. That's causing uncertainty among businesses, making it harder for them to plan out and hire. There's also been drops in other types of funding funding for universities. A lot of universities have put through hiring freezes. There's also the worries about National Institute of Health funding, which could also have a labor market impacts. It's everything everywhere, all at once happening here. And that could have a deleterious effect on the job market.

[Mariana Aspuru]

How do these layoffs affect consumer behavior?

[Justin LeHart]

The first thing, obviously, if you are a federal worker and you lose your job, you are going to spend less money until you're able to find new employment. If you're a federal worker and you don't lose your job, but you've seen these mass layoffs, maybe you're not going to think about buying that new washing machine. Maybe you're going to be a little bit more conservative with your cash. That could have an effect on businesses. And then if you just open up sort of newspapers around the country, that news about these layoffs is there in the front pages and that could have an effect on people as well. Just seeing that, worrying about that, maybe people get a little bit cautious when it comes to spending.

[Mariana Aspuru]

That's WSJ reporter Justin lehart. And that's it for your money Briefing. This episode was produced by Zoe Culkin with supervising producer Melanie Roy. I'm Mariana Aspuru for the Wall Street Journal.

[Podcast Host/Outro Speaker]

Thanks for listening. Foreign.

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