(CNN) — Elon Musk, wielding a chainsaw, is overseeing a rapid shrinking of the nation’s largest employer: the federal government.
There’s no doubt the federal government’s 3.02 million-person civilian workforce is massive. Yet some economists are confident the widespread terminations spearheaded by Musk’s Department of Government Efficiency (DOGE) will likely not devastate the national economy or even topple the historically strong jobs market.
“It’s not going to tip the economy into recession by itself,” said Stephanie Roth, chief economist at Wolfe Research.
That’s in part because the federal layoffs are expected to affect a small fraction of the much larger US labor force. The federal civilian workforce, which excludes military personnel and employees of the CIA and other military agencies, represents less than 2% of the total civilian labor force of 170.7 million.
Still, the mass layoffs in the public sector threaten to upend the livelihoods of federal workers and their families, as well as destabilize a traditionally stable economic engine within many communities.
“These are real people. It’s a real hit. This is not something we should be celebrating,” said Joe Brusuelas, chief economist at RSM.
Drop in the bucket
There remains considerable uncertainty over just how many federal workers have been laid off and how many more will be let go in the coming days, weeks and months. That uncertainty is magnified by ongoing legal challenges and threats by Musk for deeper cuts.
As CNN has reported, thousands of probationary workers (who have typically been employed for less than a year or two) have been laid off across various government agencies, including the departments of Energy, Education and Veterans Affairs as well as at the Small Business Administration and the Consumer Financial Protection Bureau.
Roth expects the number of probationary job cuts to eventually climb to around 80,000, up from her current estimate of about 20,000. More than 200,000 employees have worked with the federal government for less than a year, according to 2024 data compiled by the US Office of Personnel Management.
Brusuelas expects the DOGE layoffs to ultimately eliminate between 200,000 and 300,000 jobs in the federal government. Another 450,000 contractors — many of them veterans — could be at risk of losing their jobs, too.
That’s on top of the approximately 77,000 employees who have already accepted the Trump administration’s deferred resignation offers. The offers generally allow workers to leave their jobs but continue to get paid through the end of September.
“It’s a tragedy, but it’s not going to impact the direction of the overall economy,” Brusuelas said, adding that many laid-off government workers could find jobs in the private sector.
But even if the mass layoffs aren’t enough to trigger a recession, they don’t come without risk, said Ron Hetrick, senior labor economist at Lightcast, a labor market data and research firm.
“It puts the variable of uncertainty into the equation. And uncertainty is really bad for the economy and for labor markets, because uncertainty means everybody pauses,” he said. “That’s what the biggest (economic) risk is in the short run right now.”
Broader economic concerns
Economists are paying extra close attention to weekly jobless claims data as well as future jobs reports for signs of increasing stress in the labor market.
Also, not all laid-off employees are leaving the federal workforce. Some have been reinstated and others could become government contractors, likely at a higher pay rate.
“We could have a situation where the labor market data does not deteriorate nearly as much as people are fearing,” said Ernie Tedeschi, director of economics at the Budget Lab at Yale University and a former top economist in the Biden White House.
Of course, the federal layoffs are not taking place in a vacuum.
Businesses are grappling with economic uncertainty and potentially higher costs caused by the Trump administration’s tariffs, among other conflicting forces. On the positive side, businesses have expressed optimism about potential benefits from tax cuts and deregulation.
Some economists expect President Donald Trump’s immigration crackdown to have a far larger impact on the jobs market than the federal layoffs.
The federal layoffs could boost the 4% unemployment rate by 0.05 percentage point, according to Wolfe Research. That’s dwarfed by the 0.2 percentage point hit to the unemployment rate that Wolfe Research projects from the immigration crackdown.
‘We were hoping we’d be safe’
Economists say the DOGE-led layoffs will have a profound impact on local economies where federal employment is concentrated.
Consider that about 23% of federal civilian workers are located in Maryland, Virginia and Washington, DC, according to a December report from the Congressional Research Service.
Mass layoffs in the Beltway could force some residents to put their homes up for sale at depressed values, denting the real estate market. Local businesses that rely on federal workers could be hurt, too.
“The DC economy is going to feel it quite deeply. There can be a domino effect to local businesses,” said Tedeschi.
But it’s not just the Beltway at risk.
Emma Freerks, a 24-year-old living in Iowa City, Iowa, found out on Valentine’s Day that she was being laid off from her job as a physical science technician at the US Geological Survey.
“I was shocked, but not surprised,” Freerks told CNN in a phone interview. “We were hoping we’d be safe because our department brings in money to the government.”
Before her termination, Freerks had hoped to apply for civil servant student loan forgiveness to address her $25,000 of student debt. She worries the federal layoffs are doing more harm than good.
“They spent all this money training me, and that’s going to waste,” Freerks said. “Now I’ll have to go on unemployment, which is still government-funded.”
The ripple effects
In some regions, federal jobs make up 6% or 7% of total employment, including certain congressional districts in Alabama, Alaska, Colorado, Missouri, New Mexico, Ohio, Oklahoma, North Carolina, Texas and Washington.
In Kansas City, Missouri, where about 30,000 federal employees work, the Internal Revenue Services is the city’s largest employer, said Donna Ginther, and economics professor and director of the Institute for Policy & Social Research at the University of Kansas.
“And these are high-paying jobs,” she said. “Some have estimated that there are about 3,000 employees at risk of being laid off in the Kansas City area.”
However, the local economy would have difficulty absorbing those layoffs, she said, noting current job listings requiring a bachelor’s degree.
“In addition, there’s a multiplier effect,” she added. “Whenever somebody loses their jobs, they get unemployment, which only covers a small portion of their total wages, so they stop consuming in the local economy.”
It also goes well beyond consumer spending.
“The other part is that (the administration) is ending government contracts, and they’re cutting expenditures to universities,” said Marcus Casey, an associate professor at the University of Illinois at Chicago’s Department of Economics.
Not only are those places that would align closely with federal workers’ skillsets, but cuts to those anchor institutions have significant downstream effects as well, he added.
That could spell concern for places in Colorado, specifically communities in Boulder County where federal labs have operated for decades and contributed to a high-tech ecosystem.
“Not only are we concerned about the jobs themselves and that they’re high-wage jobs, but (also) the research function that they play and the downstream impacts that these jobs actually have,” said Brian Lewandowski, executive director of the Business Research Division at the University of Colorado’s Leeds School of Business.
As startup-friendly Boulder and Colorado have seen so often: early-stage research ultimately leads to further research or commercialization down the road.
While there are some potential silver linings from attempts to right-size the federal government and curb federal spending, the uncertainty extends beyond near-term job losses, Lewandowski said.
“I think there are a couple of risks (to federal cuts), one that’s front of mind for me is the risk to innovation,” he said. “I think another clear risk is that when this is disrupted, how easy or hard is it to ever put back together? Do we lose something unique that’s been built over many decades?”
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