What happens when the largest employer in an economy begins mass layoffs
Elon Musk’s federal government is pursuing the largest reduction of workforce in recent history.
Musk’s new directive has caused agencies to be in chaos.
The President is adamant in his decision. However, workers at the federal level, consumers, and investors are bracing themselves for possible economic consequences.
Musk’s ultimatum of “five achievements”
Elon Musk (now head of Department of Government Efficiency, DOGE) ordered federal employees to provide five bullets describing their achievements from the previous week.
A message from the Office of Personnel Management was sent to warn that failure of response would be viewed as voluntary resignation.
The confusion spread when agencies such as the FBI, CIA and State Department informed their employees that they should ignore this request, citing concerns about privacy and procedural issues.
Trump supported Musk’s decision, calling it a “genius”. He also claimed that it would reveal non-existent ghost employees who allegedly collected government salaries, despite the fact that evidence was provided in support of this claim.
The rollout of this ultimatum revealed serious weaknesses in leadership and logistics.
This email was sent out to all employees in the government including those who work for the judiciary and legislative branches, both of which are not under the authority of the executive branch.
Some employees on leave approved or who do not have regular access to email were completely unaware of this demand.
Musk, however, insisted that non-compliance with the OPM order would result in termination.
The inconsistency created an uneasy work environment and left the employees unsure of their future.
Experts in law questioned Musk’s threats, because federal employment laws protect civil servants against arbitrary terminations without due process.
The ultimatum did not streamline government operations; it highlighted poor organization, lack of communication and disregard for employment protections.
Can this be the largest job reduction in US history?
The Wall Street Journal reports that the federal government will employ around 2.4 millions civilians by January 2025. This does not include postal workers.
More than 300,000 Federal employees were laid off, or bought out, since Trump returned to office, and Musk was appointed to DOGE. This is more than IBM’s 1993 record of 60,000 layoffs.
JPMorgan Chase estimated that the loss of federal jobs could be as high as 475,000, which is a 20 percent reduction.
Banks are also starting to lay off employees for the year 2025.
This process was aggressive. White House confirms that by mid-February more than 75,000 employees had agreed to buyout offers, and would continue to be paid through September.
Another 200,000 employees on probation, those who have less than one year’s service, could be terminated.
Many positions will not be filled because agencies are freezing their hiring.
What are the economic consequences?
In a national context, the idea of cutting 475,000 positions sounds doable.
There are 159 millions non-farm workers in the US, so these layoffs will only affect total employment by 0.3%.
The damage has already been seen in different parts of the country.
Washington, D.C., which has 10% federal employees, is experiencing mild recession.
Maryland and Virginia have experienced an increase in unemployment claims. Both states are heavily dependent on jobs with the government.
Maryland reported 1,350 layoffs in February, up from 226 the previous year.
The pressure is also felt by contractors.
Many of the 5.2 millions contract workers employed by government agencies are being laid off as they freeze their projects.
Many businesses have already cut back on their budgets, afraid that government customers will not renew their contracts.
The consumer confidence also continues to decline.
In a survey conducted by the University of Michigan in February 2025, more than half of Americans expect that unemployment will rise. This is the highest percentage of Americans since April 2020.
Savings of $55 billion or a bad accounting?
Musk claims that DOGE has saved the government $55 billion since its launch.
The DOGE website, however, lists 1,127 contracts terminated across 39 agencies totaling $8.6 Billion, which is far less than the figure claimed.
A contract worth $8 billion for diversity services was corrected later to only $8 million. This is a discrepancy of 99.9%.
DOGE says the savings are due to fraud detection, asset sale, and cancellation of grants.
Only 20% of these savings were documented publicly, while independent analysts such as The Washington Post called this $55 billion figure “wildly exaggerated.”
What does Wall Street think?
Steve Cohen, the billionaire manager of a hedge fund and one of its most prominent investors, is among the few who warn about risks.
He predicts that the US GDP will grow from 2,5% to 1,5% by 2025’s second half.
Cohen claims that Trump’s immigration and tariff restrictions combined with Musk’s cuts to the federal workforce will cause economic hardships.
Labor shortages could drive wages up, maintaining inflation.
Although he doesn’t expect a recession to be severe, he warns investors that they should prepare for volatility.
In his shareholder letter, Warren Buffett offered an alternative perspective.
Berkshire Hathaway, he said, paid more federal taxes than any other firm last year.
Buffett said that government must be effective, but should not be dismantled hastily.
Musk’s aggressive style is also dividing Trump’s inner-circle.
Other senior officials resist his tactics, even though the President remains his staunchest supporter.
Trump supporters are questioning whether Musk has lost control over DOGE.
Security concerns and ongoing litigation suggest that the president’s authority may not be absolute.
Trump has, on the other hand, dismissed any possibility of a split. He said that Musk was “doing an excellent job” and that he should be “even more aggressive.”
What is a reckless experiment?
Musk is known to have repeatedly called federal workers unproductive and argued that their resistance to his requests proves this point.
His war against federal employees may have reached a boiling point as lawsuits are mounting, the public’s trust in DOGE numbers is fading and there is growing internal resistance.
Some terminations may be reversed if a court rules that firing probationary workers in mass is illegal.
Trump may have to change his course if the economic impact of these cuts extends beyond Washington.
Musk could make a big difference to the government by the end the year if he can find a way to implement his reforms in spite of all the confusion.
As new information becomes available, this post may change.
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