We have been thinking about how the DOGE layoff announcements may impact the upcoming labor market data. While the headlines have been frequent, we still see a wide range of estimates in terms of the overall impact on the economy. In total, we estimate the potential range of job losses from 100,000 in a low-layoff scenario to 550,000 in a high-layoff scenario. Below, we provide our estimates for the DOGE cuts and how those could show up in the data releases in the coming months with respect to payrolls, the unemployment rate, and jobless claims.<\/p>\n
To start, we group the layoffs into three broad buckets (1) workers who have accepted a buyout; (2) workers laid off due to their probation status; and (3) contractor workforce cuts resulting from spending cuts. <\/p>\n
In our view, the buyouts are less of concern because those workers accepting buyouts will remain on payroll until September and most are likely going to retire, limiting the impact on the unemployment rate, jobless claims, and consumer spending. It is worth noting that workers on probation are not eligible for the buyouts, so we don\u2019t risk double counting. The latest figures we have seen for the buyouts have been as high as 80,000 and may continue to rise \u2013 about 26% of the government workforce is over the age of 55 after all.<\/p>\n
For the workers on probation who are facing layoffs, the Federal government added around 75K jobs to payrolls in 2024 \u2013 suggesting at the low-end, that number would represent the workers who are still be on probation status. On the high end, JOLTS hiring data suggests the Federal workforce hired 430K workers in 2024, representing our high-end estimate. For our most-likely figure, we assume many of those newly hired workers filled essential roles, and therefore would likely be protected from layoffs.<\/p>\n
Perhaps surprisingly, of those newly hired workers, the geography is spread out and DC does NOT have the most new hires \u2013 meaning DC jobless claim won\u2019t necessarily see a massive spike. Virginia and Maryland ranked above DC in terms of new Federal jobs added in the last year, as well as Florida, Texas, California, North Carolina, and Georgia. That said, the relative impact to state economies is what matters more, and indeed DC has the highest concentration of Federal workers followed by Virginia and Maryland. Outside of the DC region, the biggest impacts will likely be felt in smaller states throughout the Midwest and Mountain states with national parks as well as Alaska and Hawaii (see the map below highlighting states with a higher concentration of federal workers in yellow).<\/p>\n
The impact of DOGE cuts on contract workers is so far ambiguous. When federal contracts end, contract workers employed by consulting firms may be reassigned to private sector contracts rather than laid off. While cancellation of larger scale defense contracts would be a red flag, there is no indication that these contracts are going to be eliminated. So far, DOGE is reporting roughly $8 billion in savings resulting from cuts, primarily targeting smaller service providers. Assuming a range of $200k-$300k of revenue per worker, that would translate into 25K to 40K job losses.<\/p>\n
Interestingly, this layoff approach is reminiscent of Clinton-era Federal Workforce Restructuring Act\u2019s voluntary buyouts and early retirement policies, but pales in comparison to 90s reduction of federal workforce (17% reduction). The FWRA pushed the federal government towards a greater utilization of contract workers. If history repeats itself, we could see demand for contractors increase as a result of DOGE layoffs.<\/p>\n
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\nLocation quotient 101: A location quotient (LQ) represents the relative concentration of federal employment in a given state. An LQ below 1.0 suggests that the federal government is a relatively less important source of employment compared to the U.S. overall (a smaller LQ means fewer federal employees as a share of total state employment). An LQ above 1.0 represents a higher concentration of federal workers relative to the national average. The highest concentration of Federal workers is in Washington DC with an LQ of 13.2, meaning the share of federal employment in DC is 13.2x the national average. <\/em>\n<\/p>\n<\/div>\n Mike Reid<\/strong> is a Senior U.S. Economist at RBC. He is responsible for generating RBC’s U.S. economic outlook, providing commentary on macro indicators, and producing written analysis around the economic backdrop.<\/em><\/p>\n Carrie Freestone<\/strong> is a member of the macroeconomic analysis group and is responsible for examining key economic trends including consumer spending, labour markets, GDP, and inflation.<\/em><\/p>\n
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