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By Aman Kidwai
Workplaces Editor
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More than 200,000 employees of the federal government have been laid off as a result of the new presidential administration's actions, including the dissolution of the entire agency for international development (USAID). These workers have been unexpectedly thrust into a competitive job market, alongside hundreds of thousands of similarly skilled peers.
"According to a Pew Research Center analysis, about 92 percent of federal employees are engaged in knowledge work or 'white collar' roles," Allison Shrivastava, economist at Indeed, told Newsweek via email. Indeed's research has found that 68 percent of federal employees looking for new jobs have a bachelor's degree, and 28 percent have a master's.
Shrivastava added that "employer demand for knowledge work is generally lower now than it was before the pandemic." The latest federal jobs report reflected a huge growth in federal layoffs, but the full impact of those figures has not yet been felt by the data.
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Previously viewed as stable jobs, federal jobs have become unstable and insecure; former federal workers are now seeking private sector employment, or other options, and many who kept their job are looking while fearful of being laid off. Data from Indeed suggests that job applications from within the federal government have increased over the last few months.
"As federal government layoffs go into effect, the unemployment rate is likely to increase because the private sector is not hiring quickly enough to absorb these newly unemployed workers," Nicholas Tremper, senior economist at HR technology company Gusto, told Newsweek via email.
On top of the recent tightening of the job market, financial indexes are in steep decline since the wave of tariffs announced by President Donald Trump, though some of them have since been lightened.
"Since the beginning of 2024, the private job market has been frozen," Tremper said. "This is mostly because businesses are highly uncertain about what the economy will look like next month, let alone six months from now."
When jobs are not abundant, people are less likely to leave, creating fewer openings than under healthier market conditions.
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"Businesses and employees alike are in a 'wait and see' period," Tremper said. "Employees are not leaving their jobs, and employers are not hiring. Since there aren't many vacancies, there are a lot of applicants for each new job posting. Newly laid off federal employees are joining a job market that's already competitive and will become more so as they start their job searches."
While job creation is not likely to occur in the federal government, and job growth is not high in the corporate sphere, job openings could potentially come from a healthier labor market where people are leaving for better jobs or receiving internal promotions.
"Both layoffs and quits are low, and hiring is slowing down as the market waits to see how the dust will settle amid both layoffs and tariff announcements. I'll be watching that quits and layoff rate closely to see what the spillover into the rest of the economy will be," Shrivastava said.
In basic economics, a surplus of labor supply can depress wages. In this case, it may also push people into new career paths.
"A huge influx of federal workers competing for a smaller pool of knowledge-work jobs could impact wage growth and may even lead to workers taking jobs outside their preferred field," Shrivastava said.
Other options for displaced workers include starting a business, freelancing or graduate school. New data suggests that all of these paths are on the rise. Recent Gusto research found a 67-percent increase in the share of people who said that they started their business because of job loss in the past year.
"Additionally, small businesses are becoming increasingly comfortable hiring contractors, and newly laid off workers may seek contracting opportunities while they're looking for their next full-time role," Tremper said.
Recent Newsweek reporting has highlighted the mental health challenges that federal workers and their families are facing at this time, including current federal workers wary of the threat of future job cuts.
"There is another consideration when talking about spillover effects on the labor market: uncertainty and shaken confidence," Shrivastava said. "Unclear messaging on layoffs and the size of the reductions will very likely cause other segments of the labor market to consider whether or not they should expand or contract themselves...while the headline numbers on the labor market are still strong, they are effectively frozen."
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