Wells Fargo economists analyzed the potential impact of the Trump administration's efforts to reduce the size of the federal workforce on the labor market.
Investing.com -- In a report released Thursday, Wells Fargo economists analyzed the potential impact of the Trump administration's efforts to reduce the size of the federal workforce on the labor market.
The administration has prioritized workforce reduction since taking office, employing strategies such as a hiring freeze, deferred resignations, and layoffs. Despite these measures, federal employment constitutes a small portion of the total U.S. payrolls at 1.5%, excluding the Post Office.
Over the past year, the federal government, without the Post Office, added approximately 4,000 jobs to the economy, a fraction of the 168,000 net jobs created. The hiring freeze, which has been partially offset by exemptions for certain government activities, is anticipated to contribute to a decrease in federal employment as hiring halts while natural attrition continues.
In late January, the administration offered federal employees the option to resign with pay and benefits through September 30, 2025, with about 75,000 workers opting for deferred resignation.
Although there is no comprehensive tracking of the layoffs, especially of "probationary" employees, Wells Fargo estimates that the reduction in federal employment due to layoffs could be between 10,000 and 100,000.
“Our best guess is that between the hiring freeze and recent layoffs, total federal employment will decline by 25K-50K over the next few months,” economists led by Sarah House noted.
“This would be in addition to the 75K or so workers who enrolled in the deferred resignation program and will roll off the federal government's payroll on September 30,” they added.
The economists also expect indirect effects on private sector employment, particularly among businesses contracting with the federal government, though they believe the impact on job growth will be modest.
According to Wells Fargo, the February jobs report is likely to show a decrease in federal payrolls by 5,000 to 10,000, with larger reductions expected in the March and April data as layoffs coincide with the ongoing hiring freeze. This could lead to a slight increase in the unemployment rate in the near term.
The bank stresses that these estimates carry significant uncertainty, citing legal challenges to layoffs and potential reversals of decisions by the administration. They also highlight that their projections do not account for future workforce reductions that may be announced.
“On net, we see the steps taken thus far to reduce federal employment as exerting only a modest dampening effect on payrolls in the coming months, but they are consistent with our expectation for the jobs market to cool somewhat further this year,” economists concluded.