What happens when an economy’s largest employer begins massive layoffs?
The US is about to find out as the federal government, now led by President Elon Musk, pushes forward with the most aggressive workforce reduction in modern history.
Thousands of federal employees have already been laid off, and Musk’s latest mandate has thrown agencies into turmoil.
While the President remains steadfast in his decision, federal workers, investors, and consumers are bracing for potentially deeper economic consequences.
Musk’s ‘five accomplishments’ ultimatum
Tensions peaked when Elon Musk, now head of the Department of Government Efficiency (DOGE), ordered all federal employees to submit five bullet points detailing their accomplishments from the past week.
The message was sent through the Office of Personnel Management (OPM), warning that failure to respond would be treated as voluntary resignation.
Confusion spread as agencies like the FBI, CIA, Pentagon, and State Department told employees to ignore the demand, citing privacy concerns and procedural flaws.
Trump backed Musk’s move, calling it “genius” and claiming it would expose non-existent “ghost employees” allegedly collecting government paychecks, although evidence has been provided to support this claim.
Nevertheless, the rollout of the ultimatum exposed serious flaws in both logistics and leadership.
The email was sent to employees across all branches of government, including the legislative and judicial sectors, which don’t fall under the executive branch’s authority.
Some workers on approved leave or without regular email access were unaware of the demand entirely.
Even the OPM itself contradicted the order, telling agencies compliance was voluntary, while Musk insisted noncompliance would lead to termination.
This inconsistency left employees uncertain about their job security and created a chaotic work environment.
Legal experts further questioned the validity of Musk’s threat, as federal employment law protects civil servants from arbitrary dismissal without due process.
Instead of streamlining government operations, the ultimatum highlighted disorganization, poor communication, and a disregard for established employment protections.
Could this be the biggest job cut in US history?
According to the Wall Street Journal, the federal government employed around 2.4 million civilian workers as of January 2025, excluding postal employees.
Since Trump’s return to office and Musk’s appointment to DOGE, more than 300,000 federal employees have been laid off or accepted buyouts, surpassing IBM’s record 1993 layoff of 60,000 workers.
According to JPMorgan Chase estimates, the final toll could reach 475,000 jobs accounting for a 20% reduction in the federal workforce.
The bank itself is also kicking off its layoff plans for 2025.
The process has been aggressive. The White House confirmed that more than 75,000 workers had accepted buyout offers by mid-February, agreeing to leave their positions while continuing to receive pay through September.
Another 200,000 probationary employees, meaning those with less than a year of service, are considered easy targets for termination.
Agencies are also freezing hiring, meaning many positions won’t be replaced.
What are the economic repercussions?
From a national perspective, cutting 475,000 jobs sounds manageable.
The US has 159 million nonfarm workers, meaning these layoffs would only reduce total employment by 0.3%.
However, the damage is already showing up regionally.
Washington, D.C., where 10% of the workforce is federal, is already experiencing a mild recession.
Maryland and Virginia, heavily reliant on government jobs, have seen rising unemployment claims.
In Maryland alone, 1,350 new layoffs were reported in February, compared to 226 the year before.
Contractors are also feeling the pressure.
The government indirectly employs 5.2 million contract workers, many of whom are losing their jobs as agencies freeze projects.
Some businesses are already cutting back, fearing their government clients won’t renew contracts.
Consumer confidence is also slipping.
The University of Michigan’s February 2025 survey showed that more than 50% of Americans now expect unemployment to rise, the highest percentage since April 2020.
$55 billion in savings or bad accounting?
Musk has repeatedly touted $55 billion in government savings since DOGE’s launch.
However, DOGE’s website lists 1,127 terminated contracts across 39 agencies, amounting to $8.6 billion, far below the claimed figure.
One glaring error involved an $8 billion ICE contract for diversity services that was later corrected to $8 million, a 99.9% discrepancy.
DOGE claims the remaining savings come from fraud detection, asset sales, and grant cancellations.
Yet only 20% of the alleged savings have been publicly documented, and independent analysts, including The Washington Post, have called the $55 billion claim “wildly inflated.”
What is Wall Street thinking?
Billionaire hedge fund manager Steve Cohen is one of the few high-profile investors warning about the risks.
He sees a market correction coming, predicting that US GDP growth will slow from 2.5% to 1.5% in the second half of 2025.
Cohen argues that Musk’s federal workforce cuts, combined with Trump’s tariffs and immigration restrictions, will create economic headwinds.
Fewer government workers mean less consumer spending, while labor shortages in key industries could push wages higher, keeping inflation sticky.
He doesn’t see a deep recession but warns that investors should be prepared for volatility.
Warren Buffett also offered a different perspective in his annual shareholder letter.
He praised the role of stable governance, noting that Berkshire Hathaway paid $26.8 billion in federal taxes last year, more than any other company.
Buffett’s message was that the government should be efficient, but not dismantled in haste.
Musk’s aggressive approach is also starting to divide Trump’s inner circle.
While the president remains his biggest backer, other senior officials are resisting his tactics.
Some Trump loyalists are now questioning whether Musk is losing control of DOGE.
The chaotic rollout of the five-accomplishment email, the security concerns, and the ongoing lawsuits suggest that his authority isn’t absolute.
Trump, however, has dismissed the idea of a split, insisting that Musk is “doing a great job” and should “get even more aggressive.”
A reckless experiment?
Musk has repeatedly criticized federal employees as unproductive, claiming resistance to his demands proves his point.
But with lawsuits mounting, public trust in DOGE’s numbers fading, and internal resistance growing, his war on the federal workforce may be reaching a breaking point.
If courts rule that mass firings of probationary employees are illegal, some terminations could be reversed.
If economic fallout from the cuts spreads beyond Washington, Trump might have to adjust course.
But if Musk finds ways to push through his reforms despite the chaos, the federal government could look very different by the end of the year.
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