Mar 6, 2025
As Elon Musk’s Department of Government Efficiency (DOGE) continues cutting federal jobs, concerns are growing about the broader economic impact.
Terri Wollenberg, a 30-year military veteran, was hired to help fellow veterans at the Iowa City VA, reports ABC’s KCRG-TV. However, she's now out of a job due to DOGE layoffs, which have included thousands of probationary government employees like her. Wollenberg fears these cuts will extend beyond government agencies and into the private sector, further destabilizing the job market.
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“The second or third order effects of what is happening in the government will happen in corporations as well, and Americans are gonna feel it.” Wollenberg told KCRG.
Federal job cuts are impacting thousands — could it trigger a recession?
Wollenberg served in the military for 30 years before taking a role at the Iowa City VA. She was still a probationary worker, meaning she was still in her two years of a new role. The term probationary worker can refer to recent federal hires, but it also includes seasoned employees who recently switched positions.
Wollenberg says she was abruptly laid off and received an email citing ‘poor performance.’ She is now worried not just about herself, but also about the veterans she served and the economy as a whole.
“There is no one now to meet our clients at the door, there’s no one to confirm schedules, no one to help and assist with our counselors,” she said.
While there is no official count on how many federal workers have been laid off, The Associated Press reports that data from the Office of Personnel Management (OPM), which serves as the human resources arm of the federal government, shows 220,000 federal employees had less than a year on the job as of March 2024 — leaving them vulnerable to termination.
The Trump administration has indicated that deeper staffing and spending cuts could follow, leading many to be concerned about how the layoffs could impact the broader economy.
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However, economists say these layoffs alone are unlikely to trigger a recession on their own.
“It puts the variable of uncertainty into the equation. And uncertainty is really bad for the economy and for labor markets, because uncertainty means everybody pauses,” said Ron Hetrick, senior labor economist at Lightcast, in an interview with CNN.
“That’s what the biggest (economic) risk is in the short run right now.”
Stephanie Roth, chief economist at Wolfe Research, echoes Hetrick's thoughts.
“It’s not going to tip the economy into recession by itself,” she told CNN.
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How federal job cuts could impact you
While these federal layoffs may not directly cause a recession, they can create ripple effects that affect everyday Americans in several ways.
A more competitive job market
The sudden influx of laid-off federal workers means more competition for open positions, especially in fields like contracting, health care and administration — industries that closely interact with government agencies. If you work in an industry that does, you may see an increase in job applicants, making it harder to land a role.
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These layoffs come as private sector job cuts are already rising. More than 19,000 jobs have been lost in the tech sector in 2025, according to Layoff.fyi. Companies like HP, Grubhub, eBay, Meta and Expedia have all reported workforce reductions in recent months.
Reduced consumer spending resulting in slower economic growth
When workers are laid off, they generally cut back on spending — whether that’s dining out, home renovations or major purchases like cars and appliances. That decline in consumer spending can slow economic growth and impact business growth.
A reduction in spending may be felt even more keenly due to boycotts, as Americans push back against policies with their wallets. Companies like Target and Walmart are already seeing a decline in traffic and sales — though it's unclear if the dips are due to boycotts, layoffs or inflation.
Increased market volatility and economic uncertainty
One of the most significant risks isn’t the layoffs themselves — it’s the uncertainty they create. When businesses and consumers feel unsure about the stability of the economy, we can see things like delayed hiring, postponed investment and cuts to discretionary spending.
In the stock market, investors react strongly to labor market trends. Layoffs, especially in government or major industries like tech, can create what experts call "market jitters" — fluctuations in stock prices based on anxiety and fear.
The layoffs in the federal workforce won’t single-handedly push the U.S. into a recession, but they do add stress to an already uncertain economy. For workers outside of government, this could mean longer job searches, increased competition and general economic uncertainty.
For now, economists remain cautious but not alarmed. However, if consumer confidence drops further and layoffs continue, the economic picture could become more unstable in the months ahead.
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Danielle is a personal finance writer based in Ohio. Her work has appeared in numerous publications including Motley Fool and Business Insider. She believes financial literacy key to helping people build a life they love.
