The Economic Impact of the Federal Worker Job Cuts, with Justin Ladner and Jim Link

Mo Fathelbab: Welcome to today's episode of People and Strategy. I'm your host, Mo Fathelbab, President of International Facilitators Organization. People and Strategy is a podcast from the SHRM Executive Network, the premier network of executives in the field of human resources. Each week, we bring you in depth conversations with the country's top HR executives and thought leaders. For today's conversation, I'm excited to be joined by SHRM CHRO Jim Link and SHRM Labor Economist Justin Ladner. Welcome, Jim and Justin.  

Justin Ladner: Thank you, Mo.  

Mo Fathelbab: How are you guys doing today?  

Jim Link: It's a pleasure to be here. Thank you so much. Great topic we're going to uncover.  

Mo Fathelbab: It is going to be fun. 

Jim Link: Let's roll. Let's roll.  

Mo Fathelbab: So, Jim, let's start with you. We've seen several executive orders recently that, uh, have affected federal buyouts. This federal hiring freeze, uh, and they signal an intended reduction of, uh, the federal labor workforce. How is that going to have an impact on the economy? How is that going to have an impact on the job market? How is it going to impact the private sector? What other ways is it going to impact us?  

Jim Link: Well, the true answer to that question, Mo, at the moment is we don't yet know. But if we think about the potential impact related to these things, it's a matter of at what frequency these things occur over what period of time and how many numbers of people we're actually talking about that could potentially be impacted. 

And I know Justin has some thoughts on the types of people that the government currently employs as well. So if we just look at those distributions and we think about the talent and the capability That could potentially be coming out of the government as a result of these exercises that you're describing. 

I think the most interesting thing we as human resource practitioners need to do is how to think about how we attract parliamentary vote. Retain and engage these potential new entrants into the workforce in a way that can make our businesses and companies succeed.  

Mo Fathelbab: So Justin, speaking from a scientific data perspective, how's it looking from your perspective? 

Justin Ladner: Yeah, so I think, I mean the first, What is the set of people that are potentially affected? What do we mean by the federal civilian workers that could be affected by the executive orders and other actions? Um, a good proxy for that is a data set that's called FedScope. It's maintained by OPM. Um, and it captures basically the, uh, federal civilian workers in the executive branch, outside of the United States Postal Service, which is broadly exempted from, from these, uh, from these recent orders. 

So that's about 2. 3 million, uh, federal workers. So it's not a perfect example. There are some people in that set that are going to be excluded. There are some people that are outside of that set that are going to be included. Um, but it's a pretty good proxy for the set of people that are likely to be affected. 

So it's 2. 3 million. I mean, in terms of skill sets, very diverse. It's got some characteristics that are in some ways similar to the, the broader, uh, employed population at large, in some ways different. So I know we're going to talk about a lot of those nuances, but broadly speaking, that is the group of people that will be affected. 

And as Jim said, uh, a huge consideration here in terms of the economic and labor market effects is going to be, uh, exactly the timing of how this plays out, um, and the actual magnitude of the ultimate, uh, reduction.  

Mo Fathelbab: So, so how do you guys see employers shifting their recruiting strategies as a result of these federal actions? 

Jim Link: Yeah. I mean, employers need to be thinking about this labor pool. That's going to potentially be available in some shape, form or fashion. And we know, for example, that elements of those, of that pool of people are, are in specific parts of the country. Of course, they're in the Washington DMV area. 

They, they are in Texas, they're in California, they're in other places in greater magnitudes than they are. Uh, and others. So this is going to be varied, again, depending upon how many people are impacted, but also where they're impacted, uh, as you, as you think about this. And Justin and I were having a conversation yesterday that one of the things that could be potentially interesting about this for employers to think about is their current mobility practices, their relocation policies and practices and what that means. 

So if you're trying to attract a very talented employee who today is based here in the DMV, And you have that role in St. Louis, Missouri, as an example, you better have a good, um, strategy in place to be able to bring that person over from a relocation perspective. And the other thing too, that I think is very, very vital that we consider here is when you look at the population of people who are coming out of the government, they, they worked in government. 

They did not work in the traditional corporate or organizational structures that many of us work, work in today. So as an employer, Who works in my case today in the not-for-profit sector, having worked in the for-profit sector for the, for the previous many number of years of my, of my life. I think the right way to think about this is today. 

If I'm an HR practitioner, I'm thinking very clearly about the capabilities that these folks bring into the workplace, how to align those capabilities with my needs. And then most importantly, how I need to transition their mindset out of that, out of that government structure into success in a corporate or organizational structure. 

So, if you're an HR practitioner and you're starting there, I think you're off to a good start already because there's so many unanswered questions that we have yet about. How many, where, when, and, uh, with what skill set.  

Mo Fathelbab: So, so how do you guys foresee those skills lining up from the public sector to the private sector? 

Justin Ladner: So in terms of the types of workers that are in the federal government, again, I mentioned sort of diverse skill sets, but they are concentrated in, in different areas. So for example, there are of the 2. 3 million workers that I mentioned, about three quarters of a million of them are in a, Occupational group that we'd broadly call business and financial operations. 

That's a very broad group, but basically speaking that's sort of business logistics type operations that includes HR. Um, it includes, um, a lot of different categories of workers that would fall into that, uh, type of work, excluding, uh, clerical type work, which is, which is an office and administrative support. 

Um, so that's going to be a very big group. Um, there's also, so the, the federal government employs a lot of people in life, physical, and social sciences. So a, a lot of, I mean, um, there's lots of different agencies that employ scientists directly or, or scientific technicians. Um, so that's another big group, which again is, um, kind of over represented in the federal workforce relative to the emplo to, to the population at large. 

So you asked this question about how, how are employers going to be affected. I think a big, a big part of this is sort of who are, what are the skills you're actually looking for. So there certainly are going to be skill sets. That employers are looking for right now that aren't really in the federal government. 

So the answer for those people, for those employers is gonna be really, this doesn't mean much, right? So if I was trying to hire, uh, food and prep, food preparation and serving workers, for example. The federal government doesn't really employ people in that, in that set. So this, this, uh, this potential, um, exodus of workers from the federal government doesn't really have any implications, uh, for a worker like that. 

But for a lot of other groups, uh, legal, I mentioned business and financial operations, life, physical, social sciences, sciences, there, there are big enough populations of people, um, that are, that are potentially flowing out to have meaningful impacts. And again, another issue I would say is that, um, the locality is a big deal. 

So if I am a business in the DMV area and I'm looking to hire, Um, scientists, um, this made my, this could potentially make my job a lot easier, um, in terms of increasing the supply of labor that fits that need.  

Jim Link: You know what Justin said was very interesting because when you think about those, and we'll stick with the scientists for a moment, right? 

So just STEM careers in general, I think are a place where most of us as HR practitioners over the years have absolutely struggled trying to find a qualified talent that meet our specifications, willing to work on our work schedule or whatever else the case might be. But proportionally, the government employs more of those as a percentage of the workforce than does the private sector, the civilian sector. 

Justin got me right on that yesterday. When we think about this, then the civilian sector, that means that the likelihood that we're going to be able, assuming those people are impacted, that the likelihood that that That talent pool is going to get bigger from which we can select excites me as a, as a human capital leader because I've had so many struggles over the years trying to hire in that, in that place. 

So if you operate in that field as a practitioner, if you work in pharma, you work in labs, you work in anywhere like that where that you would hire people who meet those particular skill sets. I'd be paying particular attention, um, to how the government, if the government impacts those individuals, and if so, I'd be having a very clear, quick strategy put in place in my organization to be able to go and figure out how I might attract those folks into my company. 

Mo Fathelbab: So, good stuff. This imputes something about wage pressure, I assume?  

Justin Ladner: So, again, it would, it will depend a lot on the timing and the particular skill set involved. The sort of standard theory would be if you have an influx of people, of job seekers, an increase in the supply of, of, of people, um, of, of labor basically, that should have some downward pressure on wages. 

Now, some important caveats there. Uh, even if all 2. 3 million of these workers were let go, which is, that's, you know, beyond the realm of possibility, um, that is still small relative to the overall, uh, U. S. workforce. Um, it would have, it would certainly have an impact. It would have a very dramatic local impact. 

So about half a million of those workers are just in Northern Virginia, D. C., and kind of the, the D. C. suburbs of Maryland. If we're sort of imagining that scenario where everybody leaves, then yes, some relocation would be necessary. Um, Now, I mean, this, this, the DMV area is, uh, you know, it's a very vibrant labor market. 

There are a lot of private sector businesses here, um, there are a lot of non profits, there are a lot of other organizations, so, um, and, and it's a labor market where there's a lot of skills, uh, are in very high demand and it's a big market. very tight, very competitive labor market. So, it's not as if there are no opportunities for people, uh, that might be leaving the federal government. 

Um, it's sort of the, so the important issue here is going to be the scale. And again, speaking to the idea that, uh, the people leaving the federal workforce are likely to be selected in terms of their skills in some way, um, there are definitely going to be parts of the broader labor market that aren't particularly affected by this because the people flowing out of the federal workforce aren't going to have those skill sets. 

So, it's going to depend on. Um, those particular characteristics, skill set, it will depend a lot on geography, and it will depend very much on the time frame over which all this happens. 

Jim Link: So Mo, this is, uh,  just for the numbers people on the call, this is, this is fascinating when you think about this. So, 164 million people employed roughly in, in the United States on any given day. 

164 million people. 7. 6 million job openings as of the end of December, and that's actually down a little bit. And we're talking about 2. 3 million if everybody went away, right? So when we think about the magnitude of this, it's the number is going to matter. I agree with Justin 100%, but the skill, competence and capability of those people who are impacted by these changes. 

And what they're able to do in the workforce is where this magic is going to occur. And so, what I'm fascinated in, as not just an HR practitioner, but hopefully a student of this art and craft of human capital management, is that we've determined a way, collectively, to maximize the potential and capability of these folks who are going to be leaving the workforce. 

And that is where, That's where the magic will occur.  

Mo Fathelbab: And what about wages? Let's go back to wages. What happens to the wages of people leaving the workforce and going to the private sector? 

Jim Link: I think I'll start, Justin. You know a thing or two about this as well. So, you know, when you think about wages, the structure for how wages are built in a government setting versus In traditional private settings or civilian settings are very different. 

For one of the most obvious differences is, uh, having a defined benefit pension program, which still exists in the government and in today's, uh, civilian sector is relatively rare. So, what that means is that if you have that benefit in the government today, and that benefit doesn't exist, and there's no, uh, reasonable alternative in the civilian sector, you may have to spend time educating those people who come out of that structure and come into a civilian structure about what the pros and cons are associated with that. 

And it works the other way around as well, right? For us, those of us who work, uh, in the civilian sector need to have an understanding of the true impact of what, of what the total wage capability is of those individuals, both today and, and for the future. So is it going to have an impact? The answer to that question is yes, but I think it's a manageable impact if we put our, our thinking caps on and determine a way to navigate our way through this. 

Justin Ladner: So, you want to add something to that, Jess? Well, so, I mean, so, the question of wages, if the question is whether or not federal workers will be sort of lowering their wage by moving into the private sector or outside of the federal government, um, and the answer to that is complicated. It will depend on their skill set. 

There are plenty of, uh, Uh, of skills where in the federal workforce, they're earning low amounts relative to what they could be earning in the private sector, for example. A lot of, uh, for example, if you're an accountant, um, or if you're in some STEM occupations, some business occupations, some management occupations, you're likely earning less, uh, in the federal workforce than you would be in the private sector. 

So, from an individual point of view, Um, that could be, you know, obviously conditional on getting a job, um, after leaving the federal government. Um, they could see some wage gains. Now, in terms of what employers will see, in terms of their costs and what they're having to pay, um, we could see downward pressure on wages. 

Um, I would, I would hesitate to sort of overstate that because of the level of uncertainty. Um, again, if this happens over two or three years, Um, it's probably going to have fairly limited impacts on wage growth in the non federal civilian workforce. Um, If it happens very suddenly, then the, uh, effects, particularly locally, would be very dramatic, particularly for certain skill sets. 

Jim Link: We have a model, though. If you, if you think today about how, um, organizations and companies in the private sector have brought people in from the military. Yes. Right. If so, veterans and the employment of veterans. So we have a model for how to do this work, at least a starter model, I think, Justin, right? I would call it that, of, of, of a way to approach this from a wage and total benefit offering. 

Justin's right. Those people that coming in might, might have lower wages in the government, but they also, if you're going over into the private sector, you're not likely to have a defined benefit pension program either. Right. That's right. So, you know, if I'm an HR practitioner and I'm sitting here and I'm doing the math, which I'm going to do is I try to bring these people into my organization. 

I'm going to take all of those factors into consideration. And I love the idea too, that when we think about bringing these people over, We can navigate and find our way through the wage issues and those types of things. What I think is going to be the bigger challenge for us is changing the mindset of both parties, both those coming in and those who are hiring, that the way work potentially was done in the government is different than how it gets done in my corporate structure, in my environment. 

And I think employers who spend the right amount of time In ensuring that they do a great job with onboarding and expectation setting and even cultural alignment. For what it's like, perhaps, what it's like in a government role versus what it's going to be like in a civilian role. That's where we're going to make lives easier for ourselves, both as employers and those folks who may be coming over from the, from the government into those jobs. 

Mo Fathelbab: So, thank you for that. Something else, uh, you all might have read is, uh, to do with the impact on civilian jobs. There was a ratio of for every so many government jobs that are eliminated, there would be so many civilian jobs affected as well.  

Justin Ladner: I mean, this is a, this is a great point. There are a lot of broader economic implications here. So, um, and they range in, in various ways, in, in various ways. So for example, if these executive actions. extend beyond the idea of, of laying off federal workers themselves and also cutting programs that affect contractors or other, uh, or the kind of things that the other things that the government purchases, um, then that could affect a much, much broader workforce. 

Because in addition to the, I mentioned FedScope, it's about 2. 3 million workers, there's, there are millions more workers that are associated with the federal government through their employer in a very direct way. So, to the extent that demand for those goods and services is, is, is also being cut through, through these, uh, through these executive actions, uh, that could have a much broader impact. 

And another thing to consider, just in terms of sort of local economic effects, this would be particularly true in Virginia, D. C., and Maryland, but would also affect, as Jim mentioned, there are federal civilian workers. Um, in, in quite large numbers around the country. So it would have effects in other places. 

But if all of a sudden, for example, um, a big chunk of federal workers was, was fired and was moving out of the DMV area, the local economic effects would be, would be pretty profound. Um, you'd see a decline in demand for goods and services. You'd see, um, a sudden increase in the availability of housing, potentially, if a lot of people were moving. 

Um, So that could have broad effects if people are buying, uh, fewer things in a local area, that affects small businesses, that affects, um, basically the whole local economy. So those effects, again, very hard to predict because they would depend a whole lot on how quickly everything plays out, what the outside options are for, for the federal civilians, um, And, uh, and kind of basically what is replacing them as, uh, as, as things move forward. 

Jim Link: Can I give you another side of that coin?  

Mo: Please.  

Jim Link: One of the executive orders or mandates has been driven around return to work, right? So while we're talking about people leaving, right, we're also talking about for those people who are staying, they're actually going back into an office again. 

Yeah. That, likewise, uh, Has an economic impact in the communities in which those people are returning. You can think about small businesses that are opening again to serve lunch to those workers, to dry cleaners, to, you know, whatever. So yes, Justin is absolutely 100% right. The downstream impact on that side could, could be harmful. 

But when I think about employees returning to the, whether you like it or not, right? I mean, we know that there are lots of folks who, who object to the idea that they need to come back into an office to effectively and successfully do their job. We'll let that sort itself out. But once they're back, they are going to contribute to that local, I mean, down to the block. 

To the block. Yeah. On, to the economy in which they're, they're returning. And so there are pros and cons here when we think about the, all of these impacts. And it, I think holistically, when we look at this, we're going to rely on people like Justin as a, as a labor economist to help us really understand these more holistic impacts But we can't forget that there's a, at the street level, an impact as well on those individuals who are impacted positively or negatively. 

Mo Fathelbab: Very good point. Very good point. Thank you. I want to get into the nitty gritty of some of the statistics a little bit, Justin. So you did this research and we know that there's impacts in terms of geography. We've touched on that. I'd love to get into that a little bit more outside of the DMV area. And then the age distribution. 

So what age brackets are affected?  

Justin Ladner: Yeah, so basically what we did is we just kind of, using the FEDSCOPE data, looked at characteristics of federal workers according to a few different variables. So we talked about geographic distribution. Um, you know, that's important just from, just from the perspective of understanding where these workers are and therefore if you're an employer looking to hire people, where you might be looking for these workers. Again, a big chunk of them are obviously in the DC area, roughly half a million, but that means that the remaining 1. 8 million are in other parts of the country. And again, it's pretty, it's pretty, um, Geographically, just geographically dispersed. 

There's 12 states including the District of Columbia that have at least 50, 000 workers in this in this set Every state has at least I think Vermont if I recall correctly I was the state that had the lowest number it was had like 32, 33 hundred or something like that But quite a few states the vast majority have over 10, 000 So they're in a lot of different places lots of different employers potentially could be affected in terms of things like age distribution Just thinking about what the federal workforce looks like relative to the broader workforce. 

Um, it is much more concentrated in um, in kind of the upper middle age range. So it's uh, federal workers are less likely to be, they're particularly less likely to be on the younger end. Um, let's say under 35 and, and very unlikely to be like, like 18 to 24. That's a, that's a, That's, that would be, that would be, there are some, but, but, but it's, but it's rare relative to the population at large. 

Um, there are a lot of federal workers that are in that basically 35 to 64 age range. Um, uh, and so, and so that means that their workers, and kind of bringing in some additional information, the characteristics that, a very common characteristic of federal workers is that they're, um, a little bit older, uh, or at least they're, they're not very likely to be under, or they're comparatively unlikely to be under 35. 

They will tend to be a little bit more educated, and they will tend to have at least medium levels of experience. I think the biggest level of experience category for federal civilian workers in the FedScope data is five to nine years, but there's a lot that have somewhere between 10 to 25 years, and then things thin out a little bit above that. 

There are plenty of federal workers that have limited work experience too. But basically speaking, if I was thinking about the typical federal worker that could be leaving as a result of these actions, they will often have pretty high levels of education attainment. They'll be mid-career type workers, mid to advanced career type workers, and they'll be in their 30s, 40s, 50s, maybe early 60s.  

Mo Fathelbab: So, Jim, how can HR practitioners increase their access to these federal workers that are becoming available?  

Jim Link: Well, we don't quite know the answer to that question yet, um, because we don't know what's becoming available. Um, but if I were a budding entrepreneur, one of the things I might be thinking about is, is how I would secure access to the resumes and knowledge of those individuals, uh, so that I could Pull them in and, and help them understand what jobs are available out there in the, in the public sector. 

There's so much opportunity, I think, here for both employers and government to work collaboratively together. And I don't want to let that point go unnoticed in this call. The best employers, whether you're a government entity or a corporate entity, if you're having a restructuring, which is basically what this would be called in a corporate environment. If you're having a restructuring, then one of the most positive things that you can do is ensure that other employers are aware of those that you're restructuring. And I would encourage, I hope our government colleagues are listening to our podcast today, because I would encourage them to do just that. 

Um, because, so that sharing of knowledge and information with, hiring agencies, with public companies, with others who are out there in the marketplace, um, those types of, and, and through whatever online type of tools that you might wish to, to utilize, those are the right things to be doing. And then the secret will be in that matching of that capability that comes out in whatever format it is with an employer's needs. 

So, it's awareness first, it's the medium and mechanism that we deploy both on the, on the government side and also on the corporate side to connect those two available resources with, with no needs. And then finally, ensuring that that connection works in such a way that you get the absolute most qualified individuals, uh, from whomever are available in this new pool, uh, into your workforce. 

That's whatever becomes the mechanism to pull these things off and to make that happen. is, is what is going to make this work.  

Mo Fathelbab: So, as an HR practitioner, and, and as a CHRO, imagine for a second, Jim, you have folks that are about to lose their jobs. How can you help them reframe that into a more positive light? 

Because, It's one of those things that can really, uh, challenge somebody. It's one of the big things that really can challenge somebody's mental well-being, um, and their very essence. How do you, how do you help them reframe?  

Jim Link: Well there's, there's two ways to do this. I'm going to talk. or speak first to this about from the employee perspective. 

So if you're impacted by these things, the first thing to, that you need to realize is, um, when you're talking to future employers, it's just be honest about it, right? Just label it exactly what it is. Um, you know, I was restructured out of the organization or, um, my role was eliminated or whatever it is. I, as a hiring manager, I always appreciate that candor and that confidence. 

Clarity. Um, and once that's out of the, off the table, and I would do it early in the discussion, once that's off the table, then you jump right in and start talking about why you're qualified for that job. The second thing though, and this is very important, and I don't want us to forget about this. If you're one of those people who might be impacted by those changes, you have to take care of yourself. 

Right? Because you're right. This can, this can impact your ego. It can impact your sense of well being. It can impact all kinds of things that have downstream impacts which are negative in your life. So, take the time to take a breath and realize that there are resources that are available out there for you, um, both publicly and privately, that can help you, uh, if you are, find yourself in one of these situations. 

And once you find that place, I'll call it a moment of clarity or a moment of acceptance or whatever it is that's personally works for you. That's when with that clear head in this, you can actually go forward and, and, and to whatever is next. And let's face it, this happens to, to hundreds of thousands of people in this country a year, right? 

Are impacted by these types of changes. So you're not the first, but it will feel like you are. And so what I really encourage people to do is to, is to talk to your, uh, network. Uh, enlist the help if you need it of professionals in this, in this, uh, time of transition. And finally, remember that you're not alone and that there are others who are similarly impacted who are willing to help you. 

Mo Fathelbab: Yeah. Uh, you know, I'm reminded just from some of the positive psychology work that I've been part of is, it may seem like it's the end of the world, but, uh, guess what? It's an opportunity. It's a chance. It's a new  

Jim Link: phase. It's absolutely right. You know, there are people who, um, in organizations in which I've worked in the past who were negatively impacted by similar events such as this, who later, you know, will come back and say, yes, that was a horrible time period that I went through, but the place I'm in now is different than it would have been had I continued on the path I was on. 

And so while that's not always overly affirming, it's It is confirming, right, that, that change is possible. Change is possible.  

Mo Fathelbab: Justin, I saw you had a comment.  

Justin Ladner: So, um, I mean, I guess one thing that I, that I would point out, I suspect that a lot of, uh, workers and employers may already have done this, but, um, I think there's strong incentive here for both sides to be proactive. 

I mean, I suspect that a lot of, uh, federal civilian workers are already actively looking for work, um, thinking on, you know, I mean, I mean, so even, for example, if, if you put yourself in their position, even if their job Even if an individual's job doesn't end up becoming cut by these actions, um, the sort of the uncertainty associated with it, um, probably provides a strong incentive to try to find, um, an alternative path. 

And that could be true. Again, a lot of these skill sets have very strong demand in the private sector, in other places outside of the federal government. Um, and so I would, I suspect that for a lot of federal civilians, there already is an active idea of let's, let me get ahead of the actual layoff and start actively searching for it. 

I would think that employers would probably take the same, uh, approach. Basically, uh, why don't I try to, uh, proactively identify the talent that I'd like to attract, um, and, and reach out to them now before there's a big, because again, this is still a very competitive labor market, um, before there's a big, you know, fight between lots of employers for this limited talent, um, why not proactively look for it now? 

Mo Fathelbab: So never let a good challenge go to waste. We have opportunities ahead of us. Well said. And that's where we'll end it for this episode of People and Strategy. A huge thanks to Jim Link and Justin Ladner for this valuable conversation. You can follow the People and Strategy podcast wherever you get your podcasts. 

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