Many recent policy actions have aimed at a reduction in the size of the federal workforce, including a reduction-in-force, a hiring freeze, buyouts, and early retirement incentives. As the federal government is the largest single US employer—an estimated over 8 million employees are either employed directly by the federal government or are supported by federal contracts and grants—these policies could have important implications for the labor market.1 In this blog post, I first document the size and characteristics of the federal workforce in September 2024, before these policies were enacted, and then explore actual and potential reductions in the full federally supported workforce. I estimate that the potential reduction in the full federal workforce, including contract and grant employees, could be as high as 1.2 million.
Federal employment
Over the last 25 years, the number of employees directly employed by the federal government has ranged from a low of 1.8 million during the Clinton administration to more than 2.4 million at the end of 2024 (see figure 1). The federal share of total payrolls has hovered around 1.5 percent of payrolls since 1999, increasing during downturns and falling during expansionary periods.
These federal employees are not just located in the capital area. There are federal employees in every state, as shown in figure 2. On average, federal employees accounted for 1.6 percent of state payrolls in September 2024. The largest share of state employment was in the District of Columbia, where more than 20 percent of employees were federal employees. This is followed by over 5 percent of payrolls in Maryland and almost 4 percent in Hawaii. The presence of federal employment was also strong in the Sixth District, with federal employees accounting for 1.9 percent of state payrolls in Alabama,1.7 percent in Mississippi, and 1.63 percent in Georgia (the latter largely due to the Centers for Disease Control and Prevention in Atlanta).
Contract and grant employees
However, the numbers presented in figures 1 and 2 represent only a fraction of the total number of employees whose work the federal government supports, as federal government contracts and grants (C/G) support a substantial workforce. Although precise numbers don't exist, Light (2019) provides estimates on the total "Federal Industrial Workforce" (FIW), which includes federal employees as well as employees supported by federal grants and contracts, over time.2 Light reviewed all federal contracts and grants to estimate the total number of full-time equivalent employees (FTEs) directly employed using federal funds. In addition, Light also calculated the number of FTEs who were required to provide inputs into these grants and contracts (indirect employees).3
Figure 3 depicts the total FIW, reflecting the estimates provided by Light (2019). The blue line shows the number of federal employees reported by the Office of Personnel Management 
(OPM) over the period 1999–2024, along with estimates through February 2025 based on the growth in federal employment from the payroll data. Light's estimates of the contract FTEs (green line) and grant FTEs (yellow line) for 1999, 2002, 2005, 2010, 2015, and 2017 are also included, with a linear interpolation between the years. In 2017, for every federal employee, there were 2.6 C/G FTEs. Unfortunately, there is no new information on this ratio since 2017. The dashed portions of the C/G lines estimate C/G FTEs holding constant the ratio of contract or grant workers to federal workers at the 2017 level. Thus, any movement in the C/G lines after 2017 are due to the changing size of the federal workforce. Under this assumption, the size of the FIW in February 2025 is estimated to be approximately 8.3 million FTEs.4
Estimated employment loss in context
Given the size of the federal workforce, the reduction in employment levels could have a measurable impact on labor market outcomes. The website layoffs.fyi estimates that, as April 1, 2025, there have been 136,621 total exits from the federal workforce along with an additional 170,214 planned reductions. This represents more than 12 percent of the federal workforce. Importantly, this estimate of exits does not include C/G employees who have lost their jobs due to the numerous cancellations and modifications of grants and contracts. For example, the Environmental Protection Agency recently announced the cancellation of $1.7 billion in contracts , and the Department of Education announced the cancellation of more than $1 billion in contracts and grants.5 Furthermore, the National Institute of Health (NIH) announced plans to cut indirect costs in grants and contracts from 30 percent to 15 percent, leading to hiring freezes at many of the nation's research universities. It seems reasonable to expect a decline in the level of C/G FTEs as well.
If the impact of these C/G reductions is proportional to the impact on federal employment—that is, if the ratio of C/G workers to federal employees remains constant—then we would expect an additional loss of approximately 900,000 FTEs, for a total of 1.2 million separations from the FIW. To put this into perspective, this total equals 2 percent of the total separations from employment reported in the Job Opening and Labor Turnover Survey for 2024.
Will these separations from the FIW show up immediately in labor force statistics? Not likely. Although the current hiring freeze could affect employment levels, many federal employees are currently on administrative leave, and many others also selected deferred retirements. It is expected that these reductions will begin trickling in this summer.
There are no prior examples to assist in estimating the impact of such a large-scale reduction on the labor market. The Clinton administration also oversaw large cuts in federal employment, with reductions of more than 400,000 between 1993 and 2001, as part of the "Reinventing Government" initiative (as seen in figure 1). However, those cuts took place over seven years, which dampened the impact on the labor market for any given point in time. Furthermore, the largest single mass layoff event in the private sector occurred in 1993 when IBM laid off 60,000 employees .
Given the uncertainty on the full size and the timing of the reduction, predicting the impact on the unemployment rate is difficult. It is unclear how many of those separated from the FIW will exit the labor market and what share of those who remain will be able to find new employment. A confounding issue is that the federal workforce is older and more educated than the workforce as a whole. In general, according to a 2024 Department of Labor survey of workers displaced between 2021 to 2023, older workers are more likely to exit the labor force. This could suggest there will be a higher rate of exit from the labor force than during other mass layoffs, thus minimizing the impact on the unemployment rate. However, the report also indicates that displaced government workers had the lowest exit rate from the labor force at 7.4 percent. Another complication is that, for those who remain in the labor force, older 
and more educated workers generally take longer to find new employment. Fortunately, states in the Washington metro area, which account for a large share of federal employees, have already implemented increased efforts to support separated federal workers, which might help dampen the impact.
By M. Melinda Pitts, research center director, Center for Human Capital Studies in the Atlanta Fed's Research Department
1 [go back] Walmart is the next largest with 1.6 million employees in the United States, which are mostly hourly employees with more than a third of them working part-time, followed by Amazon (1.1 million) and UPS (440,000). Overall, there are only 10 companies with more than 300,000 employees in the United States. This number excludes active-duty military, temporary Census employees, and postal workers.
2 [go back] Light, Paul C. 2019. The Government-Industrial Complex: The True Size of the Federal Government, 1984–2018. New York, NY, Oxford University Press.
3 [go back] Light's estimates do not include the number of employees providing direct services to the public, such as Housing Assistance, Medicaid, and Price Support, for example. He also ignores the number of employees who are working in jobs that are supported by the household spending of federal, contract, and grant employees.
4 [go back]
Light (2020) estimates this ratio had increased to approximately 3.1 in 2020, suggesting that this estimate is a lower bound.
5 [go back]
Information on cancelled Department of Education grants can be found here , here , and here . The $1 billion figure does not include the cancellation of grants and contracts with specific research universities.