How Are Government Cuts Affecting the Labor Market? What Employers Need to Know

Key Takeaways

• Indeed job applications from federal workers at agencies under scrutiny by the Department of Government Efficiency surged by 150% from January to April.
• Almost 70% of federal workers who use Indeed have a bachelor’s degree or higher — nearly double the national average — and have finely honed soft skills. 
• Employers can tap into this highly educated talent pool by focusing on transferable skills and long-term potential.

The first half of 2025 brought big changes for federal workers. The Department of Government Efficiency’s (DOGE) efforts to curb spending have eliminated many jobs and slashed funding for contractors and organizations reliant on federal grants. As a result, many experienced workers are looking for new jobs: Indeed Hiring Lab found that Indeed applications by workers at federal agencies under DOGE review jumped 150% from January to April.

Workers in scientific research and development are also in flux: Job postings for these positions have dropped 18% since January 20, 2025.

While it’s a tumultuous time for these workers, new doors are opening. Job seekers can apply skills honed during government service in the private sector, and employers can tap into that highly educated talent pool.

Indeed Hiring Lab economist Cory Stahle studies anonymized data on job seeker behavior to uncover new insights about talent entering the labor market and the opportunities for employers. Here, we asked Stahle about what employers need to understand to prepare for the long-term future. 

How much do government layoffs and policy changes affect the economy and labor market? 

So far, the changes haven’t had a major impact, because the jobs that have been affected represent a pretty small part of total U.S. employment. Federal jobs make up just 2% of all U.S. jobs. Scientific research and development roles are less than 1% of all job postings. Even with big cuts in these areas, the labor market as a whole has remained resilient. Unemployment is low and, by and large, jobs are still being created. 

Unfortunately, the employment numbers don’t tell the full story. The real concern is the long-term impact. These job cuts will have a ripple effect on other areas of the economy. If Supplemental Nutrition Assistance (SNAP) programs are cut, or Social Security checks are delayed, people will spend less money at grocery stores and other businesses. Economists call social programs like these “public goods” — they provide services that enable people and businesses to succeed. Much of the economy is built on that foundation. Removing it has the potential to really shake the labor market. 

Likewise, scientific research and development roles have many broader social benefits. Cuts to cancer research positions, for example, might not impact us in the next year or two, but these roles pay dividends over the long run. So the question is, how will these pullbacks impact us five or ten years from now? The long view is important to understanding how to navigate the present moment.

What does the data reveal about job seekers who are feeling the impact of cuts?

These job seekers are well educated. As of February, 68% of federal workers who used Indeed had a bachelor’s degree or higher. That’s nearly double the national average. According to the federal government’s own data, the average federal worker has about 11 years worth of experience, which is significant tenure. 

The majority of these job seekers are current or former employees of federal agencies under DOGE review. There are lots of horticulturists, likely because of cuts to the USDA. We also see a lot of workers with “employee relations” experience, which might reflect reductions in Diversity, Equity and Inclusion (DEI) programs. 

It’s important for employers to think about these workers in terms of the experience they have and the soft skills they’ve developed, and how those skills transfer to the private sector. Someone with employee relations experience will have strong leadership, organizational and customer service skills. A USDA horticulturist might have honed communication and management skills through working with farmers. A former USAID worker will have a good understanding of big challenges in the world and how to approach complex problems. These soft skills can be invaluable to a private sector employer, and they’re much more difficult to teach than the hard skills required for a specific role. 

How can employers tap into the talent entering the labor market?

The whipsaw policy changes this year are making employers uncertain about how to proceed, and many have gone into a holding pattern where they’re not hiring. But this is an opportunity for employers to bring in highly educated and experienced workers without facing a lot of competition. In 2021 and 2022, demand for this type of talent was at an all-time high, and employers were bumping up wages. Now, demand is weaker. An employer thinking long term could see this as a good time to hire workers who can help grow their business and fill key skill gaps in the future. 

Moreover, the U.S. population is aging, and over time, we’ll have fewer and fewer workers entering the labor market. On top of that, current U.S. immigration policies will likely impact the ability of companies to find workers. Investing now in this new pool of talent can be a way to offset some of these future constraints. 

“This is an opportunity for employers to bring in highly educated and experienced workers without facing a lot of competition.”

—Cory Stahle, Hiring Lab Economist focused on the U.S. labor market

What can employers do to attract this talent?

Our data shows that federal workers tend to look for jobs that are flexible — remote and hybrid opportunities as well as part-time roles. They’re also looking for jobs that are hiring immediately, which makes sense given the pace of change. Moving quickly can be a good way to attract these job seekers. 

Is this mainly an opportunity for employers in the D.C. area?

Not at all. Only 20% of federal employees currently looking for a position in the private sector live in the greater Washington, D.C. area. There is a significant number of federal workers applying for work in California, Texas, Florida and Georgia, but there are hiring opportunities all over the country. 

How should employers prepare for the second half of 2025?

I’d advise employers to manage short-term uncertainty as best they can without losing sight of the need — and the opportunity — to make smart investments for the future. We often focus on the latest jobs report or government data release, but a business should be thinking over the course of decades, not months. 

Right now, employers have kind of frozen in place. But they should remember what Warren Buffett famously said: Be fearful when others are greedy and greedy when others are fearful. I’m obviously not recommending greed, but I encourage both employers and job seekers to keep a long-term perspective so they can make thoughtful choices about the uncertainties we face today.