The Unintended Consequences of Automating the U.S Government -I
Special Edition: Unemployment, limited opportunities, and short term chaos.
The silent automation of the United States Federal Government is well underway.
The Department of Government Efficiency (DOGE) is planning on developing a chatbox for the federal government’s GSA, which would assist in analyzing various kinds of documents and contracts. That in turn would help in getting more work done and boost employee productivity at the GSA.
DOGE’s AI initiatives dovetail with the group’s efforts to reduce the federal budget and speed up existing processes. For instance, DOGE members at the Department of Education are reportedly using AI tools to analyze spending and programs.
The Rise of “AI Coding Agents”: According to Wired, these agents help engineers automatically generate, edit, and answer questions about software code in hopes of boosting productivity and reducing errors. One tool the team looked into, according to documents viewed by WIRED, was Cursor, a coding assistant developed by Anysphere, a fast-growing San Francisco startup.
The consequences of this process is a steady spike in unemployment numbers over the next six to twelve months, accompanied by nagging inflation, security and data risk.
Government workers who have lost their jobs will likely spend less, especially on discretionary items such as restaurant meals, streaming services or a new car. Many of those not fired could worry they are next and cut back spending - triggering a massive snowball effect: defaulting on student loans, auto loans, credit card payments etc…
Unemployment
As of January 2025, the U.S. unemployment rate stands at 4.0%, a slight decrease from December 2024's rate of 4.1%. However, the U-6 unemployment rate in the United States is 7.5%, indicating a slight increase from the previous month's rate of 7.4%.
The U-6 rate is a broader measure of labor underutilization, encompassing:
U-3: The official unemployment rate, which stands at 4.0% as of January 2025.
Discouraged workers: Individuals who have stopped looking for work due to believing no jobs are available for them.
Marginally attached workers: Those who are not actively seeking employment but have looked for work in the past 12 months.
Part-time workers for economic reasons: Individuals employed part-time who desire and are available for full-time work but have had to settle for part-time positions due to economic conditions.
The U-6 rate provides a more comprehensive view of labor market conditions by including these additional groups.
In January 2025, the U-6 rate was 7.5%, up from 7.4% in December 2024.1
We rely on U6 unemployment which offers a closer to reality. We also expect the series of layoffs in government sectors to contribute to the higher unemployment rates, especially if a significant number of federal employees are affected.
Mass Layoffs and the Labor Market
The economic impact of federal cutbacks will depend on how many jobs are actually cut and the spillover to contractors and spending.2
Arlene Rusch, former Internal Revenue Service worker, shows an email notifying her that she has been laid off, as she leaves her office in downtown Denver, Colorado, Feb. 20, 2025. The IRS began laying off roughly 6,000 employees in the middle of tax season as the Trump administration slashes the federal workforce.
As of January, the U.S. government had 2.4 million civilian employees, excluding the postal service. Tallying up actual cuts announced so far, economists at JPMorgan Chase estimate fewer than 30,000 layoffs.
We suspect that due to Trump’s cost cutting spree, that number could grow. As the “deferred-resignation” program and hiring freeze reduce the federal workforce, hundreds of thousands more might be cut. That could pose a noticeable economic drag, especially because federal workers tend to earn above-average pay.
On Feb. 14, the White House began firing workers who are still in their probationary period after getting hired or promoted; this includes, for example, 6,000 at the Internal Revenue Service. More than 200,000 employees have been on the job for a year or less, according to Office of Personnel Management data. The hiring freeze will also have some effect: Just to keep pace with normal attrition, the government needs to hire upwards of 200,000 people a year.
Add up 75,000 resignations, 200,000 fired probationary employees, and 200,000 in attrition, and as an upper limit federal employment might drop by 475,000 jobs, or about 20% of the total.
Amplifying these effects, many federal contractors are also losing work. New York University Prof. Paul Light estimates there were 5.2 million such workers in 2023. In Maryland so far this month, 1,350 employees are slated for layoffs, according to notices filed by employers with 100 or more full-time workers, compared with 226 in February of last year.
It could take months for the extent of job cuts to show up in official data. Layoffs began during the mid-month reference period on which the Labor Department bases its February job figures; any government employee paid for that period will count as employed. A worker who received a four-week severance in February could be counted as employed in March, and one who accepted a deferred resignation could be counted as employed through September.