Fixing Economic Inefficiency by Cutting Labor

Even I am thinking of a recession as more and more people or Labor are being let go by the government. The layoff has expanded from just the government. Corporations are laying off people also. It is not like there was a huge decrease in business. Maybe companies believe they can be more efficient by eliminating Labor. Usually, Labor is not the issue. Processes and procedures are typically the inefficiency causing increases in cost. Dependent upon what business you are in, it could be inefficient practices such as throughput, too much inventory, cost increases for materials, waste, etc. So, they whack Labor as it is easy.

Imminent recession? DOGE’s mass layoffs spark fears of broader economic ripple effect, Salon.com

A month into President Donald Trump’s second term, the Department of Government Efficiency (DOGE) — which is not a government agency, but an outside advisory group — has been on a rampage in what is shaping up to be the biggest purge of the federal government in modern American history.

The teams at Doge, as run by Tesla CEO Elon Musk, is has targeting agencies such as the Department of Agriculture, the Consumer Financial Protection Bureau, the Department of Education, the Department of Energy, the Department of Health and Human Services, the Department of Homeland Security, Internal Revenue Service, National Park Service, Department of Veterans Affairs and U.S. Agency for International Development (USAID).

At least 85,000 federal workers have been impacted so far, with tens of thousands being fired or accepting “deferred resignation.” At the Office of Personnel Management alone, an estimated about 75,000 federal employees took the offer as of last week, the AP reported. 

Most Americans support the idea of making the government run more efficient. The way these layoffs are occurring are raising concerns about the immediate and long-term impact on the U.S. economy.

“It seems almost unavoidable at this point that we are headed for a deep, deep recession,” Jesse Rothstein, an economist and professor at UC Berkeley, in a viral post on Bluesky on Tuesday. “Just based on 200k+ federal firings and pullback of contracts, the March employment report (to be released April 4) seems certain to show bigger job losses than any month ever outside of a few in 2008-9 and 2020.”

Rothstein, who served as a top economic advisor in the Obama administration, was quick to note that it’s not the layoffs themselves, but the workers’ lost productivity that presents a concern.

He said . . .

“Even greater damage will be done by the loss of federal government productivity. The workers who are losing their jobs were worth more than they were being paid! We are all poorer when roads, planes and food are unsafe, when parks are closed.”

“Their absence is going to make the government run less, not more, efficiently”

While the exact number of how many layoffs are still to come is uncertain, with estimates up to 75% of the total federal workforce, their immediate impact could become more regional, some economists suggest.

“The direct macroeconomic effects of these layoffs will be localized and small in the aggregate,” says Neale Mahoney, an economics professor at Stanford University, noting that roughly 1.5 million are laid off in a typical month.

Like Rothstein, Mahoney is concerned about the long-term productivity effect on the broader economy and safety of U.S. aviation, health care and other industries that the laid-off federal works helped to keep on track.

“I’m concerned about the downstream consequences on the functioning of the government,” he told Salon. “The people who have been laid off — FAA aviation safety assistants, USDA specialists battling bird flu, IRS workers helping people navigate tax season — quietly help the government work for everyday people. Their absence is going to make the government run less, not more, efficiently.”

While this could be devastating and have serious consequences, it doesn’t necessarily lead to a recession, according to Deloitte’s chief economist Ira Kalish. There are elements of Trump’s economic policies that continue to be fleshed out, including tariffs and inflation.

“It is hard to make a forecast as we simply don’t know what the administration will do regarding tariffs,” Kalish told Salon. “Nor do we have a good indication yet as to what the Congress will do regarding taxes and spending. Assuming no dramatic policy changes this year, I don’t see a recession coming in the near future.’

Still, many politicians like Jasmine Crockett, U.S. representative from Texas’s 30th congressional district, continue to warn about the risks of a recession.

“We’re living with this incompetent administration that is literally driving us to a recession at warp speed,” she said earlier this week, warning of more layoffs in the private sector. “All I can say is, Hold on to your money and make sure that you have a way to make money, even if you lose your job.”

The layoffs have not been limited to the federal sector, with the tech and airline industry also announcing layoffs in early 2025.

Earlier this week, Dallas-based Southwest Airlines announced the largest layoffs in the company’s history, which would impact 15% of its corporate workforce or about 1,750 jobs.

JPMorgan Chase initiated several rounds of layoffs, while Amazon, Blue Origin, Meta and Chevron are among the companies planning to lay off thousands of workers.

“If the private sector also loses jobs, which I expect it will, then that pushes you into deep, deep job losses that are the kind of thing you only see in very serious recessions,” Rothstein noted in an interview with Paul Waldman for his Substack newsletter The Cross Section. Rothstein didn’t reply to Salon’s request for comment before publication.

“I would expect that there’s already quite a bit of private sector pullback happening in the next couple of weeks.”