ANALYSIS: Federal Employment Cuts Create More Private-Sector Jobs (But Only If Congress Acts Accordingly)

Some say it’s two-to-one. Other say three-to-one.

While it’s difficult to come up with an exact ratio of how many private-sector jobs are lost for every government job created, it doesn’t take a Harvard economist to know that government jobs cost a lot of taxpayer money to sustain.

First, let’s look at the facts. Over the past two decades, the U.S. has gone from a recent history low of 2.75 million non-military federal jobs (1990ish) to an estimated 3 million — not much of a leap, and far from peak federal employment in 1990 (around 3.5 million employees). The federal government is currently the nation’s 15th largest employer, and the OMB calculates there are now 5.1 million federal workers, when combining military and civilian.

The Joe Biden administration increased that number rapidly — most famously when Biden promised hiring 87,000-plus new IRS agents.

Then came “Bidenflation.” In October 2024, the government created 40,000 jobs while the private sector lost 28,000 jobs. This means that the government accounted for all of the new jobs in the U.S. economy that month. Federal workers made up almost 2% of the national workforce by the end of last year.

That was in the waning days of the Biden Administration. Now that we’re into the first month of the second Donald J. Trump Administration and a chainsaw-wielding special advisor in the form of Elon Musk, we’ve seen the opposite scenario begin to take shape.

Tens of thousands of government jobs have been axed by DOGE and the Trump Administration. They have a long way to go before compensating for the IRS jobs Biden handed us or matching the 420,000 federal jobs cut during the Bill Clinton Administration and a rare conservative Congressional majority.

Reuters news service relayed a 2020 Brookings Institution study which estimated that for every one federal employee there are two contractors; an economist estimated an estimate of ultimately 300,000 DOGE-related federal job cuts — meaning that 1 million federal jobs or contracts could be eliminated at the current trajectory.

Will that make much of a difference? Let’s look at semi-recent history. The Foundation for Economic Education (FEE) wisely wrote in 1987:

“The reason why government jobs programs cannot create jobs is straightforward: Even though the programs may ‘create’ jobs for some workers, the resources to pay for the programs must be extracted from the private sector. Taxing the private sector reduces its ability to create jobs, so, at best, government jobs programs can only alter the composition of employment, not the total volume. More government jobs are created, but at the expense of fewer private-sector jobs.”

The article pointed to a proposed 1982 government jobs program that a prominent economic association predicted would have resulted in an overall net reduction of 20,000 jobs. Famed economist Milton Friedman warned the same program would have decimated 100,000 private sector employment positions. Even the federal OMB reported (in early ’80s numbers) that your average public job would cost $198,059 per year ($667,207 in 2025 figures) when factoring in federal regulations, benefits, and other costs — enough to pay for 10 private-sector jobs.

History shows these men were correct. During that time frame, the private sector created over 13 million new jobs despite the absence of any new government jobs programs under the watchful eye of President Ronald Reagan. (Editor’s note: Ahhh!)

So will DOGE’s goal of cutting $2 trillion from the nation’s $6.1 trillion budget and slashing 75% of the federal workforce boost the economy? While time will tell on that, we have to look to Congress, who controls the purse strings. Will they pass bills that reduce the size and scope of government and lower spending, while cutting out the national debt? Will President Trump keep to his plans to balance the budget and eliminate more government agencies?

Without a firm “yes” on those questions, we have the same pool of 4-5 million government workers doing the same amount of work and issuing the same amount of checks. That would merely make things harder on federal workers.

Adding to what our nation owes to creditors continues to rise puts the squeeze on the taxpayer (in numerous ways that it would take a Harvard economics degree to understand).

U.S. Sen. Rand Paul pointed out on X recently that over the last four years the U.S. has heaped $6 billion per day ($24 million per hour) to the national deficit — a total of $8.5 trillion for the Biden years and a current debt load of $36 trillion.

To his chagrin, Paul’s colleagues approved a budget increase of $340 billion. That’s in a Senate controlled by a small minority of Republicans (53 R, 45 D, and two may as well be Ds).

More conservative Republicans elected in 2026 may change that scenario in the way that the Contract with America bunch did in the mid-’90s, strong-arming Bill Clinton into agreeing to nearly half-a-million federal jobs cut, several balanced budgets in a row, and a roaring economy (Ed note: for which Clinton, regrettably, often gets the credit. And, again, Ahhh!).

If we’re to see any benefits from DOGE job cuts, and has history has shown us, Congress will have to pair it with some serious budget belt-tightening.

Now for the tough medicine. History has also shown us that there’s a slight economic slowdown when so many jobs are lost in any sector. And especially with the loss of many jobs dependent on federal grants and contract spending. After the roaring ’90s and a brief “Bush bump,” we saw a stagnation that many attributed to the 9/11 attacks and subsequent military action, as well as restrictive new national security laws, but a reduced federal bureaucracy was a consideration. After Reagan’s era of prosperity, George H.W. Bush oversaw a period of recession that may have cost him his second term. But these are recoverable, so long as policies are in place that do not compete with the private sector but allow it to flourish.

Like all things, it will take time to realize any long-term benefits of a smaller federal workforce. But we’re on the right track as long as we keep the chainsaw well-oiled.