Minnesota economy is resilient, even as federal job cuts create uncertainty

President Trump and multibillionaire Elon Musk are behind the drive to shed thousands and thousands of federal workers. The Department of Government Efficiency — better known as DOGE — seems nowhere near done with its purge of the federal workforce.

While Minnesota doesn’t have as large of a federal workforce as some other states, the reductions have unleashed an unsettling fog of uncertainty about the labor market and the local economy’s health.

How bad could the job market get? The extent of the negative impact on the national economy and Minnesota partly depends on how deep the DOGE cuts are and how widespread the ripple effects on private and nonprofit employment.

Layoffs and firings are a gut-punch to anyone losing their job. Going without a paycheck is hard on household finances. Certain parts of the country are especially vulnerable to the loss of federal jobs. (Think Washington, D.C., and northern Virginia.)

Briefly, the federal workforce is about 2.4 million workers or 1.9 percent of all jobs in the U.S. (The figure doesn’t include the military and the U.S. Postal Service). The medical field tops the list of leading occupations, including physicians, nurses, physical therapists, pharmacists, dentists and veterinarians, according to the nonpartisan nonprofit Partnership for Public Service.

The next largest category is administrative and clerical services fields. These are jobs like program analysts, human resource managers and facility managers.

Minnesota has more than 18,000 federal workers, and some 60 percent of them work for the Department of Veterans Affairs and the U.S. Department of Agriculture.

Layoffs are commonplace even in a good economy with low unemployment. For instance, U.S. companies cut more than 760,000 jobs in 2024. Yet monthly job gains last year averaged 166,000.

Economists at Moodys Analytics have arrived at a baseline forecast of a net loss of 400,000 federal government jobs through late 2027. The Wall Street Journal did a worst-case back-of-the-envelope calculation and landed on a job loss of 475,000 jobs, or about 20 percent of the total federal workforce.

The Urban Institute, a Washington D.C.-based thinktank, also took a stab at gauging the impact. Analysts looked at the unemployment rate in March of 2024 in each metro area around the country. They then “fired” 75 percent of the civilian federal workforce in each area and arrived at a new estimate of the unemployment rate.

In this scenario, Bemidji would see a percentage point increase in its unemployment rate; Duluth and the Twin Cities a hike of half-a-percentage point; and small increases in Mankato and Worthington. (These are illustrative numbers since it doesn’t consider federal workers finding new jobs, filing for retirement, and DOGE increasing the workforce in certain areas, like border patrol agents.)

Key to understanding the impact of federal job losses on economic activity will be the extent of knock-off effects elsewhere, especially in the private and nonprofit sectors. For example, Lutheran Social Services recently announced it was cutting 27 staff positions.

The layoffs were a response to the Trump Administration’s orders on refugee resettlement, according to the nonprofit organization.

The story of the U.S. economy in recent years has been one of remarkable resilience. If the economy manages to stay healthy despite the mass job losses, laid off workers should be able to find new jobs. After all, Minnesota’s unemployment rate is 3.3 percent and employers are still looking for workers.

The average time to find a new job after being laid off in Minnesota is about five months. That said, the federal workforce is highly educated, and many employees have specialized skills. They might take longer to land a position.

Since the federal workforce is older than average, too, it wouldn’t be surprising if a good number of them decide it’s time to retire.

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