DOGE layoffs may ‘overwhelm’ unemployment system for federal workers

The Trump administration’s purge of federal staff may flood an unemployment benefits system ill-equipped to handle the deluge, triggering delays in aid for jobless workers, according to a new report.

The terminations of federal workers by the Trump administration’s so-called Department of Government Efficiency — headed up by billionaire entrepreneur Elon Musk — may ultimately stretch into the hundreds of thousands. That would amount to the largest mass layoff in U.S. history.

The scale of cuts would likely “overwhelm” the Unemployment Compensation for Federal Employees (UCFE) program, the “rarely utilized and creaky” system most federal workers use to claim unemployment benefits, according to a report by The Century Foundation, a progressive think tank.  

The result would likely be longer time frames to collect financial aid that’s meant to help workers stay afloat and prevent them from depleting savings as they look for new jobs, said Andrew Stettner, the group’s director of economy and jobs, who co-authored the analysis.

“We’re already hearing it’s taking a long time for people to get their benefits,” said Stettner, former director of unemployment insurance modernization at the U.S. Labor Department during the Biden administration. “And it will probably only get worse.”

The Department of Labor oversees the UCFE program, which is administered by state unemployment agencies.

More than 62,000 federal workers across 17 agencies lost their jobs in February alone, Challenger, Gray & Christmas, an outplacement firm, reported Thursday. By comparison, there were 151 cuts in January and February last year, it said.

Employers have announced almost 222,000 job cuts so far in 2025, the highest year-to-date total since 2009, Challenger, Gray & Christmas said.

“The sudden surge of claims due to federal layoffs has some worrisome similarities to the pandemic, despite its much smaller scale,” according to the Century report.

States will have to process a “drastically greater” volume of claims for the UCFE program, it said.

The Labor Department didn’t return a request from CNBC for comment.

The UCFE program differs from the unemployment insurance system for private-sector workers — and has unique challenges.

The private-sector UI system is more automated, while that for federal workers requires more manual inputs that can significantly slow the process during times of high volume, Stettner said.

Specifically, private companies pass an employee’s earnings and employment records on a quarterly basis to the appropriate jurisdiction, Stettner said. (That jurisdiction may be a state, territory or the District of Columbia, depending on where the employee worked.)

These employment records are necessary to determine factors like eligibility and weekly payments if a worker claims jobless benefits.

However, the UCFE program isn’t as streamlined. After a worker applies, the state fills out a form and submits a request to the federal agency at which an employee worked, which then verifies the claim’s accuracy, Stettner said.

The federal system is generally “such a small program, it basically works by hand,” he said.

About 7,400 people were collecting federal unemployment benefits as of Feb. 15, up roughly 12% from the same time last year, according to Labor Department data issued Thursday. The number could easily climb to 10 or 20 times that amount, more than they system has ever fielded, Stettner said.

Additionally, the federal government may try to contest claims in certain situations, which could further slow the process, he added. For example, many probationary workers received termination letters saying they’d been fired for cause; while that characterization doesn’t generally prevent workers from getting benefits, the government may use it as a reason to dispute a benefits application, Stettner said.

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Federal workers may find themselves in a tough financial situation if they can’t access benefits quickly.

That’s because it may be difficult for workers to find new jobs, especially in regional labor markets most impacted by mass layoffs.

“Unfortunately, this labor market will not be conducive to a quick rebound — hiring rates are relatively low and uncertainty across the economy is likely to make businesses cautious about labor investments,” Elizabeth Renter, a senior economist at Banking Herald, wrote Thursday.

Even so, it’s unclear how many cuts will ultimately happen — or stick.

The Trump administration has hit recent road blocks in its attempts to cull federal jobs. For example, a federal judge in San Francisco last week said federal mass layoffs were likely illegal and directed the U.S. Office of Personnel Management to rescind directives ordering some agencies to fire probationary workers.

Assistant U.S. Attorney Kelsey Helland argued for the government that OPM had asked, not ordered, agencies to lay off probationary workers.

“It appears the administration wants to cut even more workers, but an order to fire the roughly 200,000 probationary employees was blocked by a federal judge,” said Challenger, Gray & Christmas. “It remains to be seen how many more workers will lose their Federal Government roles.”

Additionally, the Merit Systems Protection Board, which handles federal worker disputes, temporarily reinstated about 6,000 workers at the U.S. Department of Agriculture in their old positions effective Wednesday.