Layoffs hit contractors and small businesses as Trump cuts take effect

Boston Globe

06-02-2025

'Having funding yanked so quickly means government contracts are at risk, health research is on hold, and millions of employees are getting conflicting messages about their jobs,' said Harry Holzer, a professor at Georgetown University and former Labor Department chief economist. 'We don't know where this is going to end up, but we can't dismiss its effects on the economy.'
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Still, the labor market remains strong, and economists say it could take weeks or months before government-related job losses show up in national data. At 4. 1 percent, unemployment is low, and there are more open positions than people looking for work. New figures Friday are expected to show that job growth continued in January, with employers adding an estimated 165,000 new positions.
Even so, economists say the new president's funding cuts, tariff threats and deportations could quickly change the economic picture. The Trump administration has taken dramatic steps to shrink the federal workforce by making it easier to fire employees, putting nearly 10,000 USAID employees on leave and offering buyouts to millions of federal workers.
The White House has warned that additional public-sector layoffs are 'likely' if enough of the 2.3 million-person federal workforce doesn't leave voluntarily. As of Wednesday evening, some 40,000 federal workers had agreed to resign, though a federal judge on Thursday paused the deadline for the buyout program. A hearing on the matter is set for Monday.
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The White House did not immediately respond to a request for comment.
In the meantime, government contractors are scrapping projects and announcing layoffs. Chemonics International, an international development firm based in D.C., has furloughed more than 600 U.S. workers and cut hours for an additional 300 employees as a result of the government's 'stop-work order' for USAID-funded projects. A spokeswoman for the company said it is still waiting for millions of dollars in funding from invoices filed as far back as November. Another firm, DAI Global in Bethesda, Maryland, has furloughed nearly 400 of its workers, accounting for roughly 70 percent of its American workforce.
Sarah Nichols was furloughed from her job at an economic development consultancy last week, after its contracts with USAID were put on hold. The 29-year-old filed for unemployment on Tuesday and is making plans to move back in with her parents after her lease expires this month. But even that feels rocky: Both of her parents work for the federal government and are worried about losing their jobs, too.
'My LinkedIn feed is just thousands of people in the industry who have been laid off or furloughed,' said Nichols, who lives in Arlington, Virginia. 'I'm applying for jobs, but if I want to do something in education or public health that's federally funded, it's like, 'Am I going to get this job and then just laid off again?''
Although government employees and contractors tend to have higher levels of education than the rest of the workforce and are typically quick to be snapped up by other employers, economists say the sheer scale of the latest job losses complicates the picture. People who work in international development, for example, or environment and climate-related positions are likely to have a hard time finding new employment when much of the industry is at a standstill.
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The most recent job losses among contractors and other small businesses, economists say, will probably show up in official jobs numbers in the next month or two. Although federal workers have generally been told that they will be paid through September if they resign now, that is not the case for private-sector and nonprofit workers who rely on government funding, said Julia Pollak, chief economist at ZipRecruiter.
'It's the private-sector contractors who don't have protections and will probably suffer the earliest blows,' she said. 'These jobs are pretty heavily concentrated in administration and program work, information management — and in those areas, we really could see an increase in unemployment and depression in wages.'
Frederic, a project manager for a defense contractor in central Virginia, was laid off this week, along with 70 percent of his team. His special project for the Army was put on hold, he said, making it tough for his employer to keep him on the payroll.
'I didn't expect a Trump win to cause me to lose my job, but that's what happened,' said Frederic, who spoke on the condition that only his middle name be used to share internal details about his job, because he feared he would lose future employment opportunities. 'I went from making $140,000 a year to having to tap into my 401(k).'
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On his first day back in office, President Donald Trump signed dozens of executive orders, including one that required agencies 'immediately pause' green-energy-related funding allocated by the Biden administration. Although that funding could be reinstated after a 90-day review, the looming uncertainty has been enough to hobble some small businesses.
Zero Emissions Northwest, a consulting firm in Spokane, Washington, that works with agricultural and rural businesses, furloughed all three of its staffers last week after its contracts with the Agriculture Department were essentially frozen overnight. CEO David Funk submitted his last invoice to the government on Jan. 15 and was told weeks later that 'the payment is not coming,' he said.
'As soon as I found out, we had to take action quickly,' he said of the furloughs. 'As a small business, I can't afford to pay my employees while we wait months for funding that might never come.'
The D.C. region, which relies on the federal government for 40 percent of its economy, is likely to face the biggest hit from government-related job losses. But the rest of the country isn't immune: Every five federal government jobs that are lost typically wipe away an additional two jobs nationwide, according to Terry Clower, director of the Center for Regional Analysis at George Mason University.
'There are real spillover effects here,' he said. 'If a scientist working at a university lab loses their funding, they've lost their job, they've lost their household spending, and that affects other jobs across the economy.'
In Fayetteville, North Carolina, Marie's dream job at a USAID contracting firm was rescinded just days before she was set to start. Marie, who spoke on the condition that only her middle name be used because she fears blowback from future employers, had been working toward the job for years, taking on global health projects and finishing a master's degree while her husband was deployed.
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Now, instead of starting a new job, which was set to begin this week, she's making plans to deliver food through DoorDash and is contemplating pulling her young children out of day care to save money.
'I was really looking forward to this year being stress-free for the first time in years,' she said. 'But now I don't know when I'm going to be able to find work again.'