Cutting Federal Workers Starts with Cutting Federal Spending

With the Department of Government Efficiency garnering constant media attention, part of the incoming Trump administration’s messaging centers on reducing government payrolls. While this would certainly improve the economy, President-elect Trump should remember that payrolls are not the only public expenditure that needs to be slashed.

The following article was originally published by the Mises Institute. The opinions expressed do not necessarily reflect those of Peter Schiff or SchiffGold.

Elon Musk’s so-called Department of Government Efficiency (DOGE) has been making a lot of noise about all the federal employees it plans to fire. The DOGE people have framed total federal employment as something of a proxy for the total size of the federal government.  Cutting the federal workforce is all well and good, but in reality, the size of the federal payrolls doesn’t really tell us much about the growth of the federal government.

Federal employment has been flat for decades. If the total number of federal workers was a good proxy for federal power, we’d be forced to conclude that the federal government has gotten smaller and weaker over the past thirty years. Obviously, that’s not remotely true given that federal spending has increased at breakneck speed. Since 1950s, federal spending has increased by more than ten-fold while federal employment has not even doubled.

The federal government has grown much faster than federal employment because most of the people paid to do things by the federal government are not actual federal employees. Most federally funded workers are now contractors and grant-funded workers. This doesn’t even count the legions of state and local government employees whose jobs are partially funded by federal transfer payments to the states and locals.

Like so much of what’s coming out of the Trump administration, this talk about federal employment is mostly theater. This is demonstrated in how DOGE spokesmen tell us how hard it will be to fire federal employees with civil service protections. That is, the DOGE people are already explaining to us why they won’t be able to cut federal employment—probably so they have an excuse for why so little of the federal work force will actually go away over the next four years.

If Trump’s people have any interest in actually cutting the number of people who work for the federal government, they can simply start with cutting the millions of federal contract and grant workers who actually outnumber the total number of federal employees. Without federal contracts and federal grants, those employees go away. Wringing our hands about how many civil service workers there are is mostly a distraction when the real problem is federal spending.

The “Regular” Federal Workforce Has Fallen for Thirty Years 

As of 2023, there were approximately 2.9 million regular federal workers, including postal workers. These are the people who commonly recognize as “civil service” workers who are directly employed by government agencies. 2023’s total is down from 1990 when the total number of federal workers was 3.1 million. What growth we do see in government employment comes from state and local workers. Including government workers at all levels, government employment continued to grow rapidly even after 1990 when federal employment peaked. Yet, even by this measure, total government employment has been largely flat.

Indeed, on a per capita basis, total government employment has declined for more than 20 years. In 2002, there were 747 government workers per 10,000 Americans. In 2023, that number was 680.

This number greatly understates the reality, and not just because these totals do not include military personnel. If we want a real measure of how many people are paid by federal tax revenues and federal borrowing, we have to look well beyond the civil service workers that DOGE claims to be so worried about. Rather, we need to look at the so-called “blended” federal workforce.

As noted at The Hill back in 2019—before the covid spending spree—the total number of taxpayer funded workers was more than nine million:

The federal government employs nearly 9.1 million workers, comprising nearly 6 percent of total employment in the United States. The figure includes nearly 2.1 million federal employees, 4.1 million contract employees, 1.2 million grant employees, 1.3 million active duty military personnel, and more than 500,000 postal service employees. … many taxpayers may not realize they are additionally subsidizing a ballooning shadow government of some 5.3 million contract and grant employees. While politicians often promise to cut the size of government, many fail to acknowledge the increasing number of contract workers.

These contract and grant workers far outnumber the “regular” federal workers. As shown by the Project on Government Oversight in 2017, “contractors have long been the single largest segment of Uncle Sam’s “blended workforce,” accounting for between 30 and 42 percent of that workforce since the 1980s.”

Another study from the Brookings institution shows how the blended jobs greatly outnumber the federal jobs that DOGE is fixated on:

For example, in 2020, grant and contract workers totaled more than 6.8 million. Regular federal workers? They totaled only 2.7 million (counting postal workers.) In other words, any discussion of federal employment that ignores the contract and grant workers largely misses the point.

Contract workers, of course, are everywhere. The ranks of aerospace engineers, Silicon Valley firms, and the “tech sector” in general is heavily populated with millions of workers who are de facto federal employees.

We have no reason to expect the Trump administration to go after these federal contract jobs, though. During Trump’s first term, he grew federal spending to pay millions of new workers funded by federal dollars:

Despite campaign promises to the contrary, Trump opened the contract and grant spigots instead, adding more than 2 million jobs to the blended federal workforce including 1 million in the Departments of Defense, Transportation, and Health and Human Services Alone.

Federal contract awards grew by over 40 percent during the Trump years, and it should surprise no one that the trend continued unabated through the Biden years:

Trump and his backers tend to justify shoveling ever larger amounts of taxpayer dollars to federal contractors on the fact that much of that is essentially military spending. Trump has always been enthusiastic about running up massive new deficits and spending totals so long as it goes to the Pentagon.

The Pentagon, of course, just failed its seventh audit in a row and has no idea how its money is spent. Nevertheless, it is very unlikely we’ll see any efforts on the part of this administration to rein in the legions of engineers and computer programmers who ostensibly work for private companies, but are actually federal workers.

Just Cut Spending

Cutting the federal work force does not require any ornate arguments about the civil service or how many federal employees work from home. If the Trump administration is serious about cutting the federal workforce, it will focus on simply cutting federal spending. If federal spending falls significantly, millions of workers paid by federal contracts and grants will have to join the private sector.  Moreover, millions of state and local government jobs will disappear as well, given that many of them are essentially federally funded positions. It’s not really any more complicated than that.