To date, the Department of Government Efficiency (DOGE) has fired more than 100,000 federal civilian workers, with thousands of additional layoffs promised. This reduction in the federal workforce will likely have ripple effects—job losses in the private sector and more unemployment insurance claims nationwide.
Unlike federal employees who receive unemployment benefits paid by the federal government through the Unemployment Compensation for Federal Employees program, people who lose private-sector jobs rely on state unemployment insurance (UI) programs, which primarily fund benefits through state payroll taxes. As a result, any increase in UI claims will put additional financial pressure on state UI programs.
Research has shown that federal worker layoffs have spillover effects in the private sector. If we assume one private-sector job is lost for every federal worker laid off (a conservative estimate according to Terry Clower, director of George Mason University’s Center for Regional Analysis), we can estimate what might happen to state UI budgets if, for example, 15 percent of the federal civilian workforce in each state is fired.
Overview of the unemployment insurance program
The UI program provides temporary financial assistance to eligible workers who have lost their jobs through no fault of their own. Individual states administer the program under federal guidelines outlined by the US Department of Labor, and the program is funded through federal and state payroll taxes paid by employers. UI benefits help stabilize household spending and savings and have been found to stabilize aggregate economic growth. In 2024, about 7.5 million workers received UI benefits at some point, totaling more than $36 billion.
UI programs differ by state in several key ways, including eligibility requirements, weekly benefit amounts, duration of benefits, funding mechanisms, and program administration. Average weekly benefits in 2024, which were typically calculated as a percentage of a worker’s previous earnings, ranged from $223 in Mississippi to $713 in Washington state.
These differences—and, of course, the number of unemployed workers who receive benefits—contribute to variation in total program costs by state. According to a 2024 Department of Labor report (PDF), only 19 states held the recommended amount of UI funds in reserve to ensure the program can continue to operate.
Federal workforce reductions on UI programs would strain state budgets
To calculate the increased demand for UI benefits by state, we assume 15 percent of the federal civilian workforce in each state is fired (based on current reporting of total and expected planned federal reductions) and that the share of unemployed workers who claim UI benefits remains equal to the existing state average. Not everyone who is unemployed claims UI benefits because of eligibility issues, limited benefits, expectations of securing new work, and other reasons. In Kentucky, about 8 percent of eligible workers received benefits in 2024, and almost 60 percent claimed in Minnesota. Nationwide, the recipiency rate was about 27 percent in 2024.
Although we use existing state averages to approximate UI claims, this number may undercount actual UI claims because newly unemployed workers are more likely to receive benefits than workers who have been unemployed for longer periods. Also, nearly all states cap the maximum number of weeks a person can receive benefits at 26 , so the monthly estimates presented here effectively represent a short-term spike in UI costs.
Once we have an estimated number of private-sector workers (one-for-one with the number of federal job losses) expected to receive benefits, we then multiply that number by the average weekly benefit in each state, calculated from existing Department of Labor data over the entire 2024 calendar year.
From this analysis, we see that the monthly state-level UI cost associated with firing federal workers ranges from less than $250,000 per month in states like New Hampshire and Delaware to at least $8 million per month in more populous states like Texas and California. States that already offer above-average weekly UI benefits also see larger cost increases. Benefits in Massachusetts are about 60 percent greater than the national average, and monthly costs would increase by nearly $4.5 million.
In four states—California, Maryland, Texas, and Washington—monthly UI costs would increase by $8 million or more. The greatest cost increase would be in Washington, DC, where the large federal workforce and high average weekly UI benefit would result in about $9 million of additional UI costs per month. Compared with 2024 levels, state UI cost increases would range from about 1.6 percent in New Jersey to about 24 percent in Maryland. (DC would see a 100 percent increase in monthly UI costs.) States may be tempted to cut UI benefits in response to increased costs, but any reductions could further destabilize state economies and leave more households unable to afford basic needs.
Several states would see increases around 6 percent, but for different reasons. Kansas and Vermont have above-average benefits ($482 and $541) but below-average unemployment rates (3.6 percent and 2.3 percent). Thus, a sudden shock of more unemployed workers would significantly increase their monthly UI bill. Florida, by contrast, has below-average weekly benefits ($264, one of the lowest in the nation), a low recipiency rate (10 percent), and an unemployment rate slightly below the national average (3.4 percent). However, the large number of federal workers in the state—about 95,000 people—could lead to large numbers of job losses in the private sector, which would mean a higher overall UI cost.
These effects will extend beyond state budgets as well. Job losses in both the public and private sectors will limit people’s ability to pay their rent or mortgage, put food on the table, and go shopping. These changes could create a negative feedback loop, where states lose revenue from income and sales taxes even as they see larger claims on UI reserve funds.
Ultimately, federal workforce reductions could spill over to job losses in the private sector and put an enormous strain on state UI systems, which could result in UI service reductions, tax increases on employers, or higher state borrowing costs. Among the 31 states whose UI trust funds did not meet the minimum recommended reserves in 2024, UI costs under the above scenario would increase by about 5.6 percent on average. And the growing threat of a recession could lead to further private-sector job losses, putting the UI system and state finances under even greater strain.
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