The Trump administration’s mass purge of federal employees is triggering an unemployment crisis that the government may not be equipped to handle. The Department of Government Efficiency (DOGE), led by billionaire Elon Musk, has already eliminated tens of thousands of federal jobs, and experts warn that the surge in unemployment claims could overwhelm the system, delaying benefits for those suddenly out of work.
A new report from The Century Foundation warns that the Unemployment Compensation for Federal Employees (UCFE) program-the system federal workers rely on for jobless benefits-is outdated and unprepared to handle mass layoffs. The program’s reliance on manual processing, combined with the sheer scale of job losses, could leave thousands without financial aid for weeks or even months.
“We’re already hearing it’s taking a long time for people to get their benefits,” said Andrew Stettner, director of economy and jobs at The Century Foundation. “And it will probably only get worse.”
Federal employees are not part of the standard unemployment insurance system used by private-sector workers. Instead, they must go through UCFE, a slower, more bureaucratic process that requires government agencies to verify employment records before states can approve claims. Under normal conditions, this system works because federal job cuts are rare. But now, with over 62,000 layoffs in February alone and possibly hundreds of thousands more to come, the system is on the verge of breaking down.
The Trump administration initially aimed to shrink the federal workforce by 5-10% through voluntary buyouts, expecting up to 200,000 workers to accept severance packages. Instead, only 75,000 workers took the offer, forcing DOGE to turn to mass layoffs to meet its downsizing goals.
The result? The largest government layoff in U.S. history-and an unemployment system struggling to keep up.
“The federal workforce is shrinking, and those left behind need to get their financial ducks in a row-fast,” says Michael A. Scarpati, CEO of RetireUS. “Whether someone took the buyout or stayed in their role, the best way to navigate this transition is with informed financial planning.”
Many of those affected are career employees with decades of service who assumed federal jobs came with security. Now, they are not only out of work but also caught in a system that may take months to process their benefits.
“There’s a growing number of people who are now jobless but still have bills to pay,” says Scarpati. “They thought they had time to plan for retirement, but they’re being forced into financial decisions they never expected to make.”
Unlike private-sector unemployment programs, which automatically receive earnings data from employers, the UCFE system requires federal agencies to manually verify a worker’s employment history before a state can approve benefits.
With dozens of agencies affected and staff shortages growing, this means delays will likely get worse before they get better.
The UCFE system is already under strain. As of Feb. 15, more than 7,400 federal workers were collecting benefits, an increase of 12% from the previous year. But with tens of thousands more now jobless, that number could jump to 100,000 or more in the coming months, a historic surge the system is not prepared for.
Adding to the chaos, some federal workers may have their claims challenged by the government.
DOGE’s termination notices for probationary workers have included vague “for cause” language, which could be used to dispute unemployment claims. While federal law does not automatically disqualify workers fired “for cause” from receiving benefits, the Trump administration may attempt to block payments, leading to even longer delays and potential lawsuits.
Beyond the impact on individual workers, the flood of unemployed federal employees could have wider economic consequences.
- Local economies that depend on federal workers will suffer. Towns near national parks, military bases, and government offices could see a sharp decline in consumer spending as laid-off workers cut back.
- Hiring is slowing down nationwide. With rising uncertainty in the labor market, private-sector companies may be hesitant to hire government workers whose skills don’t always translate to corporate jobs.
- Healthcare coverage is disappearing. Many of these workers were forced into early retirement before they qualified for Medicare, leaving them scrambling for health insurance.
“The biggest financial risk most retirees face isn’t running out of money-it’s unexpected medical costs,” warns Scarpati. “With federal layoffs forcing early retirements, more employees are being caught off guard, scrambling to figure out how to stay insured. The worst mistake? Retiring without a clear plan for healthcare, because one medical emergency can wipe out decades of savings.”
Despite the administration’s aggressive cuts, legal challenges are mounting.
A federal judge in San Francisco recently ruled that mass federal layoffs may be illegal, blocking the Trump administration’s attempt to fire all 200,000 probationary employees. Meanwhile, the Merit Systems Protection Board temporarily reinstated about 6,000 laid-off USDA workers as their cases are reviewed.
But even if some terminations are reversed, the damage is already being done. Thousands of workers are still waiting for unemployment benefits, and many will not be reinstated.
With uncertainty growing and more layoffs on the horizon, financial experts urge federal workers to take action now.
“Workers need to evaluate their pension options, Thrift Savings Plan (TSP) rollovers, and federal health benefits before they run out of severance money,” says Scarpati. “The next few months will determine whether they land on their feet or face financial ruin.”
For now, the fate of thousands of former federal employees hangs in the balance-waiting for benefits that may take months to arrive, searching for jobs in a slowing economy, and hoping that the government that just fired them will at least pay them what they’re owed.
