Federal layoffs are plunging workers into a tough labor market. Here’s how to prepare for the worst

The Trump administration began a dramatic reduction in the federal workforce in February, offering resignations to all workers and laying off scores of people across several departments. Unfortunately, those federal workers could be in for a lengthy job hunt, as they’re entering a difficult job market that’s already been challenging enough for white-collar workers.

The U.S. didn’t add as many roles to the job market in January as economists previously expected, leaving fewer available roles for not only private sector workers, but also the increasing number of federal workers entering the job hunt. Newly unemployed federal workers hoping to move to private businesses will have to compete with private sector workers over a limited number of job openings for white-collar work, making it harder for members of both groups to find a new job.

Without a guarantee of finding a new job quickly, federal workers may spend a long time unemployed — and as a result, they may have difficulty paying their bills, continuing to save for the future and paying off their debt.

Sluggish hiring could be a headache for unemployed federal workers

The U.S. added 143,000 total jobs in January, according to the latest U.S. Bureau of Labor Statistics (BLS) jobs report, fewer than economists expected. It was similar to the average monthly gain of 166,000 jobs seen in 2024, but significantly down from 307,000 in December 2024. While fewer jobs are being added nationwide, unemployment is still low (4 percent). That may be due to slowing turnover, as economists say more workers may be staying put in their current roles, leaving fewer vacancies for unemployed workers to fill.

What’s more, unemployed workers have been looking for a new job for months. As of January 2025, unemployed people have spent an average of 22 weeks without a job, according to the BLS, up year-over-year from 20.8 weeks in January 2024.

“The ongoing trend of declining quits, hires and job openings suggests a continuation of ‘The Great Stay,’ where employers are slow to hire and fire, and workers are staying put,” Odeta Kushi, deputy chief economist at First American Financial Corp., told Bankrate in January. “Those with jobs are doing well, but job seekers might face challenges. If hiring remains sluggish, unemployment may continue to rise.”

While the U.S. is still adding jobs, those jobs don’t tend to be in white-collar work, which is unfortunate for many federal workers looking for work in the private sector. Professional and business service openings (a BLS category encompassing jobs in legal, accounting, bookkeeping, engineering and other professional roles) have remained relatively flat month-over-month, according to the BLS, with the U.S. losing 11,000 roles in January 2025. In comparison, federal government workers in health care will have an easier time finding private sector work. The health care sector, one of the strongest industries in the U.S. today, added 44,000 jobs in January.

“It’s a better time to be a worker than a job seeker,” Bankrate U.S. Economy Reporter Sarah Foster says.

As Americans report low savings, laid-off workers could be in financial trouble

Ideally, workers facing a layoff would have enough emergency savings to tide them over until they find a new role. But that may not be the situation for a large percentage of Americans — 43 percent of Americans would borrow money to pay for a major unexpected expense (such as $1,000 for an emergency room visit or car repair), according to Bankrate’s Emergency Savings Report.

Without sufficient savings, it would be hard to cover your upcoming bills in case of a job loss. That’s a concern for many people — more than 2 in 3 Americans (69 percent) would be very or somewhat worried they wouldn’t be able to cover their immediate living expenses over the next month if they were to lose a primary source of household income tomorrow (e.g., a job loss), according to Bankrate’s Emergency Savings Report.

Source: Bankrate Emergency Savings Survey, Dec. 6-9, 2024

Without enough savings to tide them over in case of a job loss, laid-off federal workers could be at risk of having to deprioritize their financial goals (such as pausing their retirement contributions or putting off a car purchase). They may also face challenges with paying their everyday bills.

How to prepare in case of a job loss

With low confidence in their careers and a significant number of Americans concerned about their financial situation in case of a job loss, it’s more important than ever for all workers to prepare financially for the future. If you’re concerned about your future job security — or if you just want to prepare for the worst — consider the following tips.

1. Understand your local unemployment and insurance options

If you’re concerned about a potential upcoming job loss, it’s a good idea to become familiar with your state’s unemployment services sooner rather than later. Each state has different policies and processes around filing for unemployment, so check out the rules in your state to know how you can jump on filing for unemployment right away if you lose your job.

Federal employees who have recently lost their jobs are also eligible for the Unemployment Compensation for Federal Employees (UCFE) program. It has the same eligibility requirements as regular unemployment benefits, and it’s administered by states. If you’re a recently laid-off federal employee, file a claim where your last official duty station was located.

Federal employees lose access to their health insurance coverage on the last day of the pay period they lose their job. After that, there’s an additional 31-day temporary extension of coverage available for free. Afterward, you can sign up for Temporary Continuation of Coverage (TCC) for 18 months for the price of both the government and employee shares of your premium, plus a 2 percent administrative fee.

For others who are looking for health insurance after they lose a job, many private sector employers (as well as state and local governments) offer COBRA continuation coverage. It can be expensive — you pay 100 percent of the premiums, plus an administrative fee –- but it’s better than nothing.

2. Build up your emergency savings

In today’s job market, the more robust your emergency savings, the better. Common personal finance advice recommends saving three to six months’ worth of expenses in case of an emergency like a job loss, but that advice might not be best for everyone, especially if you’re expecting a lengthy job hunt that could stretch beyond six months long.

To start your emergency savings fund, you’ll want to:

• Determine your goal amount, based on your expenses and your upcoming financial needs. To do this, calculate your essential monthly expenses (like your rent or mortgage payments, utilities, debt repayments and other important bills), then multiply it by around three to six months, depending on your financial needs. If you’re self-employed or you’re concerned about your financial future, consider saving six months of expenses or more. If you have another source of income (such as a side hustle or a partner with income), you may have room to save a little less.
• Make a budget (or edit your current budget) to know where your money is going today, and to know where you can cut money to prioritize savings.
• Set up direct deposit to funnel funds from your paycheck directly into your savings on payday. This simplifies saving and lets you avoid the temptation to spend.

3. Identify expenses to cut ahead of time

If you’re worried about losing your job in the future, you can identify expenses now to cut in case of a job loss. Chances are there are items in your budget that would become unnecessary if you didn’t have an income.

Those expenses could include:

• Subscriptions or memberships
• Hobby-related spending
• Restaurants, takeout and drinks
• Entertainment (like movie or sports tickets)
• Saving for future travel or expensive goods, like a new car. (But if possible, you’ll want to continue saving for retirement.)

How can I save for retirement without relying on my employer?

If you're a federal employee who no longer has access to a Thrift Savings Plan, you should explore other retirement methods. You can open IRAs yourself, with no workplace sponsorship required.

Learn more