Where the Jobs Are (and Aren’t): Sectoral Shifts and the Federal Workforce Pullback

Job growth hides a deeper reordering of where Americans are working

This is Part II of our two-part series (Part 1 here), where we examine employment patterns across labor market sectors, as well as ongoing administrative efforts at reducing the size and scope of the federal workforce.

When we look past the headline numbers, the real story of the labor market comes into focus. Job numbers have weakened lately, and even the strong ones often hide what’s really going on beneath the surface. Some industries are humming while others are shedding workers, and that reveals how both market forces and policy choices are quietly reshaping where opportunity lives—and where it’s drying up. These sectoral shifts matter most for young workers just entering the job market.

This second part looks at two big stories behind the numbers: the sectors driving recent job gains and losses, and the federal workforce reduction effort that’s been accelerating since January.

Sectoral Shifts: Winners and Losers

Healthcare continues to dominate job growth—adding about 30,000 jobs in August and roughly half a million over the past year. This sectoral strength isn’t just a data point; it’s a window into understanding recent patterns in youth unemployment. John Burn-Murdoch at the Financial Times makes a compelling case that rising unemployment among recent graduates reflects largely a sectoral reallocation.

The gender divide is especially striking. Women are entering healthcare at high rates, and healthcare employment keeps expanding. Men, meanwhile, have clustered more in tech and computer-related fields—precisely where job losses have been creeping in. The data don’t tell us exactly which tech occupations are shrinking, but the overall pattern suggests that occupational choice—not just skills or credentials—is shaping labor market outcomes for young workers..

Manufacturing tells a different story. Employment there has been slipping for years, but the decline has quickened since April. In August alone, 12,000 factory jobs disappeared. Since “Liberation Day” (April), the sector has lost 42,000 workers—and 78,000 compared to a year ago.

One likely culprit: tariffs that have driven up input costs. More than half of U.S. imports—between 54% and 56%—are industrial supplies, materials, and capital goods used in production. A tariff on steel might sound like a win for steelmakers, but for every worker who produces steel, dozens more use it to build cars, appliances, batteries, and machinery. When input costs rise, those industries hire less, not more.

Together, these sectoral patterns show how market forces and policy decisions interact to reallocate labor across industries—boosting healthcare while constraining manufacturing and tech. Yet the federal government exerts its own influence on the labor market too, through its own hiring and staffing choices. And lately, those choices have tilted toward contraction.

Federal Workforce Reductions

Two weeks ago, the Office of Management and Budget sent agencies a memo to prepare reduction-in-force plans in case of a government shutdown. The move followed a funding standoff in Congress over additional healthcare spending.

Using the threat of layoffs as leverage isn’t exactly a model for thoughtful reform—but it’s part of a broader administrative push that began back in January. The federal workforce stood at a little over 2.4 million workers at the start of 2025. In the 25 years leading up to that point, it grew by roughly 550,000.

The idea of trimming government’s size isn’t new—or partisan. President Obama once called for a “leaner, smarter” government in 2012. And the last major workforce reduction came under President Bill Clinton in the 1990s.

Clinton began by ordering each agency to cut 4% of its civilian staff under his “Reduction of 100,000 Federal Positions” initiative. A year later came the Federal Workforce Restructuring Act, which offered voluntary buyouts—up to $25,000—to employees willing to retire or resign early. By the end of Clinton’s first term, the federal headcount had fallen by 331,000; by the end of his second, by 434,000.

Fast forward to today: the current administration’s approach echoes that era. In January, President Trump signed Executive Order 14210, aimed at downsizing government in two key ways:

• A hiring freeze: Agencies can hire no more than one employee for every four that depart (extended every three months, next expiration on October 15)

• Mandatory reduction plans: Agencies must submit formal strategies to shrink their workforce.

There’s also a voluntary exit route—the Deferred Resignation Program (DRP)—modeled loosely on Clinton’s buyouts. Employees who resign or retire early continue to receive pay and benefits through September or December.

So far, the numbers are striking. Since January, 85,300 federal jobs have fallen off the payroll, and about 154,000 workers have taken buyouts under the DRP. Most of those reductions come not from layoffs, but from the hiring freeze preventing agencies from replacing those who leave.

At this pace, federal downsizing is running nearly twice as fast as Clinton’s early cuts. But it’s still early days. During Clinton’s first term, the deepest reductions came later on. By this same point, he’d cut about 54,000 positions. The current total—85,300—is ahead of schedule, but it remains to be seen whether the momentum lasts.

If this government is to match Clinton’s first-term cuts, federal employment needs to drop below 2.08 million workers by 2028. Reducing the federal workforce back to the Clinton-era lows of 1999 would require shrinking it down to 1.88 million.

Cutting Jobs, Shifting Jobs, and the Shape of What’s Next

Healthcare’s steady expansion and manufacturing’s contraction capture the reallocation story at the heart of today’s labor market. Where jobs grow—and where they disappear—helps explain why some young workers thrive while others stall. Meanwhile, the federal workforce reductions mark one of the most significant government pullbacks in decades, echoing the reform-minded cuts of the 1990s.

In the months ahead, it’s worth watching not just how many jobs the economy adds or loses, but which ones. Where workers land and what they produce will tell us if this reshuffle leaves the economy stronger.