On January 28, the Trump administration introduced a buyout offer to about 2 million federal employees. Those who agree will receive full pay and benefits for a period of 8 months. It is anticipated that 5 to 10 percent of federal workers will take up this offer, leading to estimated annual savings of $100 billion.

While the idea of this approach may seem attractive at first glance, the federal government’s workforce is overstaffed. The Department of Government Efficiency (DOGE), headed by Elon Musk, is keen on substituting labor with funds. With the rise of artificial intelligence, many tasks currently carried out by federal employees can be done by AI.

Although the potential savings seem enticing, they may be deceiving. In the 1990s, corporate downsizing was widely popular among Fortune 500 companies. Despite promising significant efficiencies with a smaller workforce, the reality often differed from the theory.

When downsizing, good logic would dictate that the least productive employees are the first targets. However, this could lead to legal complications, especially if those impacted are disproportionately non-white. Employment discrimination lawsuits can be both expensive and time-consuming.

Management’s preference for across-the-board buyout offerings in corporate America indicates that selective downsizing did not pass the cost-benefit analysis. The challenge with all-encompassing offers is that higher-performing workers may opt-in, leaving behind less skilled or diligent employees who cannot afford to decline the offer.

The Trump administration’s DOGE mirrors an issue faced by the telecommunications industry in the late 20th century, requiring downsizing due to technology advances. While employers may again opt for across-the-board buyouts, the result might be a dumbed-down workforce and less skilled employees remaining.

To counteract this effect, retaining bonuses for high-productivity employees could be considered. These incentives can enhance the likelihood of holding onto efficient workers, rather than losing them in a workforce reduction.

The pathway of downsizing the workforce is laden with challenges, differentiating running a government from operating a business. Musk and his colleagues will need to navigate these obstacles as they seek to implement the buyout plan through DOGE.