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A judge ordered federal agencies to stop terminating probationary workers, but that doesn’t mean they’ll be safe for long

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Good morning!

Thousands of federal workers got their jobs back yesterday, a month after the Office of Personnel Management (OPM) directed agencies to fire employees on probation.

The decision marks the latest roadblock to President Donald Trump and Elon Musk’s attempts to massively cull the federal workforce. And while many of these employees are celebrating the ability to return to work, the latest court ruling doesn’t mean they’re necessarily safe. 

On Thursday, William H. Alsup, a district court judge in California, declared Trump’s decision to fire probationary employees illegal, noting that the Office of Personnel Management (OPM), a kind of HR office for federal employees, doesn’t have the authority to hire and fire workers within other departments. He also took particular issue with the way they did it. Last month, the OPM sent a notice to all agencies requiring them to fire all workers on probationary status, along with a termination notice template telling employees they were being fired “based on performance.” 

“It was a sham in order to try to avoid statutory requirements,” Alsup said on Thursday. He added that it was a “sad day when our government would fire some good employee, and say it was based on performance, when they know good and well that’s a lie.” 

Employees who were terminated from the departments of Veterans Affairs, Agriculture, Interior, Energy, Defense, and Treasury will now have to be reinstated. The judge also forbade the OPM from providing additional guidance to agencies on which employees they should let go.  

But these newly reinstated federal probationary employees aren’t out of the woods just yet. Reductions in force (also known as RIFs) are still legal for the government to carry out, as long as they’re “done correctly under the law,” Alsup said. “This case isn’t about whether or not the government can terminate people. It’s about if they decide to terminate people, how they must do it.”

The ruling also does not affect this week’s deadline set by the Trump administration requiring all agencies to send the president and the OPM plans for more layoffs. That means that more cuts are on the way. 

In the meantime, however, federal worker unions across the country are rejoicing.“AFGE is pleased with Judge Alsup’s order to immediately reinstate tens of thousands of probationary federal employees who were illegally fired from their jobs by an administration hellbent on crippling federal agencies and their work on behalf of the American public,” said Everett Kelley, National President of the American Federation of Government Employees, a federal worker union. 

“We are grateful for these employees and the critical work they do, and AFGE will keep fighting until all federal employees who were unjustly and illegally fired are given their jobs back.”

Brit Morse
brit.morse@fortune.com

This story was originally featured on Fortune.com

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Gen Z Americans don’t have enough saved to cover a single month of spending

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Younger Americans don’t have enough saved to cover a single month of spending, showcasing their vulnerability should the economy head into a downturn.

Members of the Gen Z generation — people born after 1995 — were spending twice the amount they had in savings on average in February, according to Bank of America Institute analysis of internal account and card data released Friday. The ratio has increased in the past two years, and is much higher than for other generations.

In part that’s because Gen Z consumers, many of whom still hold entry-level positions and make less than their older peers, tend to spend a bigger share of their incomes on necessities including rent and utilities. But they’re also more likely to shell out on discretionary categories like travel and entertainment. Spending in non-essentials among that cohort is up more than 25% from a year ago — substantially above the overall rate.

While the report noted that Gen Z workers are still garnering robust pay gains compared to older groups, it showcases a point of vulnerability as households’ views of the economy dim.

After years of stubborn inflation, higher borrowing costs and waning pandemic savings, views of their current financial situation have sharply declined this year. Among all US households, expectations for finances a year from now have dropped to an all-time low, according to a University of Michigan report out Friday.

Career concerns

Economists and policymakers are paying close attention to how this growing pessimism will impact consumption — the main engine of the US economy. Americans took a breather on spending at the start of the year, and some retailers are already warning of weaker demand ahead.

The Bank of America report also pointed to a worsening labor market for younger Americans. The number of Gen Z households receiving unemployment benefits rose by nearly a third in the past year — the most of any generation. It also noted that, with underemployment on the rise, that could have long-term career effects for that cohort.

This story was originally featured on Fortune.com

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Harvard Law students want $53 billion fund to sever Israel ties

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Harvard Law School students voted to demand the university’s $53 billion endowment divest from “weapons, surveillance technology” and other companies tied to Israel, a symbolic vote that brings renewed attention to a protest movement that has drawn the Trump administration’s ire.

Harvard’s administration said last year it won’t divest and the student vote carries no enforcement, but the move puts anti-Israel protests back in the spotlight at a time when President Alan Garber is trying to reassure Republicans they’re taking seriously criticisms of the school, which includes its handling of antisemitism.

The move comes days after the administration pulled $400 million from Columbia University and immigration officials arrested an organizer of anti-Israel protests. Harvard said last week it would temporarily freeze faculty and staff hiring amid concerns over federal funding. 

“The Trump administration’s threats are meant to scare us into submission, but this referendum shows that those efforts only strengthen our solidarity with Palestine,” Irene Ameena, an organizer with Law Students for a Free Palestine, said in a statement. The note said that 73% of the 842 students that voted chose divestment. The law school has almost 2,000 students.

Pro-Palestinian students have long called for universities to cut ties with Israel, moves that have almost entirely been ignored by administrators, even after protests on campus intensified in the wake of Hamas’s October 2023 attack on the Jewish state and Israel’s retaliation. 

Schools and lawmakers have rejected the Boycott, Divestment, Sanctions, or BDS, movement against Israel, viewing it as antisemitic because it calls into question the legitimacy of the Jewish state and singles out the policies of one country.

Harvard Law School said in a statement that it strongly supports students’ free speech rights. It added that the administration had no role in the referendum conducted by student government. 

“As explained in a message to students, the administration expressed deep disappointment with student government’s leadership’s decision to proceed with a needlessly divisive referendum which runs contrary to student government’s stated objectives of “fostering community” and “enhancing inclusion,” Harvard Law said. 

This story was originally featured on Fortune.com

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Here’s when AI will launch a decade-long cycle of economic growth and productivity gains

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  • A new analysis from Goldman Sachs found that AI hasn’t yet had any discernable impact on major labor market indicators such as the unemployment rate, layoffs, or productivity measures. Goldman expects the labor market to be one of the first indicators of AI’s effect on the economy because unemployment data is regularly tracked, and the technology’s ability to automate tasks should increase productivity. 

Anyone waiting with bated breath for the rise of AI to roil the labor market will have to sit tight a little longer. 

Despite its rapid proliferation over the last couple years, AI has had no discernible effects on major labor market metrics, according to Goldman Sachs. 

“Aggregate labor market impacts are still negligible,” wrote Goldman Sachs economists Joseph Briggs and Sarah Dong. “Although AI exposure is highly correlated with adoption, there is no economically or statistically significant correlation between AI exposure and job growth, unemployment, job finding rates, layoff rates, weekly hours, or average hourly earnings.”

At least not yet.

Companies across the U.S. have yet to fully incorporate AI into their operations, Briggs told Fortune

“I expect that will change over the next several years,” he said. “We’re just still a little bit in the early days of the AI transition.”

Most firms took a gradual approach to integrating AI because the technology was so new and expensive that it required extensive overhauls to existing processes. AI also posed entirely new concerns over data privacy and security that companies had to contend with before rolling it out across their organizations. Some companies may also be playing a waiting game to figure out which AI tools will end up being the best, according to Briggs. 

“The technology is a little bit early, and so you don’t want to be locked into what, in the long run, is an inferior platform,” he added. 

Goldman expects AI will eventually boost the economy overall starting in 2027 with increases to labor productivity and GDP. That uplift will continue through to the late-2030s, according to Briggs and Dong’s note.

Previous Goldman estimates forecasted the full adoption of AI could lead to a 15% increase in U.S. labor productivity and a 7% increase in global GDP. 

“We have a still fairly positive outlook and bullish outlook on the longer-run impacts of AI, and we expect that it will unlock a lot of economic value,” Briggs said. 

Any overarching changes to the economy stemming from AI would have first shown up in the labor market because employment data is regularly tracked and the technology’s ability to automate tasks would, in theory, boost productivity, Briggs and Dong wrote. But since there haven’t been any major changes to ongoing trends in the unemployment rate and productivity, Goldman reasons, AI’s effects haven’t yet kicked in. 

Most labor market indicators have remained somewhat steady over the last year or so. The unemployment has hovered around 4% since December 2023, never dipping below 3.8% or rising above 4.2% over that time. The latest labor productivity measure for the fourth quarter of 2024 was 2% growth, which was a slight slowdown from the 2.5% in the third quarter. 

That’s not to say there haven’t been some changes to the overall labor market. Certain professions, like computer programming, customer service and professional services, that are highly susceptible to generative AI have started seeing some minor changes to hiring practices. 

Specifically, those industries where AI is more heavily adopted have seen slight declines in labor demand, with fewer job postings, according to Goldman’s analysis of data from the jobs website Indeed.com

“Labor demand trends over this period show a common decline across nearly all service subsectors that is correlated with exposure to AI automation, suggesting that the onset of generative AI tools may have led some companies to reevaluate hiring plans,” Briggs and Dong wrote in their note. 

Briggs said the next metric his team at Goldman will be watching is “actual job growth” across the economy to see if hiring slowdowns in certain industries are offset by new jobs. 

Big changes to the labor market are expected in the coming years. Goldman’s own 2023 forecast that 300 million jobs in the U.S. and Europe were susceptible to some level of change due to AI captured the scale of the potential impact.

However, Brigg’s report said that it will be at least two years until those changes really manifest themselves. The shakeup to the labor market will ultimately come down to how quickly AI is adopted across broad swaths of the economy. That will only start to happen once costs come down, for both AI companies and their eventual customers, and developers continue building out more applications.  

The AI industry has already started to make strides toward cheaper solutions. The release of the Chinese company DeepSeek’s latest chatbot sent shockwaves throughout the industry when it was reported to have outperformed some of OpenAI’s best models for a fraction of the development costs. Major U.S. developers have also taken strides to find new, cheaper sources of energy in a bid to lower their own costs. 

There has been some progress in business-to-business applications for specific industries like financial services and design. However, the market for these tools has yet to translate to an overhaul of the traditional software market or, as Goldman points out, lead to a substantial, measurable increase in worker productivity outside of a few examples. Though that will change as companies hire more AI talent and cobble the money to invest in new tech; both of which many still lack. 

“There’s just a lot of companies that don’t have the expertise or the internal capital to figure out how to develop applications and restructure workflows so that they can incorporate AI and reap the benefits to productivity that it promises,” Briggs said. 

This story was originally featured on Fortune.com

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