The Hidden Costs of Government Shutdowns

72 Pages Posted: 14 Nov 2021 Last revised: 25 Jul 2023

See all articles by Christoph Herpfer

Christoph Herpfer

University of Virginia, Darden School

Gonzalo Maturana

Emory University - Goizueta Business School

Andrew Teodorescu

Stanford Graduate School of Business

Date Written: July 24, 2023

Abstract

We examine implications of government shutdowns for government employment and productivity. Consistent with shutdowns generating liquidity challenges or disillusionment in employees, employees affected by government shutdowns experience a 31% increase in voluntary turnover after a furlough. This lost workforce is not replenished after exits stabilize. Younger employees with better outside opportunities are more likely to quit, while more experienced employees who receive higher pay are more likely to retire. Affected bureaus react by outsourcing more of their activities, with the cost for temporary service workers surpassing the savings from the reduced payroll by a factor exceeding two. Moreover, affected government bureaus exhibit substantially reduced output, with decreases across payment processing, legal enforcement, and innovation capabilities, which is consistent with shutdowns eliminating valuable human capital and decreasing government productivity.

Keywords: government shutdowns, furloughs, government productivity

JEL Classification: J21, J24, J45, J63

Suggested Citation

Herpfer, Christoph and Maturana, Gonzalo and Teodorescu, Andrew, The Hidden Costs of Government Shutdowns (July 24, 2023). Available at SSRN: https://ssrn.com/abstract=3962279 or http://dx.doi.org/10.2139/ssrn.3962279

Christoph Herpfer (Contact Author)

University of Virginia, Darden School ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Gonzalo Maturana

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

HOME PAGE: http://www.gonzalomaturana.com/

Andrew Teodorescu

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, 94305
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
207
Abstract Views
1,349
Rank
272,450
PlumX Metrics