The Hidden Costs of Government Shutdowns

Abstract

Government bureaus with higher percentages of furloughed employees during the 2013 government shutdown experienced more employee turnover for two years after the shutdown. This lost workforce was not replenished after employee exits stabilize, at least not within four years after the shutdown. We find that younger employees 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. Moreover, their accounting processing and patent creation capabilities decrease, which is consistent with the shutdown eliminating valuable human capital and decreasing government productivity.

Keywords: government shutdowns, furloughs, government productivity

JEL Classification: J21, J24, J45, J63