Furloughs, Human Capital, and Productivity: Evidence from Government Shutdowns

Abstract

We study how furloughs affect human capital retention and organizational productivity. Exploiting a government shutdown as a natural experiment, we show that federal employees impacted by shutdown-mandated furloughs are 31% more likely to leave their jobs within one year. Younger employees with better outside opportunities are more likely to quit, while older employees with vested pensions are more likely to retire. Consistent with a loss of valuable employees, accounting and legal processes and patenting deteriorate, leading to financial losses. Bureaus forced to implement the furloughs subsequently outsource activities to contractors, and survey data links furloughs to decreases in employee morale. 

Keywords: furloughs, financial distress, government shutdowns, human capital, productivity

JEL Classification: J21, J24, J45, J63