Furloughs, Human Capital, and Productivity: Evidence from Government Shutdowns
81 Pages Posted: 14 Nov 2021 Last revised: 17 Apr 2025
Date Written: April 16, 2025
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
Suggested Citation: Suggested Citation