The Effect of Government Shutdown
A Then-and-Now Picture
The last time the government shut down was in the fall of ’95 and winter of ’96, when about 750,000 government employees were furloughed for a total of 28 days.
At that time, the Bureau of Economic Analysis estimated that the shutdown lowered real GDP by $4.6 billion at an annual rate in the 1995 Q4, translating into a .25 percentage point reduction in the growth. It calculated the lost output as the product of employee-furlough days and real compensation-per employee day.
Today, the federal civilian workforce now is about five percent smaller than it was in 1995, so the current shutdown probably involves 710,000 federal employees. Compensation for federal government employees is about $366 per day, assuming a 250-day work-year (BEA table 6.2D and 6.4D).
This would mean that the cost of the shutdown runs about $250 million per day or $1.3 billion per week. When that is annualized, one week of shutdown translates into a Q4 real GDP loss of 0.12 percentage point.
Federal employees are likely to be compensated for time lost during furlough, so the impact on the economy does not come from lost income to government employees.
Instead, the calculation above is an approximation of the output lost—for example, the revenue lost at the national parks, owing to closures from government workers not being on the job.
Output of the government sector is measured by the value of the income paid to government workers. The true economic loss is likely to be even smaller than these estimates, to the extent that government workers are able to do double duty to make up for work they were not able to do during the furlough, or to the extent that they are able to do critical functions while away from the job.
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