Government Shutdown: A Then and Now Picture

The Effect of Government Shutdown


A Then-and-Now Picture

Year 1995-1996: Employees Furloughed: 750,000, Time: 28 days,  Quarter four Real GDP Decrease: $4.6 billion, Quarter four reduction in growth: .25%

Year 2013: Employees Furloughed: 710,000, Time: 7 days, Quarter four Real GDP Decrease: $1.3 billion, Quarter four reduction in growth: .12% (Estimate for furloughs lasting one week, and not annualized).
 

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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Meet the Author

 
Photo: Mary Reasoner, Senior Vice President, Chase Business Credit

Jim Glassman
Head Economist

As Managing Director and Head Economist for Chase Commercial Banking, Jim Glassman provides market insights to help clients better understand the changing economy and its impact on business. A publisher of independent research on the principal forces shaping the economy and financial markets, Glassman is regularly cited in the financial media, where he is also a frequent commentator on economic policy issues.

 
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