government shutdown

The Post-Shutdown Hangover for American Workers and Businesses

The government shutdown that ended on January 25, 2019 was the longest on record. Coming in at 35 days, it was a full two weeks longer than the 1995-1996 shutdown under President Clinton. Largely because of its length, its effects on American workers and businesses were deeper and more wide-ranging than those of past shutdowns, with the hangover still lingering weeks later.

Financial hardship for furloughed federal workers and contractors

The main effect of the shutdown was financial difficulty for many of the 800,000 federal workers who went without paychecks, and for many of the government contractors whose contracts were suspended. A ZipRecruiter survey of close to 2,000 federal and contract workers conducted during the fourth week of the shutdown found that 89% were experiencing “significant financial hardship” due to the shutdown.

Although furloughed workers were promised back pay and many were offered zero-interest or low-interest furlough relief loans, many appear not to have accessed those resources. Perhaps they thought they would not need to, based on past experience with furloughs that only lasted a few days. Each day that the expected resolution failed to materialize, however, workers found themselves drawing down savings, running up credit card debt, cutting back on consumption, and missing bills. Due to interest payments, late fees, and effects on credit scores, it could take months for workers to get their finances back in order.

Reduced employee morale and retention

For many workers, financial hardship led to lower morale and reduced retention intentions. In ZipRecruiter’s survey of affected workers, 67% of federal workers and contractors said that the shutdown had made them consider leaving government employment to seek a job in the private sector. In past shutdowns, there was no distinguishable effect of furloughs on retention. In fact, there may even have been positive effects for some workers, who enjoyed getting a paid vacation. But the length of this shutdown and pay interruption likely altered the calculus for many workers.

Even before the shutdown, quit rates for government workers were near all-time highs. A tight labor market with record-high numbers of job openings is encouraging many workers to seek outside opportunities. The combination of the unusually long shutdown and unusually enticing private sector job market may have significant downstream effects on the government’s ability to retain talent.

Delays to private-sector hiring   

In addition to surveying affected workers, ZipRecruiter also conducted a survey of 200 employers to explore how the shutdown was affecting them. The most common response businesses gave was that the shutdown was holding up hiring due to the suspension of E-Verify and delays to federal background checks. As a result, many companies could not complete planned hires in January—with effects both on their operations and on the financial wellbeing of job seekers who saw their start dates delayed.  

Other business disruptions

There were myriad other effects on businesses as well, as our survey discovered. Federal contracts were suspended, halting work on a range of programs and projects. The approval of Department of Housing and Urban Development (HUD) loans and Small Business Administration (SBA) loans was delayed. Demand for goods and services fell at businesses that serve large numbers of federal workers.

Too few air cargo security staff and Environmental Protection Agency (EPA) inspectors were on hand to scan shipments and approve export licenses, so some shippers and freight-handlers experienced delays in inspections and paperwork approvals for exports and imports. The launches of new transportation services, such as the TEXRail Passenger service and Alaska Airlines’ new route, were pushed back because they were not able to obtain all necessary approvals from the Federal Railroad Administration (FRA) and Federal Aviation Administration (FAA) in time.  

Shortages of Transportation Security Administration (TSA) staff caused long security lines at airports, and shortages of air traffic controllers prevented some planes from taking off. The added inconvenience and safety fears caused some travelers to postpone or cancel their travel plans. The grounding of flights at LaGuardia airport in late January ultimately forced an end to the showdown on Capitol Hill–at least temporarily.

Federal pay freeze adds insult to injury

While everyone was focused on the drama of the shutdown, another change took place in Washington that could have an even greater effect on the federal workforce and on labor markets with a high demand for STEM skills.

On December 28, President Trump signed an executive order freezing federal workers’ pay for 2019. The executive order canceled a 2.1% across-the-board pay increase that was set to take effect in January. The President also canceled the “locality pay increase,” which would have adjusted paychecks based on local living costs and ease the cost burden for federal workers serving in the more expensive areas of the U.S.

Even though the shutdown stole the spotlight, studies have shown that pay freezes may actually have a greater impact on the health of the federal workforce. A study by the RAND Corporation estimates that federal pay freezes reduce the size of the retained federal workforce with at least a bachelor’s degree by 7.3% and the size of the comparable STEM workforce by 8.5%.

The federal government is already struggling to address a shortage in certain scientific and technical personnel, such as cybersecurity professionals, largely due to constraints on its ability to compete with the private sector on pay.  If the pay freeze further harms retention, private-sector companies could be the beneficiaries of an influx of highly trained and talented workers.

On the other hand, private-sector companies could be hurt in other ways if government staffing challenges cause delays or quality declines in services on which private-sector companies rely. There are also large private-sector spillovers from government investments in science and technology, and those could be diminished if understaffing leads to a decline in productivity and innovation.

Finally, there are the effects on public opinion and on future recruiting efforts, which may be harder to quantify. Job security and the reliability and regularity of pay increases are among the many reasons people choose to work in public service. Without the promise of a steady paycheck and advancement opportunities, federal workers and job seekers considering federal employment may look elsewhere.

Written by

Julia Pollak is Chief Economist at ZipRecruiter. She leads ZipRecruiter's economic research team, which provides insights and analysis on current labor market trends and the future of work.

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