There are obvious economic impacts that come with a government shutdown. Everything from local businesses to the travel industry face uncertainty amid the lapse in funding.
But what about the less obvious, long-term economic impacts? That鈥檚 what Christoph Herpfer, assistant professor of finance at University of Virginia鈥檚 Darden School of Business, is trying to make clear in a.
鈥淯nderneath the surface, there’s a much bigger thing going on that costs the government and the taxpayer, by extension, a lot more money in the long run than these initial, immediate consequences,鈥� Herpfer said.
The government often relies on federal employees being intrinsically motivated by the belief a job with the federal government is stable and predictable, according to Herpfer.
鈥淭he shutdown kind of destroys both of these ideas,鈥� Herpfer said. 鈥淲hat we find is that after the shutdown is over, the employees go back to their desks, they do their job, and they fire up LinkedIn, and look for a new job. And within about six to 12 months, you have a massive outflow of talent and human capital out of the government.鈥�
According to the report, Herpfer found the likelihood that furloughed employees leave their job within one year of the shutdown is one-third higher than employees who were not furloughed. That’s something, he said, that translates into tens of thousands of highly qualified workers leaving the government for the private sector.
Herpfer was also able to quantify the shock to federal employees’ morale, finding the shock felt by workers furloughed during a shutdown is equivalent to as if their salaries were cut by 10%.
He said these were the same underlying mechanisms in place during the federal shutdown in 2018. But, this time, our region is聽especially vulnerable.
Government cutbacks from earlier this year eliminated 18,000 federal jobs. In addition to that, the D.C. region has seen a recent decline of 8,500 jobs in professional and business services and a sluggish tourism sector.
But, Herpfer said, it鈥檚 possible federal cuts from earlier this year could actually mean we see less furloughed employees leave after the shutdown ends.
鈥淏ecause everybody who was on the fence, everybody who was kind of unhappy in the first place, they took the buyout way back in April and May. So maybe the people who are left are the true believers that really want to stick it out, and this time, there won’t be this exodus of people,鈥� Herpfer said.
鈥淥n the other hand, it could be that a lot of these people are on the edge already, and they’re kind of tired from the actions of the last year, which could mean that this could be the straw that breaks the camel’s back, and even more people leave the government,鈥� he added.
Herpfer emphasized that at the end of the day, the government shutdown is a bipartisan issue. He said even if you consider the government bloated, the way to cut down is not a shutdown or pushing employees out.
鈥淭hese permanent federal employees will be replaced by employees in the so-called ‘shadow government’ by outside contractors,鈥� Herpfer said. 鈥淎nd what we find is that the cost for these outside contractors actually is two-and-a-half times as high as the savings and payroll from the federal employees who quit.鈥�
Herpfer aims for his research to support bipartisan efforts running through both the House and the Senate to replace shutdowns with a mechanism that will automatically continue funding the government if leaders cannot come to a stopgap resolution.
鈥淲hile this is often played up a lot by the media as a short-term story, the long-term consequences are hidden, and they’re much worse than the short-term consequences,鈥� Herpfer said. 鈥淲e all benefit from an efficient and competent administration.鈥�
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