Federal government shutdowns impact economic activity; consumer spending may be delayed or canceled, business investment decisions may be deferred, and government services provided to the public may be halted or scaled back. For the most part, the effects of the federal government shutdown on components of GDP and the national income and product accounts (NIPAs), such as personal consumption expenditures or private wages and salaries, cannot be quantified, because they are embedded in the regular source data that underlie the estimates and cannot be separately identified.
One component of GDP for which the impact of shutdowns can be estimated is the non-market services provided by the federal government, which in the NIPAs is presented as “federal government consumption expenditures.” The value of these non-market government services is derived by estimating the costs of inputs, such as labor, materials and supplies.1
In the NIPAs, the cost of labor inputs is presented as “federal compensation.” For the inflation-adjusted, or “real” statistics, the estimates are based primarily on employment data from the Bureau of Labor Statistics. During a government shutdown, federal workers are counted as “employed” in the BLS data if they eventually receive backpay, so these data would not reflect the reduction in services provided by the federal workforce.2 BEA must make an adjustment to real federal compensation to account for the reduction in services.
The December 2018-January 2019 Shutdown
A lapse in appropriations for several agencies resulted in a partial shutdown of the federal government from December 22, 2018 through January 25, 2019. This shutdown will impact BEA’s estimate of real GDP for the fourth quarter of 2018 and the first quarter of 2019, but the total impacts to overall GDP cannot be quantified.
To account for the reduction in government services that occurred over the fourth and first quarters, BEA will adjust the real federal government compensation estimates. The adjustment will be based on the number of federal employees furloughed and the number of furlough days. Of the approximately 800,000 employees of the federal agencies without appropriations, roughly 340,000 were furloughed, and the remaining 460,000 employees were “excepted,” meaning they were required to work even though they could not be paid until funding was restored.3 Excepted jobs are often related to the protection of life or property (the Coast Guard and the Transportation Security Administration have large numbers of excepted employees). Over the course of the shutdown, the number of “excepted” employees changed, such as when IRS employees were recalled to work in mid-January. The output of all federal employees who worked during the shutdown will be included in BEA’s estimates of 2018q4 and 2019q1 real federal government compensation.4
On January 16, 2019, the President signed into law a bill that guaranteed back pay to furloughed and excepted workers, and those workers received their back pay soon after the federal government fully reopened. As a result, the shutdown had no impact on current-dollar federal compensation. Compensation of government employees is measured on an accrual basis (when the compensation is earned) in the NIPAs; therefore, the timing of when the back pay was disbursed will not be reflected in BEA’s wage estimates.
Because there was a downward adjustment to real federal government compensation without a corresponding adjustment to current-dollar compensation, there will be a temporary upward adjustment to the implied prices paid for federal government compensation, which BEA measures as the ratio between current-dollar compensation and real compensation. This is to say, the effect of the furlough on BEA's estimates was to reduce the quantity of government services provided while maintaining the same cost of those services.
1For more information, please see the box “Measuring the Output of Governments”, NIPA Handbook Chapter 9: Government Consumption Expenditures and Gross Investment.
2From the “Current Employment Statistics Highlights” for January 2019, released by BLS on February 1, 2019: “The Government Employee Fair Treatment Act of 2019 requires federal agencies to provide back pay to federal employees who were on furlough during the reference pay period. These employees will receive pay for the reference period; therefore, they were counted as employed in January...”
3BEA’s estimate of the number of workers furloughed is based on an analysis of the plans maintained by each department for operations in the absence of appropriations, as required by Office of Management and Budget (OMB) Circular A-11, Section 124.
4Federal workers do not include contractors. Federal contractors are included in the private industry sector and any impact on GDP or private compensation due to a disruption in contract work is embedded in the source data and cannot be separately identified.