Spoiler: It does not mean politicians feel any pain.
If you have not met a Federal employee or contractor, or live more than a short drive from the Beltway (what we call the I-495/95 asphalt loop that circles DC), it is understandable that you have a rose coloured glasses opinion about what a government shutdown (even a partial shutdown) means. So, to help you understand the impacts on ordinary people, let me explain it to you.
This current shutdown is a partial shutdown. What does that mean? In this case, it means that only a small number of agencies are affected — specifically, the Department of Homeland (In)security, Justice, EPA, Interior, Agriculture, Commerce, HUD, and a handful of others. Agencies, including the Department of Defense, Veterans Affairs, and Health and Human Services, to name a few are not impacted because their budget was approved after the earlier shutdown this year (yes, that’s right, this is the second shutdown in 2018, now rolling into 2019). I will not discuss the political hand-waving being done, but that does not mean this had to happen. Instead, let us look at the impact.
It is estimated that this shutdown will impact some 800,000 people. That is 800,000 full-time Federal employees, and contractors. Let’s put this in perspective, shall we?
In November, General Motors announced it was laying off 14,000 employees. Wells Fargo quietly laid off 26,000, and Verizon is dumping some 10,000 employees. The layoffs in the Auto Industry caused a great hue and cry, but the other layoffs barely caused a ripple, in the press. Everyone agrees, however, that those numbers are significant numbers to be laid off in an economy that is growing. That is less than 10% of the total workforce that has been idled by the Federal Government. The official term is furloughed, and it is important to remember that the Federal Workforce has not been laid off (the same cannot be said for the contractors).
So why the difference in wording. Because being a Federal Employee comes with many benefits, and those benefits, come with a couple of significant catches. As a Federal Employee, you get at least nine days off a year (you know, all those Federal Holidays that none of the rest of us generally get). They get discounts at hotels, transit benefits, and a generally stable pay structure. In exchange, they cannot do certain things that the average employee can (look up Hatch Act for example), but it also means they cannot legally hold a second job. Which means, that if they are furloughed they cannot apply for unemployment insurance (since they are still technically employed), they cannot go and get a part-time job to carry them over until they are paid again, and best of all, if they are deemed essential they have to continue to work without the benefits of pay.
Federal employees will, eventually, get their pay. The bill has already been passed to pay them once the budgets are allocated, but until the money is available, they cannot be paid, even if they are required to stay at their posts. So be kind to that TSA employee. He may not be making much money, but at the moment, he is working and not being paid.
I mentioned that contractors are a particular case. Most contractors, assigned to work for agencies that are shut down, are not being paid, because their companies are not being paid. Moreover, since they are not working, they cannot receive pay for that time. They are, in all reality, laid off. Some of the larger contractors will carry these employees over. Either by forcing them to take paid time off, or send them off to training, but even that will not be a long-term fix. If their agency is not funded in a short period of time, usually two weeks in my experience, they will be out of work. Let me repeat this. Federal contractors, who work for agencies that are close, will be out of work if this is not resolved quickly. How many people are we talking about? As many as 10% in some agencies, considerably higher in other agencies. So those layoffs at GM and Wells Fargo are comparable to the layoffs that are happening in the Federal sector over the Christmas break.
The Government is closed. Look at all the money the Fed is saving. Again, this is not entirely accurate. The people that are full-time employees are, in fact, going to be paid. So there are no payroll cost savings.
Further, the lights, heat, and phones are still being utilized, even at a minimum extent (although if you notice, many of the Federal websites are still online) so those bills will have to be paid to the local utilities, eventually. But so do the mortgage, utilities, and other bills for the 800,000 employees who are not receiving a paycheque. These 800,000 people still have to feed their families, put gas in their cars, put clothes on their bodies — all without a paycheque. The gas company continues to send gas to their houses on the assumption the bill will be paid. Remember that many of these employees are not being paid a great deal of money. You can look up exactly how much they are being paid online. Also, like most Americans, living paycheque to paycheque is the norm. So missing even one paycheque is economically risky.
However, there are other impacts, some of which are invisible. Some of which are quite visible.
Because an agency is shuttered, it means that no one is eating Enzo’s Lunch Special at the local deli. Most of these restaurants barely survive with the local trade. Take it away for a day, a week, a month, and suddenly Enzo’s deli is no longer there. Car repairs are put on hold. Home upgrades. Tuition. The impacts are a real example of how trickledown economics really works. One domino falls, and it might not cause a cascade. Several falling and the cascade may be unstoppable. Eight hundred thousand people represent a lot of falling dominos and a lot of small to medium businesses being impacted.
So if you think that is not that big a deal, then think about this. The Federal Government is not paying its bills. At least those agencies that are closed are not paying their bills. The largest business in the United States is not paying its bills. However, companies have started doing work on the assumption that they will be paid. Uniforms are being made; servers are boxed, boots are ordered. Dell might be able to absorb a week or two shutdown and not have it negatively affect their bottom line, or their stock price, but other companies have already announced or will be announcing the hit in the fourth quarter or the first quarter of 2019. If this shutdown goes more than two weeks, expect those impacts to begin to show on the markets. If they have not shown up already in the significant downturn just after the shutdown was announced.
A commenter on a site posted: I just went to my local National Park. The gates were up. You don’t need park rangers to allow you access to our national resource.
All well and good. The National Park Service, part of Interior, is unfunded and many of the Rangers are not patrolling the parks. Some parks are open, unattended; others are closed. However, Rangers and other park workers are not there to just collect the entrance fee (which is trivial). They are there to keep bad things from happening to the natural resource: no Rangers, no fire watch. No fire watch, well, we could lose acres to wildfires. No Rangers, no one stopping poachers, or others doing bad things on Federal land. No Rangers, or even park workers, no one to clean up the trails when the trees fall or rebuild bridges, or come and get you if you get into trouble. Think about that before you go out.
In DC, more visible than anywhere else, many tourists have discovered what the shutdown means in person. The Smithsonian museums are closed. Many tried to stay open until at least New Years, but come January 1, they all closed. Moreover, this is impacting many people and their plans.
As I mentioned, most of the government websites are still operational, although many have banners saying they are unattended. Got a question about your Known Traveller status? It’s going to have to wait. How about that citizenship application? Sorry, not today. Import license that is critical for making that end of month deadline? Hope you have alternate plans. Anything that is not automated is not being processed. So even if it is automated, if there is a piece of paper required, it will not be sent out.
A Shutdown is Expensive
If I have not convinced you that a shutdown is impactful, and more than just a political stunt, let me share some additional numbers.
The 2013 shutdown estimated a one-week shutdown would likely decrease fourth quarter annualized growth by 0.1-0.2 percentage points. Politico posits that the cost of the current shutdown could cost millions of dollars a day.
Quantifying the exact cost to the government is difficult, in part because every shutdown is different. Between November 1995 and January 1996, the government shut down twice for a total of 27 days as Democrats and Republicans clashed over Medicare funding, among other issues. A subsequent analysis conducted by the White House’s Office of Management and Budget estimated that both shutdowns together cost the government $1.4 billion—more than $2 billion today after adjusting for inflation.
That is not an insignificant cost. So that money is in addition to the funds that must be allocated to keep things open and running.
So if like many, you are shrugging your shoulders over the shutdown, I hope I have convinced you that, despite your political leanings, a shutdown is just brinksmanship. It has no positive outcome. Moreover, for many, the hand they have been dealt is not a winner.