A government shutdown has little effect on the financial status of federal government workers, even those living paycheck to paycheck, provided it doesn’t go on for an extended period of time, according to economists who studied the impact of the 2013 shutdown on federal workers.
Many Democrats said this week that a partial government shutdown would do financial harm to the hundreds of thousands of affected federal workers who won’t be paid until the shutdown ends. But economists found that workers have more flexibility to juggle bills than is commonly thought.
“If you are one of these lucky employees who have a mortgage, say, and who’s paycheck will be delayed by a week or so, then indeed it will be inconvenient but [it] will not impose long term pain,” said Steve Tadelis, professor of economics at University of California, Berkeley, told the Washington Examiner in an email. “That said, if your paycheck is delayed by more than a couple of weeks, or if you will not be made whole, the picture changes.”
Tadelis was one of five economists who co-authored How Individuals Respond to a Liquidity Shock: Evidence from the 2013 Government Shutdown, a 2015 study for the National Bureau of Economic Research.
The paper looked at the impact of a sudden loss of expected cash on workers living paycheck to paycheck. It used the federal shutdown from Oct. 1 to Oct. 16 in 2013 that followed from a budget fight between President Barack Obama and congressional Republicans as a case study.
Shachar Kariv, another Berkeley economics professor and a co-author, said the key factor was that the 2013 workers’ paychecks were only delayed, not canceled, so the shutdown in effect became a “paid vacation” for them. At the end of every shutdown, Congress passes legislation to pay the salaries of federal workers who went without pay.
“It is really a question of how long the shutdown is going to be and if and when the federal employees are paid,” Kariv said.
Nonetheless, Trump’s critics have slammed the shutdown as harmful federal workers.
“Playing politics with the federal budget threatens the livelihoods of working people. Losing pay is devastating at any time of the year, but especially during the holiday season. #ShutdowntheShutdown & fund the gov’t w/ the 1.9% raise federal workers have been promised & earned,” AFL-CIO President Richard Trumka tweeted Friday.
Playing politics with the federal budget threatens the livelihoods of working people. Losing pay is devastating at any time of the year, but especially during the holiday season. #ShutdowntheShutdown & fund the gov’t w/ the 1.9% raise federal workers have been promised & earned.
— Richard Trumka (@RichardTrumka) December 21, 2018
The economists found that while highly inconvenienced, the federal workers found ways to get by. “[M]any affected workers delayed mortgage payments; and many shifted credit card balance payments. At the same time, affected workers show no increase in spending on credit cards,” they wrote.
“Average debt only increased due to delays in debt payments. Hence, a substantial part of their reaction was to delay recurring payments that impose little to no penalty,” the study found. The workers paid what they owed on the mortgages as soon their checks started again, avoiding significant financial harm.
Even those who were carrying some credit card debt already and who took on more debt during the shutdown were able to rectify that, the study found. “In the case of the government shutdown, however, when the missing paycheck income was offset by post-shutdown payments, this incremental debt was repaid quickly,” it said.
These findings were a surprise, according to Tadelis. ” [W]e economists were not aware that people people used their mortgages and other forms of committed payments as a ‘buffer’ when suddenly they do not have the flow of funds to make ends meet,” he said.
“[M]any (though not all) were able to absorb [the effects] through financial juggling,” he added. “A longer shutdown, or one that does not make them whole quickly, would surely impose financial hardship on many of them.”
