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How do government shutdowns affect employment?

A look at public and private payrolls

The Bureau of Labor Statistics (BLS) measures payroll employment with their establishment survey—or, more formally, their Current Employment Statistics survey. The establishment survey records the number of jobs on company payrolls on the 12th of each month. The recent partial U.S. government shutdown presents a good opportunity to look at how shifts in government payrolls might affect payrolls overall.

Because the establishment survey does not consider furloughed workers to be off the payroll, any decline in payroll employment as a result of a government shutdown will arise from either quits or formal layoffs in the government sector. Of course, contagion can also occur in the private sector: For example, demand for hotel rooms in Washington, D.C., may be lower until the government reopens or airlines may see a drop in demand if airport security lines become too long. The BLS estimates that the recent partial government shutdown (the longest in history, from December 22 to January 25, 2019) has not substantially affected federal employment. For now, let’s look at three previous government shutdowns highlighted in the FRED graph.

The dark blue line in the graph shows the monthly change in overall nonfarm payroll employment. Keep in mind that changes in overall payroll employment may not necessarily be caused by government shutdowns.
The light blue line shows the monthly change in federal government payroll employment, and the red vertical lines show three long-term government shutdowns: October 1978, November-December 1995, and October 2013.

During these shutdowns, federal employment as measured by the establishment survey didn’t change substantially: +7,000, -21,000, and -14,000, respectively. But shutdowns may have an effect on overall payrolls. The list below shows the changes in payroll employment in the month of, the month after, and the second month after these three previous government shutdowns:

  • October 1978 shutdown: October +335,000, November +435,000, December +280,000
  • November-December 1995 shutdown: November +144,000, December +146,000, January -5,000
  • October 2013 shutdown: October +225,000, November +267,000, December +67,000

As we can see from the data, in previous shutdowns, private payroll employment growth has tended to decrease in the second month after the shutdown, before rebounding a few months later.

During the most recent shutdown, the BLS remained funded and continued to conduct their surveys. In fact, they recently released their January numbers: +1,000 jobs on government payrolls and +304,000 on payrolls overall. If the current experience plays out in the same way as it did in the past, we can expect payroll growth to decline temporarily in March 2019.

How this graph was created: Search for “All Employees Total Nonfarm Payrolls” in FRED and select the series. Next, select the “Add Line” option in the “Edit Graph” menu. Search for “All Employees: Government: Federal” and click “Add Data Series.” From the “Format” tab, move the federal government employees series to the right axis. Using the “Edit lines” menu, click on each line and set the units to “Monthly change, thousands of persons.” Last, go back to the “Add Line” menu and select the link to create a user-defined line. Enter the dates of the three shutdowns in both the start and end categories. For example, for the October 2013 shutdown enter “2013-10-01” in both the start and end boxes. Then set the value start/end to be the max and min values of the left axis. Repeat this for all three shutdowns. Change the colors of the added lines to red on the “Format” menu.

Suggested by Michael Owyang and Hannah Shell.

View on FRED, series used in this post: CES9091000001, PAYEMS

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