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Some say the shutdown will cost $4 billion. It could be much more.

By Ben Harris

Jan 16, 2019

As the record-long government shutdown reached its fourth week, the consequences of inaction continue to mount. Farmers can’t get loans, federal parks and museums aren’t open to tourists, and there is a real threat that critical services — from food stamps to tax refunds — won’t get processed. All told, the cost is high and rising: S&P Global Ratings estimates that the economic toll has reached almost $4 billion and at least one prominent economist warned that the shutdown could cause the U.S. economy to shrink if it goes on long enough.

While stark, the implications of the shutdown appear to be temporary. Trash at national parks will be picked up, tax refunds will be paid, and eventually our nation’s furloughed workers will get their back pay. The shutdown will soon be a distant memory, right?

Wrong. While it’s tough to calculate the true cost of the shutdown before it’s even over, all signs point to lasting impacts — especially when it comes to our federal workers and employees of government contractors. For these workers, the costs of a shutdown are somewhere between one delayed paycheck and missed pay for an unknown duration — in many cases leading to tarnished credit and a mountain of expensive credit card debt. For America’s taxpayers, the long-term cost could be a steady exodus of federal workers and contractors and a replacement workforce that will be more expensive to entice into the public sector.

Let’s start with some facts. There are 800,000 furloughed federal workers and 4.1 million employees of federal contractors who make up a substantial portion of our country’s 130-million-person workforce. Among these millions of workers, almost all are middle-class jobs: The typical pay for a federal worker is around $85,000 per year.

These jobs pay comparable salaries relative to the private sector. A 2012 study by the Congressional Budget Office found that the salary premium for public-sector jobs was virtually non-existent; government workers get paid 2 percent more than their private-sector counterparts with similar characteristics.

If federal workers start to view the private sector as the better option, public-sector wages will have to rise to keep the nation’s government programs fully staffed.

It’ll be costly for public budgets if workers start leaving their government posts for private-sector options. For one, turnover is costly both in terms of search costs for a new worker and the expenses of retraining. A careful review of the literature on employee turnover costs found that companies typically pay about 21 percent of a worker’s salary to replace an employee. For the typical federal worker, this implies a turnover cost of about $18,000.

Second, alienating government workers could drive them to the private sector — which could in turn drive up payroll costs. Remember that this shutdown isn’t happening in the middle of a recession; workers have options. The states with the largest federal workforces — California, Texas, and Virginia — have unemployment rates of 4.1 percent, 3.7 percent, and 2.8 percent, respectively. And workers across the country are looking to take advantage of the tight labor market — the Economist reports that the share of U.S. workers leaving their jobs voluntarily is at a 17-year high.

Of course, we don’t know whether the current shutdown will push government workers to the private sector because we’ve never seen such a long shutdown before. But if federal workers start to view the private sector as the better option, public-sector wages will have to rise to keep the nation’s government programs fully staffed. A back-of-the-envelope calculation suggests that the costs of a 1-percent rise in federal pay will exceed $4 billion a year.

The record-long government shutdown has produced many known hardships for people ranging from prescriptions rationing to a paycheck with nothing but zeros — and a multibillion-dollar price tag for America’s taxpayers regardless of when the shutdown ends. The shutdown has also created many unknowns. We don’t know how long it will last, how much it will cost, or how it will ultimately impact the federal workforce and workers paid through government contracts. But as this impasse drags on, one thing is clear: The workers sitting at home waiting to go back to work, and the taxpayers who will pay their salaries, deserve far better.