The U.S. government shutdown may last 20 days according to forecasting site Kalshi. If so, aside from current disruption, paychecks for federal employees, including the military, could be impacted. The military’s next paycheck date is October 15.
So far, most federal government employees have generally not missed a paycheck during the shutdown given when the shutdown started, and for those on a 2 week pay cycle, the mid-October paycheck has not happened yet. However, if the shutdown continues that paycheck could be delayed.
Guaranteed Backpay Under GEFTA
Under a 2019 law, the Government Employee Fair Treatment Act, government employees are guaranteed back pay as soon as possible after a shutdown ends. This applies to both working and furloughed government workers during any shutdown. However, this does not apply to government contractors, who have no guarantee of backpay.
For many households missing a paycheck can be extremely disruptive to finances. Because of this many banks are offering support to their customers such as temporary relief loans or waiving fees as listed by the American Bankers Association here.
Potential White House Challenge To Back Pay
To further complicate matters, the White House may have plans to attempt to avoid paying backpay to government workers. That’s according to a recent internal memo as reported by Axios. However, this move may be illegal given the clear intent of GEFTA to guarantee backpay.
Economic Impact
For now, the shutdown has had some economic impact. Airports are seeing delays and other issues due to increased absenteeism. In past shutdowns, government airport worker absenteeism during shutdowns has tripled to 10% as noted in a memo from the Council of Economic Advisors. Statistical reports such as the jobs report for September have not been released.
Other government programs deemed non essential including nutritional support programs such as SNAP and WIC may also run out of funding as a shutdown lengthens. Customer service for many government functions may be understaffed leading to longer call wait times as well as some reduction in services from Veterans’ Affairs. Delays to government-related mortgage applications and small business loans are also likely. Exports, too, can be impacted if government approvals and permits are delayed. Of course, the shutdown is expected to have a pronounced regional impact on Washington D.C. and a relatively greater impact on the healthcare and defense sectors, which are more reliant on government relationships.
Importantly, Social Security, Medicaid and the U.S. Postal Service will not see a direct impact from the shutdown, given how they are funded. However, the impact of a shutdown is expected to soften economic activity perhaps by as much as a 0.2% reduction in growth for each week the shutdown lasts according to a Goldman Sachs report.
Of course, with economic reporting from the government generally paused too, any immediate impact is hard to gauge. For now, estimates of current economic growth are broadly positive, so a shutdown is unlikely to cause economic growth to turn negative. That’s unless the economic impact were far larger than estimated, or the shutdown extremely protracted lasting well into November.
What To Expect
Historically, most recent government shutdowns have lasted under 5 days, making the economic impact, though temporarily disruptive, relatively contained. If forecasts from prediction markets are accurate, then this shutdown may be among the longest in recent history having started on October 1. That would make it comparable to the longest shutdowns that occurred under President Clinton and the partial shutdown under President Trump’s previous term. Other recent Presidents have avoided shutdowns or seen much shorter shutdowns.
Importantly, such a long shutdown, if it occurs, might mean that many federal employees and the military might miss a paycheck due to the shutdown. Many banks are offering additional support to their customers already and backpay appears guaranteed by GEFTA.
Still such a disruption could have a more material economic impact than many historically shorter shutdowns. That said, prediction markets are merely estimates and lawmakers continue to negotiate measures that could end the shutdown sooner.