Due to a lapse in appropriations, some federal government agencies were closed and some employees were furloughed. The furloughs, which ran from October 1 through October 16, 2013, affected approximately 800,000 federal workers in the first week and approximately 485,000 workers in the second.1 For the most part, the effects of the federal government shutdown on components of GDP and the national income and product accounts, such as personal consumption expenditures or private wages and salaries, cannot be quantified, because they are embedded in the regular source data that underlie the estimates and cannot be separately identified.
However, one component of GDP for which the effects can be estimated is real federal government consumption expenditures, specifically, real federal government compensation.2 Conceptually, real compensation measures labor input, such as hours worked by federal employees. The estimate of real compensation is based primarily on employment data from the Bureau of Labor Statistics. Because the shutdown did not cause a change to employment levels, these source data do not reflect the reduction in services provided by the federal workforce during the furloughs. To account for the reduction in services, BEA will make an adjustment to real compensation based on an estimate of the reduction in hours worked, reflecting the number of employees furloughed and the number of furlough days.
After the shutdown, Congress legislated back pay for furloughed workers. As a result, the shutdown had no impact on current-dollar federal compensation. Compensation of government employees is measured on an accrual basis (when the compensation is earned) in the national income and product accounts; therefore, the timing of when the back pay was actually paid out does not affect the estimates.
Because there was a decrease in real federal government compensation without a corresponding decrease in current-dollar compensation, there will be a temporary increase in the implied prices paid for federal government compensation, which BEA measures as the ratio between current-dollar compensation and real compensation. This is to say, the effect of the furlough on BEA's estimates was to reduce the level of government services provided while maintaining the same cost of those services.
1 Federal workers do not include contractors. Federal contractors are included in the private industry sector and any impact on GDP or private compensation due to a disruption in contract work is embedded in the source data and cannot be separately identified.
2 In the national income and product accounts, nonmarket government services, which contribute directly to GDP, are measured as the cost of inputs such as labor, materials and supplies. For more information, please see the box “Measuring the Output of Governments”, NIPA Handbook Chapter 9: Government Consumption Expenditures and Gross Investment.