Coronavirus Updates

The recent shutdown of the federal government impacted the US economy and stoked fears in many Americans who depend on critical social services.

Amid new uncertainty about the future of the government, a Chicago Booth economist, a nonprofit leader, and an advisor to philanthropists and impact investors recently tackled the question of who or what suffers in absence of government.

On January 29, sector experts discussed some of the shutdown’s lingering impacts and consequences during an event for University of Chicago students hosted by Chicago Booth’s Rustandy Center for Social Sector Innovation at the Harper Center.

“The Shutdown Dilemma: Who Steps Up When the Government Steps Out?” featured Erik Hurst, the V. Duane Rath Professor of Economics at Chicago Booth, deputy director of the Becker Friedman Institute, and John E. Jeuck Faculty Fellow; Kate Maehr, CEO and executive director of the Greater Chicago Food Depository; and Kate McAdams, managing director of Arabella Advisors.

The discussion was moderated by Caroline Grossman, ’03, adjunct assistant professor of strategy at Booth and director of programs at the Rustandy Center, which works at the intersection of business and social sectors to further research, promote social innovation, and develop people and practices to tackle complex problems.

Here are four takeaways from the speakers:

The shutdown caused a ‘sense of scarring’

Hurst, a leading economist studying U.S. labor markets, said the costs of the shutdown were “very localized.” Approximately 1 million people were deeply impacted, while other Americans hardly felt a thing, he said. In the short term, the shutdown created a $5 billion loss to the U.S. economy, which only translates to a small effect on GDP, according to Hurst.

“When there are large costs to a small amount of people, we tend to go on with our day,” he said, noting the lack of protesting from those who didn’t miss paychecks. Unlike a recession, there wasn’t a spillover effect on the rest of the economy. “For those who were impacted, there’s a permanent sense of scarring. It is immensely disruptive to miss a paycheck.” Credit scores, for example, could be affected for years to come, Hurst said.

Food insecurity will grow

Most families getting food assistance through the government’s Supplemental Nutrition Assistance Program (SNAP) are still feeling repercussions from the five-week shutdown, according to Maehr. February SNAP benefits were allocated early, which means low-income households won’t receive more food assistance until March.

As a result, Maehr said nonprofits like the Greater Chicago Food Depository are stepping in to fill the “SNAP gap” by anticipating increase need for food assistance through February. According to the Center on Budget and Policy Priorities, about 15 million households (about 30 million people) could experience a gap between monthly SNAP payments of more than 40 days.

Greater Chicago Food Depository

In addition, many federal government workers who went without pay were also turning to food banks, Maehr said.

Not everyone will be paid

While government workers have already gotten their paychecks, government contractors are unlikely to get back pay, McAdams said. Some government contractor businesses even shut down as a result of the economic impact, said McAdams, who was working for the federal government as a senior advisor to US Secretary of Commerce Penny Pritzker during the last shutdown in 2013.

“We need to continue to think about those five weeks. [For contractors] this is an ongoing problem, even if we don’t hear about it as much in the news,” she said.

Shutdowns create a lasting image problem for public service

After this year’s shutdown, McAdams said she worries fewer competitive PhDs and other highly skilled workers will go into government work. They might consider lucrative jobs in the private sector instead. “It starts to create repercussions and erode the attraction to public service,” McAdams said.

Panelists noted the role business and nonprofits can play in lieu of government but also encouraged students to volunteer or donate to organizations, consider public service, and hold their elected officials accountable in the face of any future shutdown threats.

“This is a wakeup call,” Maehr said.

If you'd like to receive updates on social impact stories, events, and research at Chicago Booth, sign up for the Rustandy Center's newsletter. Note: We want to demonstrate our commitment to your privacy. You can review Chicago Booth’s privacy notice for more information.