There’s been a lot of talk recently about the 2018 government shutdown, and a lot of false information going around to rouse emotions. Let’s clear all that up and get to the real deal. A smart federal employee could be doubling their salary or more during the shutdown.
Government Shutdown Basics
The government shutdown began on December 22, 2018. Government shutdowns, while sounding ominous, has happened frequently in the past. Prior shutdowns have been in 2013 and 2018.
The shutdown typically occurs when a spending bill is unable to be passed and signed into law. Without appropriated funding, the government is “shut down”.
Federal Employee Effects
380,000 federal employees were furloughed. This means they are not currently working, but will still get paid for the time they’re not working.
420,000 employees were expected to work with their pay delayed until the end of the shutdown
In other words, about 800,000 workers affected out of 2.1 million civilian non-postal federal employees.
A furlough is a temporary leave of employees due to special needs of a company or employer, which may be due to economic conditions at the specific employer or in the economy as a whole. In this case, furloughed workers are on temporary leave meaning they will not be working during the shutdown. They will still get paid their salary during this time, thanks to a bill that unanimously passed the Senate on January 10, 2019.
This has typically happened in past furloughs and government shutdowns as well. 800,000 votes spread across all geographies is too risky for most US politicians.
So essentially these workers are NOT working but STILL GETTING PAID (albeit delayed until the shutdown ends).
Employees who remain on the job are guaranteed to be paid. The Office of Personnel Management states: “Agencies will incur obligations to pay for services performed by excepted employees during a lapse in appropriations, and those employees will be paid after Congress passes and the President signs a new appropriation or continuing resolution.”
So essentially these workers are still working for pay, except that pay will be delayed until the shutdown ends.
The Arbitrage Secret worth $1 MILLION
A furloughed worker could make $1 MILLION in extra income from the shutdown. The longer the shutdown, the better the earnings.
Reduced Costs by $50k
Suppose the worker lives in New York City. He can AirBNB his apartment for $4500/month, and live comfortably in a lower cost location such as Buenos Aires or Thailand for $400/month. Therefore they get $4100/month from rent gain. Assuming a 1 year shutdown, this is $50k/year savings in rent alone. The cost of living in a LCL is also beneficial.
Increased Income by $1 MILLION
This means that for a 1 year shutdown, a furloughed government worker can reduce expenses by $50k and increase taxable income by $1 million. Great deal but naturally this assumes the worker is talented enough to land a consulting contract right away.
The Real Unfairness
The people getting the best part of the deal are the furloughed workers. They’re not working but will still be paid for the shutdown. It’s literally free money, albeit delayed. Assuming the shutdown lasts a year, that’s about 5% of their pay lost. That means they still get 95% of their pay adjusted for interest, in exchange for 0% of the work. Or in other words, they’re getting 195% of their expected compensation for high quality workers.
The people getting the worst part of the deal are the workers who need to keep working but will have their pay delayed. While they will still be compensated for their efforts, the pay is delayed therefore they lose some time value of money. So assuming the shutdown lasts a year, they’re working for 95% of pay.
The shutdown is expected to last far shorter than a year, therefore the penalty to both types of workers will be lower.