Costs of not paying food stamp benefits during the government shutdown
INSIGHT ARTICLE |
As the U.S. government shutdown moves through its fourth week, it is becoming increasingly likely that outlays to sufficiently fund food stamps, better known as the Supplemental Nutrition Assistance Program, will run out this month. Some 40 million individuals in 20 million low-income households will be cut off from support. The SNAP program serves all 50 states and the military. Currently, 23,000 military households receive SNAP assistance.
The impact on the broader economy would be profound, and the middle market will not be immune from the disruption. Should the shutdown extend to one year, our economic analysis of SNAP cessation suggests a direct loss of $60.6 billion and an indirect loss of $48.5 billion. Depending on one’s estimate of the multiplier, losses to GDP will vary from .53 percent (1.8 multiplier) to 1.03 percent (3.5 multiplier).
Participation in SNAP has been declining since the depths of the Great Recession as the economic recovery has taken hold (see Figure 1), and as more households have been able to rejoin the labor force. However, a look at the data demonstrates that even amid a near decade-long economic expansion, the number of individuals on SNAP assistance has not declined to pre-recession levels. While there are roughly 40 million individuals on assistance, that number stands well above the 20-year average of 34 million, and just below the cyclical average of 43 million. The potential impact on roughly 14 percent of the U.S. population should make shutting down the government untenable.
As you would expect, with less than 4 percent of the labor force currently unemployed—which is well below the 4.6 percent level that we consider to be the natural level of unemployment—, participation in the SNAP program is falling at a yearly pace of 9 percent, according to the latest month’s data from the U.S. Department of Agriculture (see Figure 2).
While the states with the highest proportion of the population dependent on food stamps (15 percent or more) are predominantly in the South (see Figure 3), according to analysis by the Center on Budget and Policy Priorities (CBPP), the states with the most participants are those with large populations (see Figure 4). This essentially points to serious economic pain across the GOP electoral heartland should an agreement to reopen the government not be reached soon.
MIDDLE MARKET INSIGHT: Retailers and other businesses employing workers utilizing the SNAP program should be aware of potential labor disruptions resulting from instability caused by the program’s cessation.
Economic cost of not funding SNAP
The economic cost of not funding SNAP can be divided into direct and indirect losses. Assuming that households spend all of their SNAP benefits available to them, and that they will be unable to find additional funds to pay for those food expenses, the loss of SNAP spending by households implies a direct yearly loss to GDP of $60.6 billion. For example, if one estimates that every dollar of SNAP spending generates $1.80 of further spending by the rest of the economy (according to estimates by the CBPP), there will be knock-on losses of an additional $42.4 billion for a total loss of about $103 billion, or 0.53 percent of GDP, over one year. Because the political authority is talking about the shutdown lasting months or even years, we think that this baseline estimate should begin to incorporate that into official growth and employment estimates going forward.
Furthermore, the loss of SNAP benefits is not likely to have a one-off impact on GDP growth. Like the effects of a lost day of work, a lost meal can never be recovered or made up for by two meals next month when benefits resume. And, like long-term unemployment, the indirect effects of hunger have far-reaching consequences that will lead to generational diminishment of the quality of the labor force.